Atlassian Ventures Convertible Note

Owned by Atlassian
Last updated: Mar 10, 2023
17 min read

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

CONVERTIBLE PROMISSORY NOTE

                                                                                                                                 Date of Issuance

$250,000.00                                                                                                     [Date], 202[_]

FOR VALUE RECEIVED, [Model Corporation], a [Delaware/International]  corporation (the “Company”), hereby promises to pay Atlassian Ventures LLC (the “Lender”), the principal sum of $250,000.00, together with interest thereon from the date of this Note.  Interest shall accrue at a rate of six percent (6%) per annum, compounded annually.  Unless earlier converted into shares of Equity Securities (as defined below) pursuant to the terms of this Note, the principal and accrued interest shall be due and payable by Company on demand by Lender at any time after the earlier of: (i) [Maturity Date][1] and (ii) the closing of the Next Equity Financing (as defined below).

  1. Payment.  All payments shall be made in lawful money of the United States of America at the principal office of the Company, or at such other place as the holder hereof may from time to time designate in writing to the Company.  Payment shall be credited first to Costs (as defined below), if any, then to accrued interest due and payable and the remainder applied to principal.  Prepayment of principal, together with accrued interest, may not be made without Lender’s written consent.  The Company hereby waives demand, notice, presentment, protest and notice of dishonor.

  2. Security.  This Note is a general unsecured obligation of the Company.

  3. Representations and Warranties of the Company.  In connection with the transactions provided for herein, the Company hereby represents and warrants to the Lender that:

3.1 Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of [the State of Delaware/Country] and has all requisite corporate power and authority to carry on its business as now conducted.  The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

3.2 Authorization.  Except for the authorization and issuance of the shares issuable in connection with the Next Equity Financing, all corporate action has been taken on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Note.  The Company has taken all corporate action required to make all the obligations of the Company reflected herein the valid and enforceable obligations they purport to be.

3.3 Compliance with Other Instruments.  The authorization, execution and delivery of this Note will not constitute or result in a material default or violation of any law or regulation applicable to the Company, including applicable securities laws, or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.

3.4 Valid Issuance of Capital Stock.  The capital stock, when issued, sold and delivered upon conversion of this Note, will be duly authorized, validly issued, fully paid and nonassessable and, based in part upon the representations of the Lender herein, will be issued in compliance with all applicable federal and state securities laws.

4. Representations and Warranties of the Lender.  In connection with the transactions provided for herein, Lender hereby represents and warrants to the Company that:

4.1 Authorization.  This Note constitutes Lender’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to availability of specific performance, injunctive relief or other equitable remedies.

4.2 Purchase Entirely for Own Account.  Lender acknowledges that this Note is issued to Lender in reliance upon Lender’s representation to the Company that the Note will be acquired for investment for Lender’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Lender has no present intention of selling, granting any participation in, or otherwise distributing the same.  By executing this Note, Lender further represents that Lender does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to this Note.

4.3 Investment Experience.  Lender is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Note.  If other than an individual, Lender also represents it has not been organized solely for the purpose of acquiring this Note.

4.4 Restricted Securities.  Lender understands that this Note is characterized as a “restricted security” under the federal securities laws inasmuch as it is being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such security may be resold without registration under the Act, only in certain limited circumstances.  In this connection, Lender represents that it is familiar with Rule 144 as promulgated by the Securities and Exchange Commission under the Act, as presently in effect (“Rule 144”), and understands the resale limitations imposed thereby and by the Securities Act of 1933, as amended (the “Act”).

4.5 Further Limitations on Disposition.  Without in any way limiting the representations and warranties set forth above, Lender further agrees not to make any disposition of all or any portion of this Note unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 4, Section 6.8 and:

(a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) Lender shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, Lender shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act.  It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

4.6 California Corporate Securities Law.  THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.  THE RIGHTS OF ALL PARTIES TO THIS NOTE ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

5. Further Agreements.

5.1 Conversion of the Note.  The Note shall be convertible according to the following terms:

(a) The following terms shall have the meanings assigned below:

(i) “Capped Price” means the price per share equal to the Valuation Cap divided by the Company Capitalization.

