FORM OF 12% CONVERTIBLE NOTE

EXHIBIT 10.7

FORM OF 12% CONVERTIBLE NOTE

THE SECURITIES WHICH ARE REPRESENTED BY THIS INSTRUMENT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES HAVE BEEN OR WILL BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITII A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER SUCH STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS.

 

ENLIGHTENED GOURMET, INC.

12% Convertible Note

Due October      2008

$

October      , 2006

ENLIGHTENED GOURMET, INC, a CONNECTICUT corporation (herein called the "Borrower" or the "Company”), for value received, hereby promises to pay to                                      (the "Holder"), on the     day of October, 2008 the principal amount of                                                                 dollars ($                                ) and              to pay interest on such principal amount as set forth below.  

1.

Note.  This Secured Promissory Note (the “Note”) is issued by the Borrower. The Holder is entitled to the benefits of this Note, and may enforce the agreements of the Borrower contained herein and exercise the remedies provided for hereby or otherwise available at law in respect hereto, including with regard to any collateral provided hereunder.  

 

2.

Interest.  The Borrower promises to pay interest (“Interest”) on the principal amount of this Note at the rate of 12% per annum (the “Interest Rate”).  Interest on this Note shall accrue from and including the date of issuance through and until repayment of the principal amount of this Note and payment of all Interest shall be computed on the basis of a 365-day year.  Interest shall be paid and due on the earlier of (a) the maturity date of the Note: or (b) on the date of the Conversion of this Note for any portion of the Note converted.  All payments of interest and principal shall be in lawful money of the United States of America.  All payments shall be applied first to accrued interest and thereafter to principal.  All payments shall be made to the Holder at the address for the Holder set forth above.

 

 

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Default Rate of Interest.  Notwithstanding the foregoing provisions, but subject to applicable law, any overdue principal of and overdue Interest on this Note shall bear interest, payable on demand in immediately available funds, for each day from the date payment thereof was due to the date of actual payment, at a rate equal to the sum of (i) the Interest Rate and (ii) an additional 5% per annum, and, upon and during the occurrence of an Event of Default (as hereinafter defined), this Note shall bear interest, from the date of the occurrence of such Event of Default until such Event of Default is cured or waived, payable on demand in immediately available funds, at a rate equal to the sum of (i) the Interest Rate and (ii) an additional 5% per annum.  Subject to applicable law, any interest that shall accrue on overdue interest on this Note as provided in the preceding sentence and shall not have been paid in full on or before the next Interest Payment Date to occur after the date on which the overdue interest became due and payable shall itself be deemed to be overdue interest on this Note to which the preceding sentence shall apply.  

 

No Usurious Interest.  In the event that any interest rate(s) provided for in this Note (or any other payment hereunder) shall be determined to be unlawful, such interest rate(s) (or other payment) shall be computed at the highest rate (or amount) permitted by applicable law.  Any payment by the Borrower of any amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal amount of this Note without prepayment premium or penalty; if no such principal amount is outstanding, such excess shall be returned to Borrower.

 

3.

Optional Prepayment.  The Borrower, at its option, may prepay all or any portion of the principal amount of this Note then outstanding at any time prior to maturity upon not less than 15 days' written notice to the Holder.  All optional prepayments shall include payment of accrued Interest on the entirety of the Note and any payment made shall be applied first to all costs and expenses payable hereunder, then to payment of default interest, if any, then to payment of the Interest, and thereafter to principal.  However, delivery of a notice of prepayment shall not affect the right of the Holder to convert all or any part of the amount to be prepaid in accordance with the terms of this Note by delivering notice of conversion prior to the date fixed for prepayment, and in that event the notice of prepayment shall be ineffective as to the principal amount to be so converted.

 

4.

Collateral.  Borrower has agreed to secure its obligations to the Holder pursuant to the Note, by granting the Holder a security interest in all of the Collateral hereinafter referred to.  In this regard, Borrower will provide Holder with a security interest in all collateral itemized in the Security Agreement (pro rata with other investors in this $1.5 million offering).  Additionally, Borrower will provide the Stock Escrow Agent (as defined in the Stock Escrow Agreement being signed on or about the same date as this Note) 30 Million (30,000,000) shares of The Enlightened Gourmet Inc. common stock (the "Enlightened Gourmet Common Stock") as collateral for conversion for the benefit of Holders.  Holder will have a security interest in that amount of the stock as follows: (the quotient of amount of this note divided by $1.5 Million) times 30 million.  Such stock will be unregistered but shall have registration rights in the event of a Conversion, as provided elsewhere in Section 5(b) of this Note, and until issued to the Holder upon conversion or default, will be covered by a proxy giving voting rights over such shares to the Borrower.  Collectively, the Enlightened Gourmet Common Stock and the collateral set forth in the Security Agreement are hereinafter referred to as the "Collateral").

 

 

 

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Borrower acknowledges that it owns all stock being tendered to the Escrow Agent and that all such shares will be validly issued, fully paid and non-assessable and free from all taxes, liens and charges.  Borrower assigns, transfers and grants to the Holder, as security for the payment, observance and performance of all Borrower’s obligations under this Agreement, a security interest in all of Borrower’s right, title and interest in and to the Collateral.

