Note Purchase Agreement

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This Note Purchase Agreement allows a company to raise capital by borrowing from investors with whom a promissory note will be given. This agreement sets out all terms including any collateral given.

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This Note Purchase Agreement allows a company to raise immediate capital by “borrowing” funds from investors. The Company will enter into a corresponding Promissory Note with the investors, agreeing to repay the principal of the Note upon demand or on a certain date. In exchange, the investors will receive interest as well as warrants (a derivative security that will give the investors the right to purchase equity in the company in the future at a fixed price).

This agreement sets forth the principal amount of the notes available for sale, how the securities will be issued and closing procedures and date of closing. It also sets forth detailed terms and conditions regarding the notes, including rate of interest, collateral on which the notes are secured and repayment terms.

This Note Purchase Agreement contains the following:
  • Parties: Sets forth the name of the company and the investors who desire purchase securities of the company. (The investors' identities are included on an exhibit attached to this agreement);
  • Authorization: Sets out the principal aggregate amount of any notes and warrants to purchase a certain number of shares of common stock. Notes will then be offered to the investors in an aggregate amount;
  • Closing Date/Procedures: Sets out the specific closing date and that the investors will be delivered notes as set forth on the Schedule of Investors and Warrants;
  • Events of Default: Sets out numerous events under which default occurs and the remedies to cure these defaults;
  • Financial Information: Company has furnished financial statements to the investors which are certified by the company's public accountants;
  • Minimum Investment: Sets out the minimum investment each investor has tendered for purchase of the notes;
  • Signature: A representative of the company and the investor must sign this agreement in front of a notary public.

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  3. Note Purchase Agreement
State Law Compliance: This form complies with the laws of all states
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Note Purchase Agreement

 

 
 
This Note Purchase Agreement (this "Agreement") is made as of the ______, by and between ______ (the "Company"), a[n] ______ corporation, with its principal office located at ______, ______, ______  ______, and each of the entities and/or persons listed on the "Schedule of Investors" attached hereto (hereinafter collectively referred to as the "Investors" and each, individually, as an "Investor").
 
Recitals
 
WHEREAS, the Company wishes to sell, and the Investors desire to purchase, the securities of the Company described herein on the terms and conditions set forth in this agreement.
 
In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:
 
1.   Authorization and Sale of Securities and Closing Procedures
 
1.1   Authorization
 
The Company will, prior to the Closing (as defined below), authorize the sale and issuance of (a) up to $______ in aggregate principal amount of its ______ (the "Notes"), including promissory notes sold hereunder and promissory notes available for sale at any of the Subsequent Closings (as defined below) and (b) warrants to purchase up to ______ shares of its Common Stock (the "Warrants").  The Notes and Warrants to be sold and issued to the Investors hereunder shall be in the forms attached to this Agreement as Exhibits ______ and ______.
 
1.2   Issuance and Sale
 
(a)   Subject to the terms and conditions hereof, at the Closing the Company will issue and sell to the Investors, and the Investors will buy from the Company, Notes in the principal amount specified opposite each Investor's name on the Schedule of Investors for a cash purchase price equal to the principal amount of the Notes to be purchased by such Investor, and the Warrants covering the number of shares of the Company's Common Stock (the "Warrant Shares") specified opposite each Investor's name on the Schedule of Investors at a cash purchase price of $______ per Warrant Share for which each Warrant is exercisable.  The Company's agreements with each of the Investors are separate agreements, and the sales of the Notes and the Warrants to each of the Investors are separate sales.
 
(b)   The Company proposes to offer additional Notes to holders of the Company's outstanding capital stock who satisfy certain suitability requirements of federal and state securities laws, provided that the aggregate principal amount of all Notes sold and issued by the Company pursuant to paragraph 1.2(a) or this paragraph 1.2(b) shall not exceed $______.  Any such sales of additional Notes shall be made at one or more additional closings (the "Subsequent Closings") which may occur on or before the date that is [spelled number of days] (______) days after the Closing pursuant to appropriate addendums to this Agreement at a price equal to the principal amount of such Notes.  The Investors consent to such sales and the Company and the Investors agree that the purchasers of such additional Notes shall be deemed to be "Investors" and such Notes shall be deemed "Notes" for purposes of this Agreement.  Investors purchasing Notes at any of the Subsequent Closings shall not be entitled to receive Warrants.
 
1.3   Closing Date
 
The closing for (1) the purchase, sale and issuance of the Notes being purchased by the Investors hereunder, and (2) the purchase, sale and issuance of the Warrants being purchased by the Investors hereunder (the "Closing ") shall be held at ______, at ______ on ______ or at such other time and place as the Company and a majority in interest of the Investors mutually agree upon (the "Closing Date").
 
1.4   Closing Procedures
 
At the Closing, the Company will deliver to each of the Investors a Note in the principal amount set forth such Investor's name on the Schedule of Investors and the Warrants to be purchased by each Investor at the Closing, as set forth in the Schedule of Investors, against payment of the purchase price therefor by a certified or cashier's check (or wire transfer of funds or cancellation of indebtedness) in the amount specified in the Schedule of Investors and payable to the order of the Company.
 
2.   Terms and Conditions of Notes
 
The following description of the terms and conditions of the Notes in this Section 2 is subject in its entirety to the actual terms and conditions set forth in the Notes attached hereto as Exhibit ______ which shall govern in the event of any conflict with the description set forth below.
 
2.1   Interest
 
Interest shall accrue on the Notes from the date of the issuance thereof at a rate equal to the greater of ______% per annum or the rate necessary to avoid imputation of interest; provided, however, that the interest rate shall not exceed the maximum interest rate allowed by law from time to time.
 
2.2   Security Interest
 
The performance of the Company's obligations under the Notes shall be secured by a first lien on the Collateral (as defined below) as evidenced by a Security Agreement attached hereto as Exhibit ______ (the "Security Agreement").  The term "Collateral" as used in this Agreement and in the Security Agreement means and includes all assets of the Company, now or hereafter acquired by the Company, and the proceeds thereof including but not limited to proceeds of insurance covering the Collateral and any and all accounts receivable, inventory, equipment, money, goods, chattel paper, deposit accounts or other tangible and intangible property of the Company, together with the products and proceeds thereof.  The Company hereby grants to each of the Investors, on a pari passu basis amongst the Investors, a security interest in the Collateral to secure the payment of the Notes and the performance by the Company of each and all of its obligations under this Agreement and the Notes; provided, however, that such security interest shall be subordinated, to the extent provided herein, to any security interest in the Collateral that may be granted with respect to the Senior Indebtedness (as defined below).
 
2.3   Repayment
 
The principal amount of the Notes and all accrued interest thereon shall be due and payable upon the earlier of (1) written demand by the Investors representing ______% of the then outstanding principal amount of the Notes, or (2) ______.  The Company may prepay any principal or interest under the Notes without penalty.  Any prepayment shall be made to each holder of the Notes on a prorata basis as nearly as practicable to the proportion of the principal amount of the outstanding Notes held by such holder.  All payments hereunder by the Company shall be made in lawful money of the United States of America to the Investors at their respective addresses set forth on the Schedule of Investors by bank check or wire transfer on or before 12:00 Noon on the due date.  All computations of interest under this Agreement and the Notes shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed.
 
2.4   Events of Default
 
Upon occurrence of any of the following events, Investors who hold more than ______% of the then outstanding aggregate principal amount of the Notes, may, by written notice delivered to the Company prior to the date that such event shall have ceased to exist, declare such event to be an Event of Default and shall thereby, without limiting other remedies available to the Investors at law, in equity or otherwise, make all sums of interest and principal remaining on the Notes and all other sums outstanding under or in respect of this Agreement or the Notes immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, notice of intent to accelerate, notice of acceleration, or other notices or demands of any kind or character, except as hereinafter specified:
 
(a)   The Company shall fail to pay, within [spelled number of days] (______) banking days (i.e., a day upon which a bank is open for business in the State of ______ after the date when due, any payment of interest or principal or any other sum due under this Agreement or the Notes in accordance with the terms thereof;
 
(b)   The Company shall be in default with respect to any Senior Indebtedness (as defined below) and such default shall have continued for a period of [spelled number of days] (______) consecutive days or more;
 
(c)   The Company shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors, or an involuntary petition shall be filed under any bankruptcy statute against the Company, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) shall be appointed to take possession, custody or control of the properties of the Company; or
 
(d)   The Company shall breach any other covenant as set forth in the Notes and shall not cure such breach within the time period specified in the Notes.
 
Until the full and final payment of all indebtedness under the Notes incurred hereunder, the Company covenants and agrees that if, to the Company's knowledge, any Event of Default described in this paragraph 2.4 (or any event which, upon a lapse of time or notice or both, would become an Event of Default) has occurred, or if the Company receives written notice from the holder of any Senior Indebtedness of the Company of any claimed default thereunder by the Company, the Company agrees to mail notice to each Investor within [spelled number of days] (______) business days after the date it became aware of such Event of Default or the date it received such written notice, unless Investors holding more than ______% of the then outstanding aggregate principal amount of the Notes waive compliance in writing.
 
2.5   Subordination
 
The indebtedness evidenced by the Notes (and the security interest in the Collateral granted to the Investors as described above) shall be subordinate, to the extent more fully set forth in the Notes, to the principal of (and premium, if any) and unpaid interest on, (a) indebtedness of the Company or with respect to which the Company is a guarantor, whether outstanding on the date hereof or hereafter created, to banks, insurance companies or other financial institutions, regularly engaged in the business of lending money, which is for money borrowed by the Company or a subsidiary of the Company, whether or not secured, and (b) any deferrals, renewals or extensions of any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such indebtedness (collectively, the "Senior Indebtedness").
 