(ii) “Company Capitalization” means the sum, as of immediately prior to the Next Equity Financing or Corporate Transaction, as applicable, of: (i) all shares of capital stock (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants and other convertible securities, but excluding (A) this instrument, (B) all other Notes (or similar instruments), and (C) convertible equity securities or SAFEs; and (ii) in the case of the Next Equity Financing, all shares of Common Stock reserved and available for future grant under any equity incentive or similar plan of the Company, and/or any equity incentive or similar plan to be created or increased in connection with the Next Equity Financing.

(iii) “Conversion Price” means the lesser of the (i) the Capped Price or (ii) the Discount Price.

(iv) “Conversion Shares” shall, for purposes of determining the type of Equity Securities issuable upon conversion of the Note, mean:

(A) if the Notes are converted to equity pursuant to Section 5.1(b) below, the Equity Securities issued in the Next Equity Financing having identical rights, privileges, preferences and restrictions as the Equity Securities issued to the cash investors in the Next Equity Financing, other than with respect to (A) the per share liquidation preference and the conversion price for purposes of price-based anti-dilution protection, which will equal the applicable Conversion Price, and (B) the basis for any dividend rights, which will equal the applicable Conversion Price;

(B) if the Notes are converted to equity pursuant to Section 5.1(d) below, shares of Common Stock.

(v) “Corporate Transaction” means (i)  a transaction or series of related transactions in which 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 Company’s 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.

(vi) “Discount Price” means the price per share of the Equity Securities sold at a fixed valuation in the Next Equity Financing multiplied by the Discount Rate.

(vii) “Discount Rate” means 80%.

(viii) “Equity Securities” means the Company’s Common Stock or Preferred Stock or any securities conferring the right to purchase the Company’s Common Stock or Preferred Stock or securities convertible into, or exchangeable for (with or without additional consideration), the Company’s Common Stock or Preferred Stock, except any security granted, issued and/or sold by the Company to any director, officer, employee or consultant of the Company in such capacity for the primary purpose of soliciting or retaining their services.

(ix) “Fully-Diluted Capitalization” means (A) all outstanding shares of the Company’s Common Stock, including shares of Common Stock issuable upon conversion of Preferred Stock outstanding prior to the Next Equity Financing; (B) shares of Common Stock issuable or issued upon conversion or exercise of all outstanding convertible securities, including the Convertible Security, other Simple Agreements for Future Equity, convertible notes, or other similar instruments outstanding prior to the Next Equity Financing; (C) all (i) issued and outstanding options, restricted stock awards or purchases, restricted stock units, stock appreciation rights or similar securities, vested or unvested (collectively, the “Options”) and (ii) promised but ungranted Options (the “Promised Options”); and (D) all shares of Common Stock or Preferred Stock that are reserved, available for future grant and not subject to any outstanding Options or Promised Options under any equity incentive or similar Company plan.

(x) “Initial Public Offering” means the closing of the first issuance and sale of shares of Common Stock of the Company in the Company’s first underwritten public offering pursuant to an effective registration statement under the Act.

(xi) “Next Equity Financing” means the next transaction (or series of transactions) by the Company with the principal purposes of raising capital, pursuant to which the Company issues and sells Equity Securities at a fixed valuation, including but not limited to, a pre-money or post-money valuation.

(xii) “New Securities” means shares of the Company’s equity securities (other than equity securities issued on conversion of convertible promissory notes or simple agreements for future equity) issued in the Company’s Next Equity Financing.

(xiii) “Participation Amount” means in the case of the Next Equity Financing, the product obtained by multiplying (xx) the quotient resulting from dividing (1) the number of shares of the Company’s capital stock (measured on an as-converted basis) then held by the Lender (including shares of the Company’s capital stock issued to the Lender upon conversion of this Note) by (2) the Company’s Fully-Diluted Capitalization as of immediately prior to the initial closing of the Next Equity Financing, and (yy) the aggregate amount of New Securities offered for sale in the Next Equity Financing.

(xiv) “Valuation Cap” means $5,000,000.

