THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO MAKER THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE (CONVERTIBLE)
$___________.00 _____________, 2010
FOR VALUE RECEIVED, KOPALI ORGANICS LLC, a Florida limited liability
company with its principal place of business located 8101 Biscayne Boulevard, Suite 609,
Miami, FL 33138 ("Maker"), hereby promises to pay to the order of
_________________________________, or any of such person’s permitted successors or
assigns (collectively, the “Holder”), at ______________________________________________,
or such other place as may be specified in writing by Holder, the sum of
__________________________________ Dollars (US$_________) (the “Principal”), along
with interest as provided below, unless converted to equity, pursuant to the terms and conditions
of this Promissory Note (Convertible) (this “Note”).
If not earlier converted to equity pursuant to Section 3 below, the unpaid outstanding
Principal (the “Principal Balance”) and all accrued Interest (as defined below) shall be payable
on the last day of the month that is three (3) years following the date hereof, unless extended by
the mutual agreement of the parties hereto (the “Maturity Date”).
This Note shall bear interest at the rate of two percent (2%) per annum, calculated on a
daily basis from and including the date hereof (“Interest”). Accrued Interest shall be payable in
a lump sum upon full prepayment of this Note or upon a conversion as provided below on the
earlier to occur of (i) the Maturity Date, or (ii) the date upon which a Qualifying Equity
Financing (as defined below) is consummated.
(a) Conversion. The Principal Balance and all accrued Interest shall convert
into a Class A Non-Voting Limited Liability Company Membership Interest in Maker
represented by Maker’s Class A Units (the “Units”), automatically upon the earlier to
occur of: (i) the Maturity Date, or (ii) immediately following Maker’s consummation of
any one or more equity financings subsequent to March 31, 2010, in which Maker sells
and issues, in any one or more rounds, Units to investors that are collectively valued at or
more than Five Hundred Thousand Dollars ($500,000) (individually or collectively as the
case may be, a “Qualifying Equity Financing”). For example, if Maker sells and issues,
in three separate rounds, Units valued at $200,000 on April 2, 2010, $250,000 on April
10, 2010, and $300,000 on May 1, 2010, such equity financings are collectively deemed
to be a Qualified Equity Financing upon, and not until, the consummation of the May 1,
2010 sale and issuance.
(b) Conversion Units and Conversion Price. The number of Units that this
Note is convertible into shall be obtained as follows:
(i) If conversion occurs as a result of the occurrence of the Maturity
Date, by dividing (a) the entire Principal Balance and all accrued Interest as of the
date of conversion by (b) an amount equal to the Maturity Date Fair Market Value
of a Unit (as defined below), multiplied by .75.
(ii) If conversion occurs as a result of a Qualified Equity Financing, by
dividing (a) the entire Principal Balance and all accrued Interest as of the date of
conversion by (b) an amount equal to the lower of (I) the Qualifying Equity
Financing Fair Market Value of a Unit (as defined below), or (II) the Maturity
Date Fair Market Value of a Unit; multiplied by .75.
The “Maturity Date Fair Market Value” of a Unit shall be equal to the price per
Unit paid by investors in the most recent equity financing completed August 2007 at an
aggregate valuation of $8,746,223.56, all as such price may be proportionately adjusted
for any subdivisions, combinations or similar reclassification of the Units. The
“Qualifying Equity Financing Fair Market Value” of a Unit shall be equal to the average
price per Unit paid by investors in the Qualifying Equity Financing.
(c) Issuance of Certificates; Fractional Units. If Units are certificated, as
promptly as practicable after the conversion of this Note as provided above, Maker will
issue and deliver to Holder, upon surrender of this Note to Maker, a certificate or
certificates representing the number of Units issuable upon such conversion, a check
made payable to the Holder for all cash amounts payable for fractional Units as provided
in this Note, if any. No fractional Units will be issued upon conversion of this Note. In
lieu of any fractional Unit to which the Holder would otherwise be entitled upon
conversion of this Note, Maker will pay to the Holder in cash the amount that would
otherwise be represented by such fractional Unit.
(d) Authorized Units. Maker shall at all times on or after the issuance of this
Note and prior to the Maturity Date, keep available for issuance a number of authorized
but unissued Units sufficient to permit the full conversion of this Note. If at any time the
number of Maker’s authorized but unissued Units is not sufficient for this purpose, Maker
shall use its best efforts to take such action as may be necessary to increase the authorized
but unissued Units to a number that is sufficient for this purpose.