3.   Company Representations and Warranties
 
Subject to and except as disclosed by the Company in Exhibit ______ to this Agreement, the Company represents and warrants to each Investor that:
 
3.1   Organization and Standing
 
(a)   The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of ______ and has the requisite corporate power and authority to own, lease and operate its properties and to transact it business as presently conducted and as proposed to be conducted.
 
(b)   The Company is duly qualified to do business and is in good standing in each place and jurisdiction where the nature of the business conducted by it or the ownership, lease or operation of its properties requires qualification, provided, however, that the Company need not be qualified in a jurisdiction in which its failure to qualify would not have a material adverse effect on its operations or financial condition.
 
(c)   The Company has delivered to special counsel for the Investors (1) copies of the Articles of Incorporation and Bylaws of the Company, as amended, and (2) the minute books of the Company containing all records required to be set forth of all proceedings, consents, actions and meetings of the shareholders and board of directors of the Company.  Said copies and minute books are true, correct and complete and contain all amendments and required records through the date hereof, and will be true, correct and complete on the Closing Date.
 
3.2   Capitalization
 
(a)   The authorized capital of the Company consists of  (1) ______ shares of Preferred Stock, of which ______ shares have been designated as shares of Series A Preferred Stock, and (2) ______ shares of Common Stock.  The rights, privileges, and preferences of the Series A Preferred Stock are as set forth in the Restated Articles.
 
(b)   As of ______, ______ shares of Series A Preferred Stock were validly issued and outstanding, fully paid, and non-assessable, and were issued in compliance with all applicable state and federal securities laws.  As of ______, ______ shares of Common Stock were validly issued and outstanding, fully paid, and non-assessable, and were issued in compliance with all applicable state and federal securities laws.  The consideration paid for the outstanding Common Stock was cash and has been paid in full.
 
(c)   As of ______, there were outstanding options and warrants to acquire an aggregate of ______ shares of Common Stock.  All the shares of the Company's Common Stock which are to be issued pursuant to the exercise of options or warrants will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereto.  The Company has reserved (or will reserve prior to the Closing) a total of ______ shares of Common Stock as follows: (1) ______ shares of Common Stock for issuance upon conversion of the outstanding Series A Preferred Stock, (2) ______ shares of Common Stock for issuance upon exercise of warrants issued to the existing shareholders, (3) ______ shares of Common Stock for issuance upon exercise of currently outstanding options granted by the Company pursuant to its Option Plan, (4) not more than ______ shares of Common Stock for issuance to employees, directors, officers and consultants of the Company pursuant to stock purchases or stock options approved, or to be approved, by the Company's Board of Directors (the "Board of Directors"), excluding for purposes of calculating such shares, shares issued upon exercise of options outstanding on the date hereof; and (5) ______ shares of Common Stock for issuance upon exercise of the Warrants to be issued to the Investors.  Except as set forth above and in the right of first refusal set forth in the Investors' Rights Agreement in the form attached hereto as Exhibit ______ to be entered into at the Closing (the "Investors' Rights Agreement"), there are no preemptive or other outstanding rights, subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities, conversion rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock or other securities of the Company.
 
(d)   The Company has previously delivered to special counsel for the Investors copies of each stock option plan, stock purchase agreement and stock option agreement of the Company under which Common Stock (or options to purchase Common Stock) and other outstanding securities of the Company have been or may be issued.
 
(e)   Attached hereto as Exhibit ______ is an accurate list of the holders of the Company's outstanding Common Stock (and options to purchase Common Stock) and other outstanding securities of the Company as of the date of this agreement and as of the Closing Date, which list accurately reflects employees, directors, officers, consultants and other shareholders of the Company who hold Common Stock (and options to purchase Common Stock) and other outstanding securities of the Company and the shares of Common Stock which are subject to an option to repurchase pursuant to the various stock purchase plans and agreements under which they were issued.
 
3.3   Subsidiaries
 
The Company does not presently own or control, directly or indirectly, and has no stock or other interest as owner or principal in, any other corporation or partnership, joint venture, association or other business venture or entity.
 
3.4   Authorization
 
(a)   The Company has all the requisite legal and corporate power to execute and deliver this Agreement and any other agreement referred to herein (the "Ancillary Agreements"), to sell and issue the Notes, Warrants, and Warrant Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and any other Ancillary Agreements.
 
(b)   All corporate action on the part of the Company and its officers, directors, and shareholders, that is necessary for the authorization, execution, delivery, and performance of all of the obligations of the Company under this Agreement and any other Ancillary Agreements, and for the authorization, issuance, and delivery of the Notes and Warrants being sold under this Agreement (and the Warrant Shares issuable upon exercise of the Warrants) has been (or will be) taken prior to the Closing.
 
(c)   This Agreement and the other Ancillary Agreements have each been duly executed and delivered by the Company and, assuming due execution and delivery by all other parties thereto, are each a valid and legally binding obligation of the Company, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors' rights, and except to the extent that the enforceability of the indemnification provisions in Section ______ of the Investors' Rights Agreement may be limited by applicable laws.
 
3.5   Validity of Securities
 
The Notes and Warrants to be purchased and sold pursuant to this Agreement, when issued, sold, and delivered in accordance with the terms of this Agreement, shall constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms.  The Warrant Shares issuable upon exercise of the Warrants has been (or, prior to the Closing will be) duly and validly reserved and, upon issuance against payment therefor in accordance with the provisions of the Warrants, shall be duly and validly issued, fully paid, and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Notes, Warrants, and Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein.
 
3.6   Absence of Conflicting Agreements
 
Neither the execution and delivery of this Agreement or any of the Ancillary Agreements by the Company, the consummation by the Company of the transactions contemplated hereby, nor compliance by the Company with any provisions contained herein or in any of the Ancillary Agreements will (a) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of the Company; (b) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any indenture, mortgage, note, lien, license, government registration, contract, lease, agreement or other instrument or obligation to which the Company is a party or by which the Company or any of its assets may be bound, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; or (c) violate any order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation applicable to the Company or any of its assets.
 
3.7   Disclosures
 
The Company has previously delivered its Confidential Business Plan, dated ______ (the "Business Plan"), to each of the Investors.  The Business Plan has been prepared by the Company's management in a good faith effort to describe the Company's present and proposed products, operations, and projected growth.  Neither the Business Plan, the Financial Statements (as defined below), the Schedule of Exceptions, nor any representation or warranty by the Company contained in this Agreement, nor any other statement, certificate or memorandum furnished or to be furnished to the Investors pursuant hereto or in connection with the transactions contemplated hereby by the Company (or on the Company's behalf), when read together, contains or will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made herein or therein, in light of the circumstances under which made, not misleading.  There is no fact known to the Company which adversely affects, or in the future may (so far as the Company can now foresee) adversely affect, the condition, assets, liabilities, business, operations or prospects of its business that has not been set forth herein or heretofore communicated by the Company to the Investors in writing pursuant hereto.  To the best knowledge of the Company, the assumptions used in preparing the Business Plan are materially correct; however, no warranty or representation is given as to the opinions, forecasts or other nonfactual matters contained in the Business Plan.
 
3.8   Governmental Consents
 
No consent, waiver, approval, authorization or permit of, or designation, declaration or filing with or notification to, any governmental or regulatory authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, the offer, sale or issuance of the Notes, Warrants, and the Warrant Shares, or the consummation of any other transaction contemplated by this agreement, except (a) the qualification, if required, of the Notes, Warrants, and the Warrant Shares under applicable state securities laws, which qualification has been effected, and (b) certain routine securities filings required to be made subsequent to the Closing.
 
3.9   Exempt Offering
 
(a)   Based in part on the representations of the Investors set forth in Section 4 hereof and in written responses to the Company's inquiries, the offer, sale and issuance of the Notes, Warrants, and Warrant Shares in conformity with the terms of this agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
 
(b)   The Company has delivered to special counsel for the Investors a list of persons other than the Investors to whom the Notes and Warrants or any similar securities of the Company were offered by the Company or any of its agents.
 
3.10   Brokerage or Finder's Fees
 
There are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this agreement based on any arrangement or agreement made by or on behalf of the Company.  The Company agrees to indemnify and hold the Investors harmless against any liability, settlement or expense arising out of, or in connection with, any such claim.
 
3.11   Financial Information
 
(a)   The Company has furnished the following financial statements to the Investors:  (1) the financial statements of the Company for ______, and for the fiscal years ended on those dates, certified by ______, the Company's independent public accountants, and (2) the balance sheet of the Company at ______ and statements of profit and loss and changes in shareholder equity for the [spelled number of months] (______) months ended on that date prepared by ______ (collectively the "Unaudited Financial Statements") (all of the foregoing financial statements are collectively referred to herein as the "Financial Statements").
 
(b)   The Financial Statements, including the notes thereto, (1) are true, complete and correct in all material respects, (2) have been prepared in conformity with generally accepted accounting principles consistently maintained and applied throughout the periods indicated (except as disclosed therein), (3) present fairly and accurately the financial position of the Company's business at the respective dates of the balance sheets included in the Financial Statements, and the results of operations of the Company's business for the respective periods indicated, provided, however, that the Unaudited Financial Statements are subject to yearend adjustments, which in any event, to the knowledge of the Company, will not be materially adverse and do not contain all footnotes required under generally accepted accounting principles, (4) are in accordance with the books and records of the Company regarding its business, and (5) do not omit to state or reflect any material fact concerning the Company's business required to be stated or reflected therein or necessary to make the statements made therein not misleading in light of the circumstances in which made.
 
(c)   The Company's backlog of orders as of the date of the Unaudited Financial Statements is set forth on Exhibit ______.
 