(b) The principal and unpaid accrued interest of this Note will be automatically converted into Conversion Shares upon the closing of the Next Equity Financing.  The number of shares of such Conversion Shares to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest due on this Note on the date of conversion, by the Conversion Price.  At least five (5) days prior to the closing of the Next Equity Financing, the Company shall notify the Lender in writing of the terms under which the Equity Securities of the Company will be sold in such financing. The conversion of this Note into Conversion Shares shall be on such terms and shall occur on the closing date of such Next Equity Financing.

(c) Upon the conversion of this Note into Conversion Shares, in lieu of any fractional shares to which the Lender of the Note would otherwise be entitled, the Company shall pay the holder cash equal to such fraction multiplied by the issue price of such Conversion Shares.

(d) In the event of a Corporate Transaction or Initial Public Offering of the Company prior to full payment of this Note or prior to the time when the Note may be converted (as provided herein), at the option of the Lender, (i) all outstanding principal and unpaid accrued interest due on such Note shall be due and payable in full prior to the closing of the Corporate Transaction or Initial Public Offering or (ii) the outstanding principal and unpaid accrued interest of each Note shall be converted into Conversion Shares and the number of shares of such Conversion Shares to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest due on this Note on the date of conversion, by the Capped Price.    

(e) As promptly as practicable after the conversion of this Note, the Company at its expense will issue and deliver to the Lender, upon surrender of the Note, a certificate or certificates for the number of full shares of Equity Securities issuable upon such conversion.

5.2 Additional Rights.

(a) The Company shall deliver to the Lender as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders’ equity as of the end of such year,  all prepared in accordance with GAAP or IFRS. In addition, the Company shall deliver to the Lender as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP or IFRS (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP or IFRS). Such financial statements shall be in reasonable detail and prepared on a consistent basis. In addition, the Company shall deliver to the Lender such other information relating to the financial condition, business or corporate affairs of the Company as the Lender may from time to time reasonably request.

(b) In the event the Company proposes to offer shares of the Company’s Equity Securities (other than Equity Securities issued on conversion of convertible promissory notes or simple agreements for future equity) issued in the Company’s Next Equity Financing, the Company shall provide the Lender with at least fifteen (15) business days prior written notice of such offering, including the price and terms thereof. The Lender shall have a right of first offer to participate in the Next Equity Financing, on the same terms and for the lowest price per share offered in such offering, by purchasing up to the number of shares of New Securities equal to the Participation Amount. The Lender shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate.

(c) If the Company receives a bona fide written proposal from a third party for a proposed transaction that, if consummated, would qualify as a Corporate Transaction, the Company shall notify Lender at least five (5) business days in advance of entering into any binding exclusivity arrangement, definitive agreement, term sheet, letter of intent or similar agreement with respect to such proposed transaction, to allow Lender time to consult with the Company prior to entering into such binding exclusivity arrangement, definitive agreement, term sheet, letter of intent or similar agreement. For the avoidance of doubt, the Company shall not be obligated to disclose the terms of the proposal or identity of the third party to Lender pursuant to this Note. The Company shall have no obligation to accept or consider any proposal by Lender that results from any such five (5) day period of consultation.

6. Miscellaneous.

6.1 Successors and Assigns.  Except as otherwise provided herein, the terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however that the Company may not assign its obligations under this Note without the written consent of the Holder.  Nothing in this Note, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Note, except as expressly provided in this Note.

6.2 Governing Law.  This Note shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents, made and to be performed entirely within the State of Delaware.

6.3 Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Note.

6.4 Notices.  All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given upon the earlier to occur of actual receipt or when sent by confirmed electronic mail, if sent during normal business hours of the recipient; if not, then on the next business day. All notices and other communications to Lender shall be sent to Lender via electronic mail at legalfilings@atlassian.com.

