Promissory Note Template Example

DOCUMENT CONTROL & FORMAL HEADER

DOCUMENT TITLE: SECURED CONVERTIBLE PROMISSORY NOTE AND DEBT INSTRUMENT DOCUMENT ID: PN-DEBT-INST-992-SEC EFFECTIVE DATE: [Effective Date] VERSION: 2024.1.0 GOVERNING JURISDICTION: State of [Insert Jurisdiction, e.g., Delaware]

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STATUTORY & LEGAL COMPLIANCE NOTICE

ATTENTION: This document is a legally binding contract. It is intended for use by sophisticated parties under the guidance of legal counsel. This template does not constitute legal advice and does not create an attorney-client relationship. The enforceability of specific clauses—particularly those relating to usury limits, interest rates, and arbitration—varies by jurisdiction. The parties are advised to verify that the "Maximum Rate" of interest defined herein does not violate the criminal usury laws of the Governing Jurisdiction.

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1. PARTIES & RECITALS

This SECURED CONVERTIBLE PROMISSORY NOTE (this “Note”) is entered into as of [Effective Date] (the “Effective Date”) by and between:

MAKER (BORROWER): [Borrower Full Legal Name], a [State of Incorporation/Formation] [Entity Type, e.g., Corporation], with its principal place of business located at [Borrower Principal Address] (“Maker”).

HOLDER (LENDER): [Lender Full Legal Name], a [State of Incorporation/Formation] [Entity Type, e.g., LLC], with its principal place of business located at [Lender Principal Address] (“Holder”).

RECITALS: WHEREAS, Maker desires to borrow from Holder, and Holder desires to lend to Maker, the principal sum of $[Amount in USD] (the “Principal Amount”) for the purposes set forth herein; and WHEREAS, this Note is issued in consideration of certain services, assets, or capital provided by Holder to Maker as further detailed in the Scope of Engagement;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

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2. EXHAUSTIVE OPERATIVE CLAUSES & LEGAL TERMS

2.1. Principal, Interest, and Payment Terms

A. Promise to Pay: For value received, Maker hereby promises to pay to the order of Holder, the Principal Amount together with any accrued and unpaid interest and all other amounts payable hereunder. B. Interest Rate: Interest shall accrue on the unpaid Principal Amount at a rate of [Number, e.g., 8]% per annum, compounded annually. Interest shall be calculated on the basis of a 365-day year and the actual number of days elapsed. C. Late Interest: Any payment not made within [Number, e.g., 5] business days of its due date shall bear interest at a rate of the lesser of [Number, e.g., 18]% per annum or the maximum rate permitted by law (the “Default Rate”) until paid in full. D. Maturity Date: The entire unpaid Principal Amount and all accrued interest shall be due and payable in full on [Maturity Date] (the “Maturity Date”), unless accelerated upon an Event of Default or converted into equity as provided herein.

2.2. Scope of Services & Relationship of Parties

The issuance of this Note is intrinsically linked to the engagement between Maker and Holder. Holder shall provide [Specific Description of Services/Milestones] to Maker. The parties acknowledge that this Note serves as the primary compensation mechanism for such engagement. Nothing in this Note shall be construed to create a partnership, joint venture, or employer-employee relationship between the parties.

2.3. Conversion Rights

At the option of the Holder, at any time prior to the Maturity Date, the outstanding Principal Amount and accrued interest may be converted into [Type of Stock, e.g., Series A Preferred Stock] of the Maker at a conversion price of [Conversion Price per Share] per share, subject to standard anti-dilution adjustments.

2.4. Intellectual Property Ownership & Work Made for Hire

A. Ownership: To the extent any deliverables or work product are created by Holder in connection with the services underlying this Note, such work product shall be considered a “work made for hire” for the benefit of Maker. B. Assignment: If any such work product does not qualify as a work made for hire, Holder hereby irrevocably assigns and transfers to Maker all right, title, and interest in and to such work product, including all intellectual property rights therein. C. Security Interest: Notwithstanding the foregoing, Maker hereby grants Holder a first-priority purchase money security interest in all Intellectual Property of Maker as collateral for the repayment of this Note until such time as the Principal Amount and Interest are paid in full or converted.

2.5. Term & Termination

A. Term: This Note shall remain in effect until all obligations hereunder are satisfied in full or converted. B. Termination for Breach: If Maker fails to cure a material breach of this Note within [Number, e.g., 15] days of written notice, Holder may declare the entire balance immediately due and payable. C. Convenience: This Note may not be terminated for convenience by the Maker; it may only be satisfied via full repayment or conversion.