(d)   The records and customer lists of the Company relating to its business are in all respects complete and correct, have been maintained in accordance with good business practices and the matters contained therein are accurately reflected, to the extent appropriate, on the Financial Statements.
 
3.12   Absence of Undisclosed Liabilities
 
As of ______, the Company had no liabilities or obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise) other than as disclosed on the consolidated balance sheet (and notes thereto) contained in the Unaudited Financial Statements.  Except as set forth on Exhibit ______, since the date of the Unaudited Financial Statements, the Company has not incurred any liabilities or obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise) except for ______ liabilities incurred in the ordinary course of business consistent with past practice.
 
3.13   Outstanding Indebtedness
 
The Company does not have any indebtedness incurred as the result of a direct borrowing of money, including, but not limited to, indebtedness with respect to trade accounts ("Borrowed Indebtedness").  The Company is not in default in the payment of the principal of or interest or premium on any such indebtedness, and no event has occurred or is continuing under the provisions of any instrument, document or agreement evidencing or relating to any such indebtedness which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder.
 
3.14   Absence of Changes
 
To the best of the Company's knowledge, since the date of the Unaudited Financial Statements, there has not been any event or condition of any type that has materially and adversely affected the Company's business, prospects, condition, affairs, operations, properties, or assets.
 
3.15   Tax Matters
 
The Company has accurately and completely prepared and timely filed all United States income tax returns and all state and municipal tax returns that are required to be filed by it and has paid or made provision for the payment of all taxes that have become due pursuant to such returns.  The United States income tax returns of the Company have not been audited by the Internal Revenue Service.  No deficiency assessment or proposed adjustment of the Company's United States income tax or state or municipal taxes is pending and, to the best knowledge of the Company, there is no liability as of the date hereof for any tax for which there is not an adequate reserve reflected in the Financial Statements.
 
3.16   Transactions With Principals
 
No employee, shareholder, officer or director of the Company is indebted to the Company in an amount in excess of $______, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them in an amount in excess of $______.  To the best of the Company's knowledge, no employee, shareholder, officer or director of the Company, member of the immediate family of any such person, nor any corporation, partnership or other business in which any such person or a member of such person's immediate family has a material interest, is a party to any transaction, agreement or understanding to which the Company is also a party or bound and does not have any material interest in any person with whom the Company does or intends to do business.  The Company previously has furnished special counsel to the Investors a copy of each agreement, instrument or other writing constituting legal rights and obligations to which both the Company and any of the persons referred to in the previous sentence are a party.
 
3.17   Voting Agreements
 
Except as set forth in the Voting Agreement in the form attached hereto as Exhibit ______, the Company has no agreement, obligation or commitment with respect to the election of any individual or individuals to the Board of Directors, and to the best of the Company's knowledge, there is no voting agreement or other arrangement among its shareholders with respect to the election of any individual or individuals to the Board of Directors.
 
3.18   Title to Property and Assets
 
Except as reflected in the Financial Statements, the Company has good and marketable title to all its property and assets and good and valid interest as lessee in all properties held under lease, subject to no mortgage, option, lease, covenant, condition, agreement, lien, security interest, adverse claim, restriction, charge, encumbrances or right of others, other than (1) the lien of current taxes not yet due and payable, and (2) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business.  There are no restrictions or reservations affecting the Company's title to, or the utility of, the Company's assets which would prevent the Company from occupying, utilizing or transferring its assets, or any portion thereof.
 
3.19   Intellectual Property Rights
 
The Company owns or possesses, has access to, or can become licensed on reasonable terms under all patents, inventions, trademarks, trade names, copyrights, licenses, information, proprietary rights, trade secrets, and processes (collectively, "Intellectual Property Rights") necessary for the lawful conduct of its business as now conducted and as proposed to be conducted.  There are no pending or threatened claims against the Company alleging that the conduct of the Company's business infringes or conflicts with the Intellectual Property Rights of any other party, and the business of the Company as now conducted and as proposed to be conducted will not infringe or conflict with the Intellectual Property Rights of any other party.  The Company has taken reasonable precautions to fully protect its Intellectual Property Rights, including, without limitation, registrations required in the business judgment of the Company under applicable copyright and patent laws.  All technical employees, other key employees and officers of the Company have signed nondisclosure and assignment of inventions agreements with the Company in substantially the form previously delivered to special counsel to the Investors.
 
3.20   Insurance
 
The Company has fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed, has a products liability insurance policy with limits as specified on Exhibit ______, and currently has in effect keyman insurance on the lives of the persons, and in the amounts as set forth on Exhibit ______ attached hereto with proceeds payable to the Company.  The Company has heretofore delivered to special counsel for the Investors true, complete and correct copies of all such policies.
 
3.21   Material Contracts
 
(a)   Except as set forth on Schedule ______, the Company does not have any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (a) contracts for the purchase of supplies and services that were entered into in the ordinary and usual course of business and that do not involve more than $______, and do not extend for more than [spelled number of months] (______) months beyond the date hereof, (b) sales contracts entered into in the ordinary course of business, and (c) contracts terminable at will by the Company on no more than [spelled number of days] (______) days' notice without cost or liability to the Company (the contracts listed on Schedule ______ are referred to herein as the "Contracts").  True and complete copies of all written Contracts and written summaries of all oral Contracts have been furnished to special counsel for the Investors.
 
(b)   Each of the Contracts is valid, binding and enforceable against the Company and each other party thereto in accordance with its terms without any defenses, setoffs, counterclaims or disputes of any nature and is in full force and effect.  The Company has not received notice nor does it have knowledge that any party to any contract, agreement, lease, or other commitment with it, is considering or intends to cancel, terminate, or make a material modification in any such contract, agreement, lease, or other commitment, or to exercise or not exercise any option under any Contract.  The Company has not waived any right under any Contract, nor is the Company subject to, or a party to, any charter, bylaw, mortgage, lien, lease, agreement, contract, or instrument which adversely affects the business practices, operations or condition of its business or of any of its assets.
 
3.22   Compliance With Other Instruments
 
The Company is not in violation of any term of its Articles of Incorporation or Bylaws, each as amended and in effect on and as of the Closing, or, in any material respect, of any term contained in any instrument or contract to which it is a party, the damages arising from which would have a liquidated value exceeding $______, and, to the best of its knowledge, is not in violation of any federal or state judgment, writ, decree, order, statute, rule, or governmental regulation applicable to the Company.  No event or failure of performance has occurred which, with the passage of time or the giving of notice or both, would constitute such a violation, and the Company is not aware of any claim of any such default having been made against the Company with respect to any Contract.  There is no such violation, nor any such default, which materially and adversely affects the business of the Company as presently conducted or as proposed to be conducted or any of its property or assets.  To the best of the Company's knowledge, no other party is in material default of any such instrument or contract, and the Company is not aware of any event which, upon the passage of time or the giving of notice, or both, could constitute an event of default by any other party to any such Contract or could cause the acceleration of any obligation of any other party thereto.
 
3.23   Litigation
 
There is no pending or currently threatened claim or action, suit, arbitration, proceeding or investigation before any court, arbitrator or government commission or agency against the Company or against any other person or entity (a) which questions or would affect the validity or enforceability of this Agreement, the Ancillary Agreements, or the further documents, instruments or agreements referred to or provided for herein or the Company's right to enter into the same or to consummate transactions contemplated hereby, (b) which might reasonably be expected to have an adverse effect on the Company's assets or its business, (c) which may affect the Company's ability to conduct its business as presently conducted or as proposed to be conducted, or (d) which might result in any change in the business, assets, condition, affairs, operations, properties or prospects of the Company, financially or otherwise; nor is the Company aware that there is any basis for any of the foregoing.  The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees or consultants, their use in connection with the business of the Company of any information or techniques allegedly proprietary to any of their former employers or clients, or their obligations under any agreements with prior employers or clients.  The Company is not subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality.  There is no litigation against any third party by the Company involving its business.  The Company has furnished or made available to Investors' special counsel copies of all relevant court papers and documents relating to the matters described in this Section.
 
3.24   Employee Matters
 
The Company has no employment contract with any officer or employee or any other consultant or person which is not terminable by it at will without liability, except as the Company's right to terminate its employees at will may be limited by applicable ______ law.  Other than the stock and bonus plans specifically described in Section 3.2(c), a copy of which has previously been furnished to special counsel to the Investors, the Company has no deferred compensation, pension, health, profit sharing, bonus, stock purchase, stock option, hospitalization, insurance, severance, or any other employee benefit or welfare benefit plan or obligation covering any of its officers or employees, nor is any benefit plan of the Company subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.  No employee or consultant to the Company is receiving compensation from the Company at a rate in excess of $______ per annum.  There are no controversies or labor trouble or union organization activities pending or, to the knowledge of the Company, threatened, between it and its employees.  None of the Company's employees belongs to any union or collective bargaining unit.  The Company has complied with all applicable state and federal equal employment opportunity and other laws relating to employment.
 
3.25   Conflicting Employment Agreements
 
To the best of the Company's knowledge, no employee of the Company is, or will be in connection with the proposed operations of the Company, in violation of any term of any employment contract, proprietary information and inventions agreement, or any other contract or agreement relating to the relationship of any such employee with the Company or any previous employer.  Aside from the assignment of inventions and proprietary information agreements referred to in Section 3.19, to the best of the Company's knowledge, no employee of the Company is subject to any secrecy or noncompetition agreement or any agreement or restriction of any kind that would impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of the Company.
 
3.26   Compliance
 
The Company has (a) complied in all material respects with all Federal, state, local and foreign laws, ordinances, regulations and orders applicable to it, its business or the ownership of its assets, and (b) obtained all Federal, state, local and foreign governmental franchises, licenses and permits material to and necessary in the conduct of its business, such franchises, licenses and permits are in full force and effect, no violations have been recorded in respect of any such franchises, licenses or permits, and no proceeding is pending or threatened to revoke or limit any thereof.  The Company is not subject to, or party to, any license, permit, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind of character, which adversely affects the business practices, operations or condition of its business or of any of its assets.
 
4.   Investors' Representations and Warranties
 
Each Investor hereby represents and warrants to the Company with respect to the sale and issuance of the Notes, Warrants, and Warrant Shares (collectively, the "Securities") as follows:
 
4.1   Purchase for Own Account
 
Each Investor represents that it is acquiring the Securities solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of said Securities or any part thereof, has no present intention of selling, granting participation in or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.
 
4.2   Information
 
Each Investor acknowledges that it has received and carefully reviewed the Company's Business Plan (including, without limitation, the risk factors set forth therein), Financial Statements and the Term Sheet for this transaction supplied to each Investor, and, in addition, has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to purchase the Securities.  The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement.  Each Investor represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Securities and the Company's business, management and financial affairs and to obtain any additional information necessary to verify the accuracy of the information given the Investor.  Each Investor agrees to hold in confidence any confidential information provided to it in writing by the Company in connection with the offer and sale of the Securities hereunder.
 
4.3   Investment Experience
 
Each Investor represents that it either (1) (either individually or in conjunction with any investor representative engaged by it who experienced in the matters referred to in this sentence) is experienced in evaluating ______ companies such as the Company, is able to fend for itself in the transactions contemplated by this Agreement, and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment or (2) is an "accredited investor" as that term is defined and used in Rules 501 through 506 of Regulation D promulgated under the Securities Act of 1933 and is correctly identified as such on the Schedule of Investors attached hereto.
 
4.4   Ability To Bear Economic Risk
 
Each Investor acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on its investment.
 
4.5   Restricted Securities and Limitation on Disposition
 
(a)   Each Investor understands that the Securities it is purchasing are characterized as "Restricted Securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that under such laws and applicable regulations such Securities may be resold without registration under the Act only in certain limited sets of circumstances.  Each Investor acknowledges that, because they have not been registered under the Securities Act of 1933, the Shares (and the Common Stock into which the Shares are convertible) each Investor is purchasing must be held indefinitely unless subsequently registered under the Securities Act of 1933 or an exemption from such registration is available.  Each Investor is aware of the provisions of Rule 144 promulgated under the Securities Act of 1933 which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any threemonth period not exceeding specified limitations (unless the sale is within the requirements of Rule 144(k)).  In this connection, each Investor represents that it has received a copy of SEC Rule 144, as presently in effect, and has read and understands the information contained in Rule 144.  Each Investor understands that except as set forth in the Investors' Rights Agreement the Company will be under no obligation to make public the information necessary for the investors to obtain the benefits of Rule 144.
 
(b)   Without limiting the foregoing, each Investor agrees that it will in no event make any disposition of the Securities unless and until:
 
(1)   The Company shall have received a letter secured by the Investor from the SEC stating that no action will be recommended to such Commission with respect to the proposed disposition; or
 
(2)   There is then in effect a registration statement under the Securities Act of 1933, as amended, covering such proposed disposition and such disposition is made in accordance with said registration statement; or
 
(3)   The Investor shall have notified the Company of the detailed circumstances of the proposed disposition and, if the Company so requests, shall have provided the Company with an opinion of counsel for the Investor to the effect that such disposition will not require registration of such Securities under the Act, which opinion of counsel for the Investor shall be in form and substance reasonably satisfactory to the Company's counsel and the Company shall have advised the Investor of such satisfaction; provided, however, that no such opinion need be supplied in connection with a distribution in kind by an Investor that is a partnership to its partners (or former or retired partners or the estates thereof), provided that such persons agree to be subject to the terms of this Agreement to the same extent as if they themselves originally purchased the Securities hereunder.
 
(c)   Each Investor understands that the Company's transfer records will be noted to reflect the restrictions on transferability of the Securities contained herein.
 
4.6   Legends
 
It is understood that the evidences of the Securities may bear one or all of the following legends (in substantially the form set forth below):
 
(a)   "These securities have not been registered under the Securities Act of 1933.  They may not be sold, offered for sale, pledged, or hypothecated in the absence of an effective registration statement as to the securities under said Act or an opinion of counsel satisfactory to the Company that such registration is not required, or except as set forth in the Note Purchase Agreement, dated as of ______ between the Company and the original purchaser thereof, a copy of which agreement is available upon request from the Company."
 
(b)   Any legend relating to the right of first refusal contained in the Company's Bylaws.
 
(c)   Any other legend required by applicable state securities laws.
 
4.7   Authorization
 
Each Investor represents and warrants that this Agreement and the Ancillary Agreements, when executed and delivered by it, each will constitute a valid and legally binding obligation of such Investor enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors' rights, except to the extent that the enforceability of the indemnification provisions in Section ______ of the Investors' Rights Agreement may be limited by applicable laws.
 
*[4.8   Qualification of Securities Under Blue Sky Laws
 
The sale of the securities that is the subject of this Agreement has not been qualified with the Secretary of State and the issuance of such securities, or the payment or receipt of any part of the consideration for such securities prior to such qualification or in the absence of an exemption from such qualification is unlawful.  The rights of all parties to this Agreement are expressly conditioned on such qualification being obtained, or an exemption from such qualification being available.]*
 
5.   Investors' Closing Conditions
 
The Investors' obligations to purchase the Notes and Warrants at the Closing are subject to the fulfillment on or prior to the Closing Date of all of the conditions set forth below in this Section:
 
5.1   Representations and Warranties Correct
 
The representations and warranties made in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date.
 
5.2   Covenants
 
All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all respects.
 
5.3   Governmental Consents
 
All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Notes, Warrants, and Warrant Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing.
 
 
 
 
5.4   Opinion of Company's Counsel
 
At the Closing the Investors shall have received from ______, counsel to the Company, and ______, special counsel to the Company, favorable opinions addressed to them, dated the Closing Date, in the forms attached hereto as Exhibits ______ and ______, respectively.
 
5.5   Execution and Delivery of Ancillary Agreements
 
The Company, the Investors, and all other parties thereto shall have executed and delivered each of the Ancillary Agreements substantially in the forms attached hereto.
 
5.6   Compliance Certificate
 
The Company shall have delivered to the Investors a certificate, executed by the President of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.3 of this Agreement.
 
6.   Company's Closing Conditions
 
The Company's obligation to sell the Notes and Warrants to the Investors at the Closing is subject to the fulfillment of the following conditions:
 
6.1   Representations Correct
 
The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date.
 
6.2   Covenants
 
All covenants, agreements and conditions contained in this Agreement to be performed by the Investors on or prior to the Closing Date shall have been performed or complied with in all respects.
 
6.3   Governmental Consents
 
All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Notes, Warrants, and Warrant Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing.
 
6.4   Minimum Investment
 
The Investors shall have tendered, in the aggregate, at the Closing consideration of not less than $______ for purchase of the Notes.
 
 
 
7.   Miscellaneous
 
7.1   Governing Law
 
This agreement shall be governed by and construed in accordance with the laws of the State of ______ applicable to contracts between ______ entered into and to be performed entirely within the State of ______.
 
7.2   Survival
 
The representations, warranties, covenants and agreements made by the parties herein shall survive any investigation made by any Investor or the Company and shall survive the closing of the transactions contemplated hereby.
 
7.3   Indemnification
 
The Company agrees to indemnify and hold each of the Investors harmless from and against any and all liabilities, damages, losses, claims, demands, costs or expenses (including interest, penalties, reasonable attorneys' and accountants' fees and expenses, court costs and fees of expert witnesses) (all of the foregoing hereinafter collectively referred to as the "Claims") which the Investors shall suffer or incur, whether liquidated or unliquidated, accrued or contingent, connected with or arising out of any untruth or error in or breach or default of any representation, warranty or covenant contained in the Business Plan, the Financial Statements, the Schedule of Exceptions, this Agreement, or any other statement, certificate or memorandum furnished or to be furnished to the Investors pursuant hereto or in connection with the transactions contemplated hereby by the Company (or on the Company's behalf).
 
7.4   Confidentiality of Information
 
Each of the Investors and the Company each hereby acknowledge and confirm their respective obligations under the Information Receipt Agreement dated ______ by and between them.
 
7.5   Successors and Assigns
 
Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
 
7.6   Entire Agreement
 
Except for the matters referred to in the Information Receipt Agreement, this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
 
 
 
 
7.7   Amendments and Waivers
 
Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of Notes in aggregate principal amount equal to more than ______% of the then outstanding aggregate principal amount of the Notes.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Notes or securities purchased under this Agreement at the time outstanding (including securities into which such securities have been exercised), each future holder of all such Notes or securities, and the Company, provided, however, that no such amendment shall, without the consent of the holder adversely affected, (a) extend the time or times of payment of the principal at maturity of, or the interest on, any Note, or reduce the principal amount of, or the rate of interest on, any Note other than as provided in the Agreement, or (b) alter the provisions of any Note so as to receive the percentage of the aggregate principal amount of the Notes where vote or consent is required for any such amendment.
 
7.8   Rights of Investors
 
Each holder of the Notes shall have the absolute right to exercise or refrain from exercising any right or rights that such holder may have by reason of this Agreement or the Notes, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an Agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and such holder shall not incur any liability to any other holder or holders of the Notes with respect to exercising or refraining from exercising any such right or rights.
 
7.9   Exculpation Among Investors
 
Each Investor acknowledges that they are not relying upon any person, firm, or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company.  Each Investor agrees that no Investor nor the respective controlling person, officers directors, partners, agents, or employees of any Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Notes.
 