6.5 Finder’s Fee.  Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction.  Lender agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which Lender or any of its officers, partners, employees or representatives is responsible.  The Company agrees to indemnify and hold harmless Lender from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

6.6 Expenses.  If any action at law or in equity is necessary to enforce or interpret the terms of this Note, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

6.7 Severability.  If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

6.8 Stock Purchase Agreement.  Lender understands and agrees that the conversion of the Note into Equity Securities of the Company may require Lender’s execution of certain agreements (in form reasonably agreeable to the Lender) relating to the purchase and sale of such securities as well as registration, co‑sale, rights of first refusal, rights of first offer and voting rights, if any, relating to such securities.

6.9 Exculpation of Lender.  Lender acknowledges that it is 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.  Lender agrees that neither Lender nor the respective controlling persons, officers, directors, partners, agents or employees of Lender shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with this Note and any Equity Securities issued upon conversion thereof.

6.10 Acknowledgement.  In order to avoid doubt, it is acknowledged that Lender shall be entitled to the benefit of all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Preferred Stock of the Company which occur prior to the conversion of the Note, including without limitation, any increase in the number of shares of Common Stock issuable upon conversion as a result of a dilutive issuance of capital stock.

6.11 Indemnity; Costs, Expenses and Attorneys’ Fees.  The Company shall indemnify and hold Lender harmless from any loss, cost, liability and legal or other expense, including attorneys’ fees of Lender’s counsel, which Lender may directly or indirectly suffer or incur by reason of the failure of the Company to perform any of its obligations under this Note, any agreement executed in connection herewith or therewith, any grant of or exercise of remedies with respect to any collateral at any time securing any obligations evidenced by this Note, or any agreement executed in connection herewith (collectively, “Costs”), provided, however, the indemnity agreement contained in this section shall not apply to liabilities which a Lender may directly or indirectly suffer or incur by reason of Lender’s own gross negligence or willful misconduct.

6.12 Further Assurance.  From time to time, the Company shall execute and deliver to Lender such additional documents and shall provide such additional information to the Lender as Lender may reasonably require to carry out the terms of this Note, and any agreements executed in connection herewith, and to be informed of the financial and business conditions and prospects of the Company.

6.13 Waiver of Jury Trial.  TO THE EXTENT EACH MAY LEGALLY DO SO, EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES HERETO WITH RESPECT TO THIS NOTE, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.  TO THE EXTENT EACH MAY LEGALLY DO SO, EACH PARTY HERETO HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

6.14 Entire Agreement; Amendments and Waivers.  This Note 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.  Any term of this Note may be amended and the observance of any term may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Lender.  Any waiver or amendment effected in accordance with this Section shall be binding upon each future holder of all such securities, and the Company.

6.15 Officers and Directors not Liable.  In no event shall any officer or director of the Company be liable for any amounts due and payable pursuant to this Note.

6.16 Public Announcement; Brand Use.  The Company shall not (i) issue any press release that includes the name Atlassian nor make any public announcement relating to the investment made by Lender in the Company, (ii) incorporate any Lender mark, logo or branding in any brand name, trade name, domain name, and/or social media asset of the Company, (iii) issue any press release containing any Lender mark, logo or branding, or (iv) otherwise use any Lender mark, logo or branding, in each case without the prior written consent of Lender. The Company shall comply with all applicable Lender public relations, branding, logo, vendor endorsement, and trademark guidelines, as described atTrademark | Atlassian and in Atlassian’s Developer Terms at Atlassian Developer Terms . All guidelines included therein are subject to change or modification by Lender at any time for any reason. Lender shall have the right to make public announcements of its investment in the Company.  The Company grants Lender permission to use its name and logo or logos in connection with its investment portfolio and in its promotional materials. The Company represents it owns all rights in the Company’s current logo or logos.

6.17 Atlassian Employee Equity. Neither the Company nor any entity affiliated with the Company shall grant or issue equity securities (or equity-linked securities) of the Company or its affiliated entities to any then-current employee of Lender of any Affiliates of Lender.

[Signature Page Follows]

[MODEL CORPORATION, INC.]

By:                                                                      

Name:                                                                 

Title:                                                                   

 

ACKNOWLEDGED AND AGREED:
LENDER

ATLASSIAN VENTURES LLC

By: Atlassian Corporation, its managing member

By:                                                              

Name:

Title: 

[1] NTD: to be set at the 6 year anniversary of the date of issuance.