2.6. Mutual Confidentiality & Non-Disclosure

The parties agree to maintain the strict confidentiality of the terms of this Note and any proprietary information shared during the performance of the underlying services (“Confidential Information”). Neither party shall disclose Confidential Information to any third party without prior written consent, except to their respective legal and financial advisors or as required by law. This obligation survives the termination or satisfaction of this Note for a period of [Number, e.g., 3] years.

2.7. Representations & Warranties

A. Maker’s Reps: Maker represents and warrants that (i) it is duly organized and in good standing; (ii) it has the full power and authority to execute this Note; and (iii) this Note constitutes a legal, valid, and binding obligation of Maker. B. Holder’s Reps: Holder represents and warrants that it is an "accredited investor" as defined in Rule 501 of Regulation D under the Securities Act of 1933, and it is acquiring this Note for its own account and not with a view to distribution.

2.8. Limitation of Liability & Indemnification

A. Limitation: In no event shall either party be liable for any indirect, incidental, consequential, or punitive damages arising out of this Note. The maximum aggregate liability of Holder to Maker shall not exceed the amount of the Principal Amount actually paid to Maker. B. Indemnification: Maker agrees to indemnify, defend, and hold harmless Holder from and against any and all claims, losses, or liabilities arising out of Maker's breach of any representation or covenant contained in this Note.

2.9. Events of Default & Remedies

An “Event of Default” occurs if: (i) Maker fails to pay any amount due hereunder; (ii) Maker files for bankruptcy or insolvency; (iii) Maker breaches any material covenant. Upon an Event of Default, Holder may:

1. Declare the entire unpaid Principal and Interest immediately due and payable.
2. Exercise its rights as a secured creditor under the Uniform Commercial Code (UCC).
3. Pursue any other remedy available at law or in equity.

2.10. Dispute Resolution & Mandatory Arbitration

Any dispute, claim, or controversy arising out of or relating to this Note shall be settled by binding arbitration administered by the [American Arbitration Association (AAA) / JAMS] in accordance with its Commercial Arbitration Rules. The place of arbitration shall be [City, State]. Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

2.11. Governing Law & Jurisdiction

This Note shall be governed by and construed in accordance with the laws of the State of [Jurisdiction], without regard to conflict of law principles. For any court proceedings permitted hereunder, the parties consent to the exclusive jurisdiction of the courts located in [County, State].

2.12. Miscellaneous Provisions

A. Severability: If any provision is held unenforceable, the remainder of this Note shall remain in full force. B. Counterparts: This Note may be executed in counterparts, including electronic signatures, each of which shall be deemed an original. C. Entire Agreement: This Note constitutes the entire agreement between the parties regarding the subject matter and supersedes all prior negotiations or agreements. D. Amendments: Any modification to this Note must be in writing and signed by both parties.

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3. EXECUTION & FORMAL SIGNATURE BLOCKS

IN WITNESS WHEREOF, the parties have executed this Secured Convertible Promissory Note as of the Effective Date first written above.

FOR [BORROWER / MAKER]: [Borrower Full Legal Name]

Signature: _____________________________________ Printed Name: [Authorized Signatory Name] Title: [Title / Role] Company: [Borrower Legal Entity Name] Date: [Date]

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FOR [LENDER / HOLDER]: [Lender Full Legal Name]

Signature: _____________________________________ Printed Name: [Authorized Signatory Name] Title: [Title / Role] Date: [Date]

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4. STEP-BY-STEP EXECUTION & FILING GUIDE

Step 1: Document Customization

• Open this document in Microsoft Word, Google Docs, or a specialized CLM (Contract Lifecycle Management) tool.
• Use the Find and Replace function to locate all bracketed fields (e.g., [Effective Date], [Principal Amount]).
• Ensure the "Governing Jurisdiction" matches the state laws where the Maker is incorporated or where the primary collateral is located.

Step 2: Verification of Signatory Authority

• Confirm that the individual signing for the Maker has the delegated authority (via Board Resolution or Operating Agreement) to bind the entity to debt.
• Confirm that the Holder is an "Accredited Investor" if conversion to equity is a viable path, to comply with SEC Regulation D.

Step 3: Execution (Signature)

• Digital Execution: Upload the finalized PDF to DocuSign, Adobe Sign, or PandaDoc. Ensure "Audit Trail" features are enabled to track IP addresses and timestamps of signatures.
• Physical Execution: If signing in ink, execute two (2) original copies so each party retains an original.

Step 4: Perfection of Security Interest

• Since this Note contains a security interest (Section 2.4), the Holder should file a UCC-1 Financing Statement with the Secretary of State in the Maker’s jurisdiction of incorporation. This "perfects" the interest and ensures Holder has priority over other creditors.

Step 5: Record Retention

• Store the fully executed PDF in a secure, encrypted corporate repository.
• Calendar the Maturity Date and any Interest Payment Milestones in the company’s financial ERP or accounting system to avoid unintentional Default.