7.10   Notices
 
All notices and other communications required or permitted hereunder shall be in writing and shall be effective (if by mail) [spelled number of days] (______) days after mailed by firstclass mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to an Investor, at such Investor's address set forth in the Schedule of Investors, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Notes, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Notes who has so furnished an address to the Company, or (c) if to the Company, at such address as the Company shall have furnished to each Investor and each such other holder in writing.
 
7.11   Counterparts
 
This agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
 
The parties have executed this Agreement as of the date first written above.
 
COMPANY:
 
[Signature of Company]
[Notary for Company]
 
INVESTORS:
 
*{{[Signature of Investors]
[Notary for Investors]
}}*
 
Number of Pages24
DimensionsDesigned for Letter Size (8.5" x 11")
EditableYes (.doc, .wpd and .rtf)
UsageUnlimited number of prints
Product number#43635
This is the content of the form and is provided for your convenience. It is not necessarily what the actual form looks like and does not include the information, instructions and other materials that come with the form you would purchase. An actual sample can also be viewed by clicking on the "Sample Form" near the top left of this page.
 
 
Note Purchase Agreement

 

 
 
This Note Purchase Agreement (this "Agreement") is made as of the ______, by and between ______ (the "Company"), a[n] ______ corporation, with its principal office located at ______, ______, ______  ______, and each of the entities and/or persons listed on the "Schedule of Investors" attached hereto (hereinafter collectively referred to as the "Investors" and each, individually, as an "Investor").
 
Recitals
 
WHEREAS, the Company wishes to sell, and the Investors desire to purchase, the securities of the Company described herein on the terms and conditions set forth in this agreement.
 
In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:
 
1.   Authorization and Sale of Securities and Closing Procedures
 
1.1   Authorization
 
The Company will, prior to the Closing (as defined below), authorize the sale and issuance of (a) up to $______ in aggregate principal amount of its ______ (the "Notes"), including promissory notes sold hereunder and promissory notes available for sale at any of the Subsequent Closings (as defined below) and (b) warrants to purchase up to ______ shares of its Common Stock (the "Warrants").  The Notes and Warrants to be sold and issued to the Investors hereunder shall be in the forms attached to this Agreement as Exhibits ______ and ______.
 
1.2   Issuance and Sale
 
(a)   Subject to the terms and conditions hereof, at the Closing the Company will issue and sell to the Investors, and the Investors will buy from the Company, Notes in the principal amount specified opposite each Investor's name on the Schedule of Investors for a cash purchase price equal to the principal amount of the Notes to be purchased by such Investor, and the Warrants covering the number of shares of the Company's Common Stock (the "Warrant Shares") specified opposite each Investor's name on the Schedule of Investors at a cash purchase price of $______ per Warrant Share for which each Warrant is exercisable.  The Company's agreements with each of the Investors are separate agreements, and the sales of the Notes and the Warrants to each of the Investors are separate sales.
 
(b)   The Company proposes to offer additional Notes to holders of the Company's outstanding capital stock who satisfy certain suitability requirements of federal and state securities laws, provided that the aggregate principal amount of all Notes sold and issued by the Company pursuant to paragraph 1.2(a) or this paragraph 1.2(b) shall not exceed $______.  Any such sales of additional Notes shall be made at one or more additional closings (the "Subsequent Closings") which may occur on or before the date that is [spelled number of days] (______) days after the Closing pursuant to appropriate addendums to this Agreement at a price equal to the principal amount of such Notes.  The Investors consent to such sales and the Company and the Investors agree that the purchasers of such additional Notes shall be deemed to be "Investors" and such Notes shall be deemed "Notes" for purposes of this Agreement.  Investors purchasing Notes at any of the Subsequent Closings shall not be entitled to receive Warrants.
 
1.3   Closing Date
 
The closing for (1) the purchase, sale and issuance of the Notes being purchased by the Investors hereunder, and (2) the purchase, sale and issuance of the Warrants being purchased by the Investors hereunder (the "Closing ") shall be held at ______, at ______ on ______ or at such other time and place as the Company and a majority in interest of the Investors mutually agree upon (the "Closing Date").
 
1.4   Closing Procedures
 
At the Closing, the Company will deliver to each of the Investors a Note in the principal amount set forth such Investor's name on the Schedule of Investors and the Warrants to be purchased by each Investor at the Closing, as set forth in the Schedule of Investors, against payment of the purchase price therefor by a certified or cashier's check (or wire transfer of funds or cancellation of indebtedness) in the amount specified in the Schedule of Investors and payable to the order of the Company.
 
2.   Terms and Conditions of Notes
 
The following description of the terms and conditions of the Notes in this Section 2 is subject in its entirety to the actual terms and conditions set forth in the Notes attached hereto as Exhibit ______ which shall govern in the event of any conflict with the description set forth below.
 
2.1   Interest
 
Interest shall accrue on the Notes from the date of the issuance thereof at a rate equal to the greater of ______% per annum or the rate necessary to avoid imputation of interest; provided, however, that the interest rate shall not exceed the maximum interest rate allowed by law from time to time.
 
2.2   Security Interest
 
The performance of the Company's obligations under the Notes shall be secured by a first lien on the Collateral (as defined below) as evidenced by a Security Agreement attached hereto as Exhibit ______ (the "Security Agreement").  The term "Collateral" as used in this Agreement and in the Security Agreement means and includes all assets of the Company, now or hereafter acquired by the Company, and the proceeds thereof including but not limited to proceeds of insurance covering the Collateral and any and all accounts receivable, inventory, equipment, money, goods, chattel paper, deposit accounts or other tangible and intangible property of the Company, together with the products and proceeds thereof.  The Company hereby grants to each of the Investors, on a pari passu basis amongst the Investors, a security interest in the Collateral to secure the payment of the Notes and the performance by the Company of each and all of its obligations under this Agreement and the Notes; provided, however, that such security interest shall be subordinated, to the extent provided herein, to any security interest in the Collateral that may be granted with respect to the Senior Indebtedness (as defined below).
 
2.3   Repayment
 
The principal amount of the Notes and all accrued interest thereon shall be due and payable upon the earlier of (1) written demand by the Investors representing ______% of the then outstanding principal amount of the Notes, or (2) ______.  The Company may prepay any principal or interest under the Notes without penalty.  Any prepayment shall be made to each holder of the Notes on a prorata basis as nearly as practicable to the proportion of the principal amount of the outstanding Notes held by such holder.  All payments hereunder by the Company shall be made in lawful money of the United States of America to the Investors at their respective addresses set forth on the Schedule of Investors by bank check or wire transfer on or before 12:00 Noon on the due date.  All computations of interest under this Agreement and the Notes shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed.
 
2.4   Events of Default
 
Upon occurrence of any of the following events, Investors who hold more than ______% of the then outstanding aggregate principal amount of the Notes, may, by written notice delivered to the Company prior to the date that such event shall have ceased to exist, declare such event to be an Event of Default and shall thereby, without limiting other remedies available to the Investors at law, in equity or otherwise, make all sums of interest and principal remaining on the Notes and all other sums outstanding under or in respect of this Agreement or the Notes immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, notice of intent to accelerate, notice of acceleration, or other notices or demands of any kind or character, except as hereinafter specified:
 
(a)   The Company shall fail to pay, within [spelled number of days] (______) banking days (i.e., a day upon which a bank is open for business in the State of ______ after the date when due, any payment of interest or principal or any other sum due under this Agreement or the Notes in accordance with the terms thereof;
 
(b)   The Company shall be in default with respect to any Senior Indebtedness (as defined below) and such default shall have continued for a period of [spelled number of days] (______) consecutive days or more;
 
(c)   The Company shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors, or an involuntary petition shall be filed under any bankruptcy statute against the Company, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) shall be appointed to take possession, custody or control of the properties of the Company; or
 
(d)   The Company shall breach any other covenant as set forth in the Notes and shall not cure such breach within the time period specified in the Notes.
 
Until the full and final payment of all indebtedness under the Notes incurred hereunder, the Company covenants and agrees that if, to the Company's knowledge, any Event of Default described in this paragraph 2.4 (or any event which, upon a lapse of time or notice or both, would become an Event of Default) has occurred, or if the Company receives written notice from the holder of any Senior Indebtedness of the Company of any claimed default thereunder by the Company, the Company agrees to mail notice to each Investor within [spelled number of days] (______) business days after the date it became aware of such Event of Default or the date it received such written notice, unless Investors holding more than ______% of the then outstanding aggregate principal amount of the Notes waive compliance in writing.
 
2.5   Subordination
 
The indebtedness evidenced by the Notes (and the security interest in the Collateral granted to the Investors as described above) shall be subordinate, to the extent more fully set forth in the Notes, to the principal of (and premium, if any) and unpaid interest on, (a) indebtedness of the Company or with respect to which the Company is a guarantor, whether outstanding on the date hereof or hereafter created, to banks, insurance companies or other financial institutions, regularly engaged in the business of lending money, which is for money borrowed by the Company or a subsidiary of the Company, whether or not secured, and (b) any deferrals, renewals or extensions of any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such indebtedness (collectively, the "Senior Indebtedness").
 
3.   Company Representations and Warranties
 
Subject to and except as disclosed by the Company in Exhibit ______ to this Agreement, the Company represents and warrants to each Investor that:
 
3.1   Organization and Standing
 
(a)   The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of ______ and has the requisite corporate power and authority to own, lease and operate its properties and to transact it business as presently conducted and as proposed to be conducted.
 
(b)   The Company is duly qualified to do business and is in good standing in each place and jurisdiction where the nature of the business conducted by it or the ownership, lease or operation of its properties requires qualification, provided, however, that the Company need not be qualified in a jurisdiction in which its failure to qualify would not have a material adverse effect on its operations or financial condition.
 