Borrower further agrees that he will undertake all steps necessary and cooperate with Holder and Escrow Agent to undertake ensure the transferability and marketability of such stock, including any legal opinions, providing timely registration of the Collateral or otherwise that may be requested.

 

5.

Conversion.

a.

This Note shall be convertible into shares of Common Stock, par value $0.01 per share, of the Company ("Common Stock") at the Conversion Price as defined below, at the option of the Holder in whole or in part, at any time, commencing on the date of this Note.  Any conversion under this Section 5(a) shall be for a minimum principal amount of $25,000.00 (unless the face value of this note is less than $25,000 in which case conversion shall be for the full amount of the note only).  The Holder shall effect conversions by surrendering the Note to be converted to the Escrow Agent identified below, together with a written request for conversion.  A form for conversion is provided as Schedule A hereto.  Each request for conversion shall specify the principal amount to be converted, and the date on which such conversion is to be effected (the "Conversion Date").  Each request for conversion, once given, shall be irrevocable.  If the Holder is converting less than all of the principal amount of this Note, the Company shall deliver to the Holder a new Note for such principal amount as has not been converted within two (2) Business Days of the Conversion Date.  

b.

Not later than two (2) Business Days after the Conversion Date, the Company will deliver to the Holder (i) a certificate or certificates which shall be free of restrictive legends and trading restrictions, representing the number of shares of Common Stock being acquired upon the conversion of this Note and (ii) a new Note in principal amount equal to the principal amount of this Note not converted; provided, however that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of this Note, until either this Note is delivered for conversion to the Company or the Holder notifies the Company that such Note has been lost, stolen or destroyed and provides an agreement reasonably acceptable to the Company to indemnify the Company from any loss incurred by it in connection therewith, and provided further, that if at the time of delivery of the certificate or certificates referred to above there is not an effective registration statement covering resale of the shares being acquired upon conversion of the Note, then such certificate or certificates shall bear an appropriate legend referring to the registration requirements of the Securities Act of 1933; however, in such event, the Company shall prepare and file with the Securities and Exchange Commission within 90 days after the date of the making of this note (as set forth in the first paragraph hereof) a registration statement on Form SB-2 or S-1 or such other form as is appropriate in order to register the Converted Shares.  In the event that the Company fails to file a registration statement within 90 days as set forth above; or fails to thereafter act in good faith to prosecute the registration of the shares, the Company shall be obligated to pay to the Holder  additional shares of the Company's Common  Stock in an amount equal to 21.875 million multiplied by the quotient of the amount of this note divided by $1,500,000.

 

 

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c.

Conversion Price.

(i)

The Conversion Price for this Note in effect on any Conversion Date shall be at 5 cents ($0.05) per share (the "Fixed Conversion Price").

(ii)

If the Company, at any time while this Note is outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock payable in shares of its capital stock (whether payable in shares of its Common Stock or of capital stock of any class), (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the Fixed Conversion Price then in effect shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock of the Company outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

(iii)

If the Company, at any time while this Note is outstanding, shall issue or sell shares of Common Stock, or options, warrants or other rights to subscribe for or purchase shares of Common Stock, (excluding shares of Common Stock issuable upon exercise of options, warrants or conversion rights granted prior to the date hereof) and at a price per share less than the Fixed Conversion Price, the Fixed Conversion Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such shares, options, warrants or rights plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Fixed Conversion Price.  Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants.  However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Price pursuant to this Section 5(c)(iii) if any such right or warrant shall expire and shall not have been exercised, the Fixed Conversion Price then in effect shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section 5(c) after the issuance of such rights or warrants) had the adjustment of the Conversion Price made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised.  In no event shall the Fixed Conversion price be greater than 5 cents ($0.05).

 

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(iv)

If the Company, at any time while this Note is outstanding, shall distribute to all holders of Common Stock evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Section 5(c)(iii) above) then in each such case the Conversion Price at which this Note shall thereafter be convertible shall be determined by multiplying the Fixed Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Fixed Conversion Price of Common Stock determined as of the record date mentioned above, and of which the numerator shall be such Fixed Conversion Price of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors in good faith; provided, however that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, such fair market value shall be determined by a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the Holder; and provided, further, that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

(v)

All calculations under this Section 5 shall be made to the nearest 1/1000th of a cent or the nearest 1/1000th of a share, as the case may be.  Any calculation over .005 shall be rounded up to the next cent or share and any calculation less than .005 shall be rounded down to the previous cent or share.

(vi)

Whenever the Fixed Conversion Price is adjusted pursuant to Section 5(c)(ii), 5(c)(iii) or 5(c)(iv), the Company shall within two (2) days after the determination of the new Fixed Conversion Price mail and fax to the Holder, a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(vii)

In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person, the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to convert such Note only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange (except in the event the property is cash, then the Holder shall have the right to convert this Note and receive cash in the same manner as other stockholders), and the Holder shall be entitled upon such event to receive such amount of securities or property as the shares of the Common Stock into which such Note could have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange would have been entitled.  The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the holder the right to receive the securities or property set forth in this Section 5(c)(vii) upon any conversion following such consolidation, merger, sale, transfer or share exchange.  This provision shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

 

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(viii)

If:

(A)

the Company shall declare a dividend (or any other distribution) on its Common Stock; or

(B)

the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or

(C)

the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or

(D)

the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company (other than a subdivision or combination of the outstanding shares of Common Stock), any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities,