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Reducktion Inc. Convertible Security | PDF | Stocks | Preferred Stock
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Reducktion Inc. Convertible Security

This document is a convertible security agreement between Reducktion Inc. and an investor, Karl Oroz. It details the terms under which the investment amount will convert to equity in the company under different scenarios, including a change of control or qualified equity financing. The investment amount is $4,000,000 that will convert to common or preferred stock based on a calculation of the company's fully diluted capitalization and the stock price in the new financing. The agreement includes standard provisions regarding execution of transaction documents, no voting rights, and California law governing.

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Thomas Butler
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0% found this document useful (0 votes)
94 views3 pages

Reducktion Inc. Convertible Security

This document is a convertible security agreement between Reducktion Inc. and an investor, Karl Oroz. It details the terms under which the investment amount will convert to equity in the company under different scenarios, including a change of control or qualified equity financing. The investment amount is $4,000,000 that will convert to common or preferred stock based on a calculation of the company's fully diluted capitalization and the stock price in the new financing. The agreement includes standard provisions regarding execution of transaction documents, no voting rights, and California law governing.

Uploaded by

Thomas Butler
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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THIS CONVERTIBLE SECURITY AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF

HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM.

Reducktion Inc.

CONVERTIBLE SECURITY

FOR VALUE RECEIVED, Reducktion Inc., a Georgia corporation (the Company), hereby issues to Karl Oroz
(the Holder) this Convertible Security. This Convertible Security is one of the Convertible Securities issued pursuant
to the Companys Convertible Securities Purchase Agreement, dated as of 6/15/2014 (the Purchase Agreement).
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

In the event of a Change of Control (as defined below), the Investment Amount shall be converted into fully paid
and nonassessable shares of the Companys Common Stock at a price per share equal to the price obtained by dividing (a)
$[4,000,000] by (b) the Companys Fully-Diluted Capitalization (as defined below) as of immediately prior to the Change
of Control. Change of Control shall mean (i) any person or group (within the meaning of Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), becomes the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the outstanding voting
securities of the Company having the right to vote for the election of members of the Board of Directors, (ii) any
reorganization, merger or consolidation of the Company, other than a transaction or series of related transactions in which
the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related
transactions retain, immediately after such transaction or series of related transactions, at least a majority of the total
voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity,
or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company. Fully Diluted
Capitalization means the sum of (i) all shares of the Companys capital stock (on an as-converted basis) issued and
outstanding, assuming exercise or conversion of all options, warrants and other convertible securities, excluding this
Convertible Security and the other Convertible Securities issued under the Purchase Agreement, and, except with respect
to conversions of this Convertible Security in connection with a Change of Control, (ii) all shares of the Companys
Common Stock reserved and available for future grant under any equity incentive or similar plan of the Company.
If a Qualified Equity Financing (as defined below) occurs prior to the occurrence of a Change of Control, then the
Investment Amount shall automatically convert into fully paid and nonassessable shares of the Companys Preferred
Stock issued in such Qualified Equity Financing and Common Stock at a price per share equal to the lower of (a) the price
obtained by dividing (i) $[4,000,000] by (ii) the Companys Fully Diluted Capitalization as of immediately prior to the
Qualified Equity Financing or (b) [eighty percent (80%)] of the price per share paid by the other purchasers of Preferred
Stock in such Qualified Equity Financing (the Discounted Conversion Price). The total number of shares issuable
upon such conversion shall be determined by dividing the Investment Amount by the Discounted Conversion Price (the
Total Number of Shares). The Total Number of Shares shall consist of (A) that number of Preferred Stock obtained
by dividing (x) the Investment Amount by (y) the price per share paid by other purchasers of Preferred Stock in the
Qualified Equity Financing (the Number of Preferred Stock) and (B) that number of Common Stock equal to the
Total Number of Shares minus the Number of Preferred Stock. Upon such conversion, Holder hereby agrees to execute
and deliver to the Company all transaction documents entered into by other purchasers participating in the Qualified
Equity Financing, including a purchase agreement, an investor rights agreement and other ancillary agreements, with
customary representations and warranties and transfer restrictions (including, without limitation, a 180-day lock-up
agreement in connection with an initial public offering). Qualified Equity Financing means a transaction or series of
transactions pursuant to which Company issues and sells shares of its Preferred Stock for aggregate gross proceeds of at
least [$1,000,000] (excluding all proceeds from the incurrence of indebtedness that is converted into such Preferred Stock
or otherwise cancelled in consideration for the issuance of such Preferred Stock) with the principal purpose of raising
capital.

No delay or omission on the part of the Holder in exercising any right under this Convertible Security shall
operate as a waiver of such right or of any other right of the Holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any future occasion.

This Convertible Security may not be assigned, by operation of law or otherwise, by the Company without the
prior written consent of the Holder. Upon the conversion of this Convertible Security, one or more certificates for the
number of shares in which the Holder is entitled to receive pursuant to this Convertible Security shall be issued by the
Company as soon as practicable after such conversion. No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of this Convertible Security, but in lieu of such fractional shares the Company shall make a
cash payment therefor on the basis of the price per share of the Companys capital stock in which the Investment Amount
converts pursuant to this Convertible Security, as reasonably determined by the Companys Board of Directors on the date
of such conversion.

The Holder shall not be entitled, as a Convertible Security holder, to vote or receive dividends or be deemed the
holder of the Companys capital stock for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise
until the Convertible Security shall have been converted and the shares convertible upon the terms hereof shall have
become deliverable, as provided herein.

In the event any one or more of the provisions of this Convertible Security shall for any reason be held to be
invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the
provisions of this Convertible Security operate or would prospectively operate to invalidate this Convertible Security, then
and in any such event, such provision(s) only shall be deemed null and void and shall not affect any other provision of this
Convertible Security and the remaining provisions of this Convertible Security shall remain operative and in full force and
effect and in no way shall be affected, prejudiced, or disturbed thereby.

All rights and obligations hereunder shall be governed by the laws of the State of California, without regard to the
conflicts of law provisions of the State of California or any other state or commonwealth.

(Signature page follows)


IN WITNESS WHEREOF, the undersigned has executed this Convertible Security as of the date first written
above.

[I NSERT NAME OF COMPANY]

By:
[insert name]
[insert title]

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