(c)   The Company has delivered to special counsel for the Investors (1) copies of the Articles of Incorporation and Bylaws of the Company, as amended, and (2) the minute books of the Company containing all records required to be set forth of all proceedings, consents, actions and meetings of the shareholders and board of directors of the Company.  Said copies and minute books are true, correct and complete and contain all amendments and required records through the date hereof, and will be true, correct and complete on the Closing Date.
 
3.2   Capitalization
 
(a)   The authorized capital of the Company consists of  (1) ______ shares of Preferred Stock, of which ______ shares have been designated as shares of Series A Preferred Stock, and (2) ______ shares of Common Stock.  The rights, privileges, and preferences of the Series A Preferred Stock are as set forth in the Restated Articles.
 
(b)   As of ______, ______ shares of Series A Preferred Stock were validly issued and outstanding, fully paid, and non-assessable, and were issued in compliance with all applicable state and federal securities laws.  As of ______, ______ shares of Common Stock were validly issued and outstanding, fully paid, and non-assessable, and were issued in compliance with all applicable state and federal securities laws.  The consideration paid for the outstanding Common Stock was cash and has been paid in full.
 
(c)   As of ______, there were outstanding options and warrants to acquire an aggregate of ______ shares of Common Stock.  All the shares of the Company's Common Stock which are to be issued pursuant to the exercise of options or warrants will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereto.  The Company has reserved (or will reserve prior to the Closing) a total of ______ shares of Common Stock as follows: (1) ______ shares of Common Stock for issuance upon conversion of the outstanding Series A Preferred Stock, (2) ______ shares of Common Stock for issuance upon exercise of warrants issued to the existing shareholders, (3) ______ shares of Common Stock for issuance upon exercise of currently outstanding options granted by the Company pursuant to its Option Plan, (4) not more than ______ shares of Common Stock for issuance to employees, directors, officers and consultants of the Company pursuant to stock purchases or stock options approved, or to be approved, by the Company's Board of Directors (the "Board of Directors"), excluding for purposes of calculating such shares, shares issued upon exercise of options outstanding on the date hereof; and (5) ______ shares of Common Stock for issuance upon exercise of the Warrants to be issued to the Investors.  Except as set forth above and in the right of first refusal set forth in the Investors' Rights Agreement in the form attached hereto as Exhibit ______ to be entered into at the Closing (the "Investors' Rights Agreement"), there are no preemptive or other outstanding rights, subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities, conversion rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock or other securities of the Company.
 
(d)   The Company has previously delivered to special counsel for the Investors copies of each stock option plan, stock purchase agreement and stock option agreement of the Company under which Common Stock (or options to purchase Common Stock) and other outstanding securities of the Company have been or may be issued.
 
(e)   Attached hereto as Exhibit ______ is an accurate list of the holders of the Company's outstanding Common Stock (and options to purchase Common Stock) and other outstanding securities of the Company as of the date of this agreement and as of the Closing Date, which list accurately reflects employees, directors, officers, consultants and other shareholders of the Company who hold Common Stock (and options to purchase Common Stock) and other outstanding securities of the Company and the shares of Common Stock which are subject to an option to repurchase pursuant to the various stock purchase plans and agreements under which they were issued.
 
3.3   Subsidiaries
 
The Company does not presently own or control, directly or indirectly, and has no stock or other interest as owner or principal in, any other corporation or partnership, joint venture, association or other business venture or entity.
 
3.4   Authorization
 
(a)   The Company has all the requisite legal and corporate power to execute and deliver this Agreement and any other agreement referred to herein (the "Ancillary Agreements"), to sell and issue the Notes, Warrants, and Warrant Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and any other Ancillary Agreements.
 
(b)   All corporate action on the part of the Company and its officers, directors, and shareholders, that is necessary for the authorization, execution, delivery, and performance of all of the obligations of the Company under this Agreement and any other Ancillary Agreements, and for the authorization, issuance, and delivery of the Notes and Warrants being sold under this Agreement (and the Warrant Shares issuable upon exercise of the Warrants) has been (or will be) taken prior to the Closing.
 
(c)   This Agreement and the other Ancillary Agreements have each been duly executed and delivered by the Company and, assuming due execution and delivery by all other parties thereto, are each a valid and legally binding obligation of the Company, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors' rights, and except to the extent that the enforceability of the indemnification provisions in Section ______ of the Investors' Rights Agreement may be limited by applicable laws.
 
3.5   Validity of Securities
 
The Notes and Warrants to be purchased and sold pursuant to this Agreement, when issued, sold, and delivered in accordance with the terms of this Agreement, shall constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms.  The Warrant Shares issuable upon exercise of the Warrants has been (or, prior to the Closing will be) duly and validly reserved and, upon issuance against payment therefor in accordance with the provisions of the Warrants, shall be duly and validly issued, fully paid, and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Notes, Warrants, and Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein.
 
3.6   Absence of Conflicting Agreements
 
Neither the execution and delivery of this Agreement or any of the Ancillary Agreements by the Company, the consummation by the Company of the transactions contemplated hereby, nor compliance by the Company with any provisions contained herein or in any of the Ancillary Agreements will (a) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of the Company; (b) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any indenture, mortgage, note, lien, license, government registration, contract, lease, agreement or other instrument or obligation to which the Company is a party or by which the Company or any of its assets may be bound, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; or (c) violate any order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation applicable to the Company or any of its assets.
 
3.7   Disclosures
 
The Company has previously delivered its Confidential Business Plan, dated ______ (the "Business Plan"), to each of the Investors.  The Business Plan has been prepared by the Company's management in a good faith effort to describe the Company's present and proposed products, operations, and projected growth.  Neither the Business Plan, the Financial Statements (as defined below), the Schedule of Exceptions, nor any representation or warranty by the Company contained in this Agreement, nor any other statement, certificate or memorandum furnished or to be furnished to the Investors pursuant hereto or in connection with the transactions contemplated hereby by the Company (or on the Company's behalf), when read together, contains or will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made herein or therein, in light of the circumstances under which made, not misleading.  There is no fact known to the Company which adversely affects, or in the future may (so far as the Company can now foresee) adversely affect, the condition, assets, liabilities, business, operations or prospects of its business that has not been set forth herein or heretofore communicated by the Company to the Investors in writing pursuant hereto.  To the best knowledge of the Company, the assumptions used in preparing the Business Plan are materially correct; however, no warranty or representation is given as to the opinions, forecasts or other nonfactual matters contained in the Business Plan.
 
3.8   Governmental Consents
 
No consent, waiver, approval, authorization or permit of, or designation, declaration or filing with or notification to, any governmental or regulatory authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, the offer, sale or issuance of the Notes, Warrants, and the Warrant Shares, or the consummation of any other transaction contemplated by this agreement, except (a) the qualification, if required, of the Notes, Warrants, and the Warrant Shares under applicable state securities laws, which qualification has been effected, and (b) certain routine securities filings required to be made subsequent to the Closing.
 
3.9   Exempt Offering
 
(a)   Based in part on the representations of the Investors set forth in Section 4 hereof and in written responses to the Company's inquiries, the offer, sale and issuance of the Notes, Warrants, and Warrant Shares in conformity with the terms of this agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
 
(b)   The Company has delivered to special counsel for the Investors a list of persons other than the Investors to whom the Notes and Warrants or any similar securities of the Company were offered by the Company or any of its agents.
 
3.10   Brokerage or Finder's Fees
 
There are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this agreement based on any arrangement or agreement made by or on behalf of the Company.  The Company agrees to indemnify and hold the Investors harmless against any liability, settlement or expense arising out of, or in connection with, any such claim.
 
3.11   Financial Information
 
(a)   The Company has furnished the following financial statements to the Investors:  (1) the financial statements of the Company for ______, and for the fiscal years ended on those dates, certified by ______, the Company's independent public accountants, and (2) the balance sheet of the Company at ______ and statements of profit and loss and changes in shareholder equity for the [spelled number of months] (______) months ended on that date prepared by ______ (collectively the "Unaudited Financial Statements") (all of the foregoing financial statements are collectively referred to herein as the "Financial Statements").
 
(b)   The Financial Statements, including the notes thereto, (1) are true, complete and correct in all material respects, (2) have been prepared in conformity with generally accepted accounting principles consistently maintained and applied throughout the periods indicated (except as disclosed therein), (3) present fairly and accurately the financial position of the Company's business at the respective dates of the balance sheets included in the Financial Statements, and the results of operations of the Company's business for the respective periods indicated, provided, however, that the Unaudited Financial Statements are subject to yearend adjustments, which in any event, to the knowledge of the Company, will not be materially adverse and do not contain all footnotes required under generally accepted accounting principles, (4) are in accordance with the books and records of the Company regarding its business, and (5) do not omit to state or reflect any material fact concerning the Company's business required to be stated or reflected therein or necessary to make the statements made therein not misleading in light of the circumstances in which made.
 
(c)   The Company's backlog of orders as of the date of the Unaudited Financial Statements is set forth on Exhibit ______.
 
(d)   The records and customer lists of the Company relating to its business are in all respects complete and correct, have been maintained in accordance with good business practices and the matters contained therein are accurately reflected, to the extent appropriate, on the Financial Statements.
 
3.12   Absence of Undisclosed Liabilities
 
As of ______, the Company had no liabilities or obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise) other than as disclosed on the consolidated balance sheet (and notes thereto) contained in the Unaudited Financial Statements.  Except as set forth on Exhibit ______, since the date of the Unaudited Financial Statements, the Company has not incurred any liabilities or obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise) except for ______ liabilities incurred in the ordinary course of business consistent with past practice.
 