(e) Release. Upon full conversion of this Note and payment of all cash
amounts due to the Holder as provided in this Note, if any, Maker will forever be released
from all of payment obligations and liabilities under this Note.
(f) Documentation. Upon conversion of this Note into Units, Holder shall
execute any and all documents necessary to evidence Holder’s ownership of such Units,
including a counterpart signature page to Maker’s Limited Liability Company
Agreement, as same may be amended from time to time, to the extent Holder has not
already been admitted as a member of the Company and is not already a signatory to such
Upon occurrence of an event of default, Holder may, at Holder’s option, declare the
Principal Balance and all accrued Interest immediately due and payable. The following
shall constitute an event of default for purposes of this Note:
(a) Maker’s failure to pay when due any payment required under the terms of
this Note on the date due and such payment shall not have been made within ten (10)
days following Maker’s receipt of the Holder’s written notice of Maker’s failure to pay;
(b) Maker’s failure to observe or perform any other material covenant,
obligation, condition or agreement contained in this Note and such failure shall continue
for fifteen (15) days after Maker’s receipt of written notice from the Holder of such
(c) There shall have been filed or commenced against Maker an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect or an action shall have been commenced to appoint a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of Maker or for any substantial part of
Maker’s property or for the winding-up or liquidation of Maker’s affairs and such action
or proceeding shall not have been dismissed within sixty (60) days; or
(d) Maker shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect; or shall consent to the entry of
an order for relief in an involuntary case under any such law; or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Maker or of any substantial part of its property;
or shall make any general assignment for the benefit of creditors; or shall take any action
in furtherance of any of the foregoing.
5. Representations and Warranties of Holder.
Holder represents and warrants to Maker as follows:
(a) Holder acknowledges that Maker has a limited operating history and that,
as a result, this Note and the Units into which it is convertible constitute a speculative
investment that involves a high degree of risk of loss by Holder of Holder’s total
(b) Holder has read, understood and is familiar with the information about
Maker that has been provided to Holder, including Maker’s Limited Liability Company
Agreement as currently in effect (collectively, the “Information”). Holder is not loaning
Maker funds and, if this Note is converted into Units, will not be converting this Note
into such Units, as a result of any advertisement, article, notice or other communication.
Maker has made available all additional information which has been requested by Holder
in connection with the transactions contemplated by this Note and Maker’s expected
business and affairs, as well as the opportunity to ask questions and receive answers from
Maker concerning the terms and conditions of this Note, an equity investment in Maker
represented by the Units and Maker’s business.
(c) Holder’s financial condition is such that Holder is able to bear the risk of
not being repaid under this Note or, if converted, of holding the Units for an indefinite
period of time. Holder has adequate means to provide for Holder’s current financial
needs and contingencies, Holder has no need for liquidity in this investment and Holder
is able to risk the loss of Holder’s entire investment in this Note or, upon conversion, the
Units. Holder’s overall commitment to investments that are not readily marketable such
as an investment in this Note and the Units if this Note is converted is not
disproportionate to Holder’s net worth and Holder’s investment in this Note and the Units
upon conversion will not cause such overall commitments to become excessive. Holder’s
financial condition is such that Holder is under no present or contemplated future need
for the funds loaned to Maker.
(d) Holder or Holder’s advisors have such knowledge and experience in
financial, business and tax matters that Holder is capable of evaluating the merits and
risks of acquisition of this Note and, upon conversion, the Units and of making an
informed investment decision with respect thereto.
(e) Holder is an “accredited investor” as that term is defined in Rule 501 of
Regulation D of the Securities Act.
(f) Holder is loaning the amounts represented by this Note and, converting
this Note into Units, solely for Holder’s own account for the purpose of investment and
not with a view to distribution or for sale in connection with any distribution thereof and
Holder has no present intention or plan to affect any distribution of this Note or the Units
upon conversion and will not sell or otherwise transfer this Note or the Units upon
conversion without registration under the Securities Act of 1933, as amended (the
“Securities Act”), or an exemption therefrom and any applicable state securities laws.