3.13   Outstanding Indebtedness
 
The Company does not have any indebtedness incurred as the result of a direct borrowing of money, including, but not limited to, indebtedness with respect to trade accounts ("Borrowed Indebtedness").  The Company is not in default in the payment of the principal of or interest or premium on any such indebtedness, and no event has occurred or is continuing under the provisions of any instrument, document or agreement evidencing or relating to any such indebtedness which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder.
 
3.14   Absence of Changes
 
To the best of the Company's knowledge, since the date of the Unaudited Financial Statements, there has not been any event or condition of any type that has materially and adversely affected the Company's business, prospects, condition, affairs, operations, properties, or assets.
 
3.15   Tax Matters
 
The Company has accurately and completely prepared and timely filed all United States income tax returns and all state and municipal tax returns that are required to be filed by it and has paid or made provision for the payment of all taxes that have become due pursuant to such returns.  The United States income tax returns of the Company have not been audited by the Internal Revenue Service.  No deficiency assessment or proposed adjustment of the Company's United States income tax or state or municipal taxes is pending and, to the best knowledge of the Company, there is no liability as of the date hereof for any tax for which there is not an adequate reserve reflected in the Financial Statements.
 
3.16   Transactions With Principals
 
No employee, shareholder, officer or director of the Company is indebted to the Company in an amount in excess of $______, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them in an amount in excess of $______.  To the best of the Company's knowledge, no employee, shareholder, officer or director of the Company, member of the immediate family of any such person, nor any corporation, partnership or other business in which any such person or a member of such person's immediate family has a material interest, is a party to any transaction, agreement or understanding to which the Company is also a party or bound and does not have any material interest in any person with whom the Company does or intends to do business.  The Company previously has furnished special counsel to the Investors a copy of each agreement, instrument or other writing constituting legal rights and obligations to which both the Company and any of the persons referred to in the previous sentence are a party.
 
3.17   Voting Agreements
 
Except as set forth in the Voting Agreement in the form attached hereto as Exhibit ______, the Company has no agreement, obligation or commitment with respect to the election of any individual or individuals to the Board of Directors, and to the best of the Company's knowledge, there is no voting agreement or other arrangement among its shareholders with respect to the election of any individual or individuals to the Board of Directors.
 
3.18   Title to Property and Assets
 
Except as reflected in the Financial Statements, the Company has good and marketable title to all its property and assets and good and valid interest as lessee in all properties held under lease, subject to no mortgage, option, lease, covenant, condition, agreement, lien, security interest, adverse claim, restriction, charge, encumbrances or right of others, other than (1) the lien of current taxes not yet due and payable, and (2) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business.  There are no restrictions or reservations affecting the Company's title to, or the utility of, the Company's assets which would prevent the Company from occupying, utilizing or transferring its assets, or any portion thereof.
 
3.19   Intellectual Property Rights
 
The Company owns or possesses, has access to, or can become licensed on reasonable terms under all patents, inventions, trademarks, trade names, copyrights, licenses, information, proprietary rights, trade secrets, and processes (collectively, "Intellectual Property Rights") necessary for the lawful conduct of its business as now conducted and as proposed to be conducted.  There are no pending or threatened claims against the Company alleging that the conduct of the Company's business infringes or conflicts with the Intellectual Property Rights of any other party, and the business of the Company as now conducted and as proposed to be conducted will not infringe or conflict with the Intellectual Property Rights of any other party.  The Company has taken reasonable precautions to fully protect its Intellectual Property Rights, including, without limitation, registrations required in the business judgment of the Company under applicable copyright and patent laws.  All technical employees, other key employees and officers of the Company have signed nondisclosure and assignment of inventions agreements with the Company in substantially the form previously delivered to special counsel to the Investors.
 
3.20   Insurance
 
The Company has fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed, has a products liability insurance policy with limits as specified on Exhibit ______, and currently has in effect keyman insurance on the lives of the persons, and in the amounts as set forth on Exhibit ______ attached hereto with proceeds payable to the Company.  The Company has heretofore delivered to special counsel for the Investors true, complete and correct copies of all such policies.
 
3.21   Material Contracts
 
(a)   Except as set forth on Schedule ______, the Company does not have any contract, agreement, lease, or other commitment, written or oral, absolute or contingent, other than (a) contracts for the purchase of supplies and services that were entered into in the ordinary and usual course of business and that do not involve more than $______, and do not extend for more than [spelled number of months] (______) months beyond the date hereof, (b) sales contracts entered into in the ordinary course of business, and (c) contracts terminable at will by the Company on no more than [spelled number of days] (______) days' notice without cost or liability to the Company (the contracts listed on Schedule ______ are referred to herein as the "Contracts").  True and complete copies of all written Contracts and written summaries of all oral Contracts have been furnished to special counsel for the Investors.
 
(b)   Each of the Contracts is valid, binding and enforceable against the Company and each other party thereto in accordance with its terms without any defenses, setoffs, counterclaims or disputes of any nature and is in full force and effect.  The Company has not received notice nor does it have knowledge that any party to any contract, agreement, lease, or other commitment with it, is considering or intends to cancel, terminate, or make a material modification in any such contract, agreement, lease, or other commitment, or to exercise or not exercise any option under any Contract.  The Company has not waived any right under any Contract, nor is the Company subject to, or a party to, any charter, bylaw, mortgage, lien, lease, agreement, contract, or instrument which adversely affects the business practices, operations or condition of its business or of any of its assets.
 
3.22   Compliance With Other Instruments
 
The Company is not in violation of any term of its Articles of Incorporation or Bylaws, each as amended and in effect on and as of the Closing, or, in any material respect, of any term contained in any instrument or contract to which it is a party, the damages arising from which would have a liquidated value exceeding $______, and, to the best of its knowledge, is not in violation of any federal or state judgment, writ, decree, order, statute, rule, or governmental regulation applicable to the Company.  No event or failure of performance has occurred which, with the passage of time or the giving of notice or both, would constitute such a violation, and the Company is not aware of any claim of any such default having been made against the Company with respect to any Contract.  There is no such violation, nor any such default, which materially and adversely affects the business of the Company as presently conducted or as proposed to be conducted or any of its property or assets.  To the best of the Company's knowledge, no other party is in material default of any such instrument or contract, and the Company is not aware of any event which, upon the passage of time or the giving of notice, or both, could constitute an event of default by any other party to any such Contract or could cause the acceleration of any obligation of any other party thereto.
 
3.23   Litigation
 
There is no pending or currently threatened claim or action, suit, arbitration, proceeding or investigation before any court, arbitrator or government commission or agency against the Company or against any other person or entity (a) which questions or would affect the validity or enforceability of this Agreement, the Ancillary Agreements, or the further documents, instruments or agreements referred to or provided for herein or the Company's right to enter into the same or to consummate transactions contemplated hereby, (b) which might reasonably be expected to have an adverse effect on the Company's assets or its business, (c) which may affect the Company's ability to conduct its business as presently conducted or as proposed to be conducted, or (d) which might result in any change in the business, assets, condition, affairs, operations, properties or prospects of the Company, financially or otherwise; nor is the Company aware that there is any basis for any of the foregoing.  The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees or consultants, their use in connection with the business of the Company of any information or techniques allegedly proprietary to any of their former employers or clients, or their obligations under any agreements with prior employers or clients.  The Company is not subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality.  There is no litigation against any third party by the Company involving its business.  The Company has furnished or made available to Investors' special counsel copies of all relevant court papers and documents relating to the matters described in this Section.
 
3.24   Employee Matters
 
The Company has no employment contract with any officer or employee or any other consultant or person which is not terminable by it at will without liability, except as the Company's right to terminate its employees at will may be limited by applicable ______ law.  Other than the stock and bonus plans specifically described in Section 3.2(c), a copy of which has previously been furnished to special counsel to the Investors, the Company has no deferred compensation, pension, health, profit sharing, bonus, stock purchase, stock option, hospitalization, insurance, severance, or any other employee benefit or welfare benefit plan or obligation covering any of its officers or employees, nor is any benefit plan of the Company subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.  No employee or consultant to the Company is receiving compensation from the Company at a rate in excess of $______ per annum.  There are no controversies or labor trouble or union organization activities pending or, to the knowledge of the Company, threatened, between it and its employees.  None of the Company's employees belongs to any union or collective bargaining unit.  The Company has complied with all applicable state and federal equal employment opportunity and other laws relating to employment.
 
3.25   Conflicting Employment Agreements
 
To the best of the Company's knowledge, no employee of the Company is, or will be in connection with the proposed operations of the Company, in violation of any term of any employment contract, proprietary information and inventions agreement, or any other contract or agreement relating to the relationship of any such employee with the Company or any previous employer.  Aside from the assignment of inventions and proprietary information agreements referred to in Section 3.19, to the best of the Company's knowledge, no employee of the Company is subject to any secrecy or noncompetition agreement or any agreement or restriction of any kind that would impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of the Company.
 
3.26   Compliance
 
The Company has (a) complied in all material respects with all Federal, state, local and foreign laws, ordinances, regulations and orders applicable to it, its business or the ownership of its assets, and (b) obtained all Federal, state, local and foreign governmental franchises, licenses and permits material to and necessary in the conduct of its business, such franchises, licenses and permits are in full force and effect, no violations have been recorded in respect of any such franchises, licenses or permits, and no proceeding is pending or threatened to revoke or limit any thereof.  The Company is not subject to, or party to, any license, permit, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind of character, which adversely affects the business practices, operations or condition of its business or of any of its assets.
 
4.   Investors' Representations and Warranties
 
Each Investor hereby represents and warrants to the Company with respect to the sale and issuance of the Notes, Warrants, and Warrant Shares (collectively, the "Securities") as follows:
 
4.1   Purchase for Own Account
 
Each Investor represents that it is acquiring the Securities solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of said Securities or any part thereof, has no present intention of selling, granting participation in or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.
 
4.2   Information
 
Each Investor acknowledges that it has received and carefully reviewed the Company's Business Plan (including, without limitation, the risk factors set forth therein), Financial Statements and the Term Sheet for this transaction supplied to each Investor, and, in addition, has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to purchase the Securities.  The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement.  Each Investor represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Securities and the Company's business, management and financial affairs and to obtain any additional information necessary to verify the accuracy of the information given the Investor.  Each Investor agrees to hold in confidence any confidential information provided to it in writing by the Company in connection with the offer and sale of the Securities hereunder.
 
4.3   Investment Experience
 
Each Investor represents that it either (1) (either individually or in conjunction with any investor representative engaged by it who experienced in the matters referred to in this sentence) is experienced in evaluating ______ companies such as the Company, is able to fend for itself in the transactions contemplated by this Agreement, and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment or (2) is an "accredited investor" as that term is defined and used in Rules 501 through 506 of Regulation D promulgated under the Securities Act of 1933 and is correctly identified as such on the Schedule of Investors attached hereto.
 
4.4   Ability To Bear Economic Risk
 
Each Investor acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on its investment.
 
4.5   Restricted Securities and Limitation on Disposition
 
(a)   Each Investor understands that the Securities it is purchasing are characterized as "Restricted Securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that under such laws and applicable regulations such Securities may be resold without registration under the Act only in certain limited sets of circumstances.  Each Investor acknowledges that, because they have not been registered under the Securities Act of 1933, the Shares (and the Common Stock into which the Shares are convertible) each Investor is purchasing must be held indefinitely unless subsequently registered under the Securities Act of 1933 or an exemption from such registration is available.  Each Investor is aware of the provisions of Rule 144 promulgated under the Securities Act of 1933 which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any threemonth period not exceeding specified limitations (unless the sale is within the requirements of Rule 144(k)).  In this connection, each Investor represents that it has received a copy of SEC Rule 144, as presently in effect, and has read and understands the information contained in Rule 144.  Each Investor understands that except as set forth in the Investors' Rights Agreement the Company will be under no obligation to make public the information necessary for the investors to obtain the benefits of Rule 144.
 
(b)   Without limiting the foregoing, each Investor agrees that it will in no event make any disposition of the Securities unless and until:
 
(1)   The Company shall have received a letter secured by the Investor from the SEC stating that no action will be recommended to such Commission with respect to the proposed disposition; or
 
(2)   There is then in effect a registration statement under the Securities Act of 1933, as amended, covering such proposed disposition and such disposition is made in accordance with said registration statement; or
 
(3)   The Investor shall have notified the Company of the detailed circumstances of the proposed disposition and, if the Company so requests, shall have provided the Company with an opinion of counsel for the Investor to the effect that such disposition will not require registration of such Securities under the Act, which opinion of counsel for the Investor shall be in form and substance reasonably satisfactory to the Company's counsel and the Company shall have advised the Investor of such satisfaction; provided, however, that no such opinion need be supplied in connection with a distribution in kind by an Investor that is a partnership to its partners (or former or retired partners or the estates thereof), provided that such persons agree to be subject to the terms of this Agreement to the same extent as if they themselves originally purchased the Securities hereunder.
 
(c)   Each Investor understands that the Company's transfer records will be noted to reflect the restrictions on transferability of the Securities contained herein.
 
4.6   Legends
 
It is understood that the evidences of the Securities may bear one or all of the following legends (in substantially the form set forth below):
 
(a)   "These securities have not been registered under the Securities Act of 1933.  They may not be sold, offered for sale, pledged, or hypothecated in the absence of an effective registration statement as to the securities under said Act or an opinion of counsel satisfactory to the Company that such registration is not required, or except as set forth in the Note Purchase Agreement, dated as of ______ between the Company and the original purchaser thereof, a copy of which agreement is available upon request from the Company."
 
(b)   Any legend relating to the right of first refusal contained in the Company's Bylaws.
 
(c)   Any other legend required by applicable state securities laws.
 
4.7   Authorization
 
Each Investor represents and warrants that this Agreement and the Ancillary Agreements, when executed and delivered by it, each will constitute a valid and legally binding obligation of such Investor enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors' rights, except to the extent that the enforceability of the indemnification provisions in Section ______ of the Investors' Rights Agreement may be limited by applicable laws.
 
*[4.8   Qualification of Securities Under Blue Sky Laws
 
The sale of the securities that is the subject of this Agreement has not been qualified with the Secretary of State and the issuance of such securities, or the payment or receipt of any part of the consideration for such securities prior to such qualification or in the absence of an exemption from such qualification is unlawful.  The rights of all parties to this Agreement are expressly conditioned on such qualification being obtained, or an exemption from such qualification being available.]*
 
5.   Investors' Closing Conditions
 
The Investors' obligations to purchase the Notes and Warrants at the Closing are subject to the fulfillment on or prior to the Closing Date of all of the conditions set forth below in this Section:
 
5.1   Representations and Warranties Correct
 
The representations and warranties made in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date.
 
5.2   Covenants
 
All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all respects.
 
5.3   Governmental Consents
 
All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Notes, Warrants, and Warrant Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing.
 
 
 
 
5.4   Opinion of Company's Counsel
 
At the Closing the Investors shall have received from ______, counsel to the Company, and ______, special counsel to the Company, favorable opinions addressed to them, dated the Closing Date, in the forms attached hereto as Exhibits ______ and ______, respectively.
 
5.5   Execution and Delivery of Ancillary Agreements
 
The Company, the Investors, and all other parties thereto shall have executed and delivered each of the Ancillary Agreements substantially in the forms attached hereto.
 
5.6   Compliance Certificate
 
The Company shall have delivered to the Investors a certificate, executed by the President of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.3 of this Agreement.
 
6.   Company's Closing Conditions
 
The Company's obligation to sell the Notes and Warrants to the Investors at the Closing is subject to the fulfillment of the following conditions:
 
6.1   Representations Correct
 
The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date.
 
6.2   Covenants
 
All covenants, agreements and conditions contained in this Agreement to be performed by the Investors on or prior to the Closing Date shall have been performed or complied with in all respects.
 
6.3   Governmental Consents
 
All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Notes, Warrants, and Warrant Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing.
 
6.4   Minimum Investment
 
The Investors shall have tendered, in the aggregate, at the Closing consideration of not less than $______ for purchase of the Notes.
 
 
 
7.   Miscellaneous
 
7.1   Governing Law
 
This agreement shall be governed by and construed in accordance with the laws of the State of ______ applicable to contracts between ______ entered into and to be performed entirely within the State of ______.
 
7.2   Survival
 
The representations, warranties, covenants and agreements made by the parties herein shall survive any investigation made by any Investor or the Company and shall survive the closing of the transactions contemplated hereby.
 
7.3   Indemnification
 
The Company agrees to indemnify and hold each of the Investors harmless from and against any and all liabilities, damages, losses, claims, demands, costs or expenses (including interest, penalties, reasonable attorneys' and accountants' fees and expenses, court costs and fees of expert witnesses) (all of the foregoing hereinafter collectively referred to as the "Claims") which the Investors shall suffer or incur, whether liquidated or unliquidated, accrued or contingent, connected with or arising out of any untruth or error in or breach or default of any representation, warranty or covenant contained in the Business Plan, the Financial Statements, the Schedule of Exceptions, this Agreement, or any other statement, certificate or memorandum furnished or to be furnished to the Investors pursuant hereto or in connection with the transactions contemplated hereby by the Company (or on the Company's behalf).
 
7.4   Confidentiality of Information
 
Each of the Investors and the Company each hereby acknowledge and confirm their respective obligations under the Information Receipt Agreement dated ______ by and between them.
 
7.5   Successors and Assigns
 
Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
 
7.6   Entire Agreement
 
Except for the matters referred to in the Information Receipt Agreement, this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
 
 
 
 
7.7   Amendments and Waivers
 
Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of Notes in aggregate principal amount equal to more than ______% of the then outstanding aggregate principal amount of the Notes.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Notes or securities purchased under this Agreement at the time outstanding (including securities into which such securities have been exercised), each future holder of all such Notes or securities, and the Company, provided, however, that no such amendment shall, without the consent of the holder adversely affected, (a) extend the time or times of payment of the principal at maturity of, or the interest on, any Note, or reduce the principal amount of, or the rate of interest on, any Note other than as provided in the Agreement, or (b) alter the provisions of any Note so as to receive the percentage of the aggregate principal amount of the Notes where vote or consent is required for any such amendment.
 
7.8   Rights of Investors
 
Each holder of the Notes shall have the absolute right to exercise or refrain from exercising any right or rights that such holder may have by reason of this Agreement or the Notes, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an Agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and such holder shall not incur any liability to any other holder or holders of the Notes with respect to exercising or refraining from exercising any such right or rights.
 
7.9   Exculpation Among Investors
 
Each Investor acknowledges that they are not relying upon any person, firm, or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company.  Each Investor agrees that no Investor nor the respective controlling person, officers directors, partners, agents, or employees of any Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Notes.
 
7.10   Notices
 
All notices and other communications required or permitted hereunder shall be in writing and shall be effective (if by mail) [spelled number of days] (______) days after mailed by firstclass mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to an Investor, at such Investor's address set forth in the Schedule of Investors, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Notes, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Notes who has so furnished an address to the Company, or (c) if to the Company, at such address as the Company shall have furnished to each Investor and each such other holder in writing.
 
7.11   Counterparts
 
This agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
 
The parties have executed this Agreement as of the date first written above.
 
COMPANY:
 
[Signature of Company]
[Notary for Company]
 
INVESTORS:
 
*{{[Signature of Investors]
[Notary for Investors]
}}*
 

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