(g) Holder understands that neither this Note nor the Units into which it is
convertible have been registered under the Securities Act or any state securities laws in
reliance on an exemption from registration for private offerings, and no federal or state
agency has made any findings or determination as to the fairness of this investment or
any recommendation or endorsement of this Note or the Units into which it is
(h) There are substantial restrictions on the transferability of the Units into
which this Note is convertible. The Units cannot be transferred, pledged, hypothecated,
sold or otherwise disposed of unless they are registered under the Securities Act or an
exemption from such registration is available from the Securities Act and applicable state
securities laws and established to the satisfaction of Maker; Holder has no right to require
that the Units be registered; there is no public market for the Units; there is no right of
presentment of the Units and there is no obligation by Maker to repurchase any of the
Units. Accordingly, if this Note is converted into Units, Holder may have to hold the
Units indefinitely and it may not be possible for Holder to liquidate Holder’s investment
in Maker thereafter. Moreover, Maker’s Limited Liability Company Agreement, which
Holder will be required to execute upon any conversion of this Note, contains additional
restrictions on transfers of the Units.
7. Representations and Warranties of Maker.Maker represents and warrants to
Holder as follows:
(a) Maker is a limited liability company duly organized, validly existing and
in good standing under the laws of the state of Florida, and has all requisite limited
liability company power and authority to own and operate its assets and properties and
conduct its business and operations, and the business and operations of Maker, as
presently being conducted;
(b) Maker has all requisite power and authority to enter into and issue this
Note and to perform its obligations herein;
(c) The execution and delivery by Maker of this Note and the performance of
its obligations hereunder have been duly and validly authorized by all necessary limited
liability company action;
(d) This Note has been duly executed and delivered by Maker and constitutes
the legal, valid and binding agreement of Maker, enforceable against Maker in
accordance with its terms;
(e) The Units to be issued upon conversion of this Note have been duly
authorized and, after being issued in accordance with the terms set forth herein, will be
validly issued, fully paid and non assessable and not subject to any preemptive or similar
rights of subscription of any other party;
(f) Maker has provided Holder with an accurate copy of Maker’s limited
liability company agreement as currently in effect.
(a) Governing Law. The terms of this Note shall be construed in accordance
with the laws of the State of Florida as applied to contracts entered into by Florida
residents within the State of Florida, which contracts are to be performed entirely within
the State of Florida.
(b) Remedies and Delays. The remedies provided in this Note shall be in
addition to any other rights or remedies now or hereafter provided by law or equity. No
delay, failure or omission by Holder in respect of any default by Maker, to exercise any
right or remedy shall constitute a waiver of the right to exercise the right or remedy with
respect to any such default or subsequent default.
(c) Severability. If any of the provisions of this Note shall be held to be
invalid or unenforceable, the determination of invalidity or unenforceability of any such
provision shall not affect the validity or enforceability of any other provision or
(d) Assignment. Maker shall not delegate any of its obligations or assign any
of its rights or obligations under this Note without the prior written consent of Holder.
This Note shall be binding upon Maker and its permitted successors and assigns.
(e) Entire Agreement. This Note constitutes the complete agreement of
Maker and Holder with respect to the subject matter hereof. No representations,
inducements, promises or agreements, oral or written, have been made by Maker or
Holder, or anyone acting on behalf of either party, which are not contained herein, and
any prior agreements, promises, negotiations, or representations are superseded by this
Note. This Note may not be amended except by an instrument in writing signed by all of
the parties hereto.
(f) Notices. All payments, notices, demands or other communications
required or permitted to be given hereunder will be in writing, and any and all such items
will be deemed to have been duly delivered upon personal delivery; or as of the third
business day after mailing by United States mail, certified, return receipt requested,
postage prepaid, to the applicable party’s address stated above (or as otherwise directed
in writing by the applicable party); or as of the immediately following business day after
deposit with Federal Express or a similar overnight courier service.
IN WITNESS WHEREOF, Maker has executed this Note as of the date set forth above.
Kopali Organics LLC, a Florida limited liability
WIRE TRANSFER INSTRUCTIONS
Bank Name: Colonial Bank
Branch Address: 12255 NE 16th Ave North Miami, FL 33161
Routing #: 062001319
Account #: 9041010027
Account Holder: Kopali Organics LLC
Address: 8101 Biscayne Boulevard Suite 609 Miami, FL 33138