Sample Risk Factor Statement

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This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

STATEMENT OF RISK FACTORS

THIS STATEMENT OF RISK FACTORS (the “Risk Factors”) is provided on this ___________, 20__, by and between XYZ Corporation, an <State> corporation (the “Company”), and _______________________ (the “Investor”).

RECITALS:

The Investor and the Company have entered into a Convertible Note Purchase Agreement of event date herewith. The Company has identified certain risks which the Investor should be apprised of which it desires to disclose to the Investor as a part of the note purchase transaction.

– STATEMENT OF RISK FACTORS –

Investing in the Securities involves a high degree of risk. The risk factors and all other information disclosed in the Convertible Promissory Note transaction must be carefully considered before making an investment decision regarding the Securities. One or more of these risk factors could cause a loss of part or all funds invested in the Securities.

The Company may not be able to create the products or produce the inventory is estimates it will need to launch the business with Seed Capital to prove its business concept.

The Company may not be able to create the products or produce the inventory necessary to prove its business concept and in turn to make its Series A offering. In such a case, the expected conversion of the Investors’ debt into an equity security would not take place and the anticipated benefit of equity ownership would not occur.

The Company may not raise sufficient funds to close the Series A offering and the investor may not be able to convert its debt to equity.

The Company may not raise funds sufficient to close the Series A Round. If sufficient funds are not raised to close the Series A Round, the Investors’ only recourse may be to secure the repayment of the principal and interest of their loans from the Company.

The Company is recently formed and has not operating history and no revenues.

The Company was only recently formed and has no operating history and has generated no revenues. There is no assurance that the Company can generate revenues or sell any of its products in the marketplace, and even if revenues are generated there is no assurance that the Company can earn a profit, in which case the Investors’ notes may not be repaid

Estimated expenses may exceed the projected Seed Capital needs.

The Company has estimated the cost of certain expenses required to fund its seed capital needs which will allow it to conduct its Series A offering. If expenses exceed those projected, the Series A offering may be delayed or cancelled which would negatively impact the conversion of the Investors’ notes into equity.

The Company is thinly capitalized and may default on the Convertible Notes.

The Company’s working capital will consist of the funds secured from the sale of the Convertible Notes. If expenses and anticipated uses of these funds exceed those anticipated by the Company there may be insufficient funds to pay back the Investors’ loans.

In the event of default on the notes, the assets of the Company pledged as collateral in the Security Agreement would not be sufficient to repay all of the Investors’ loans.

The Company has provided a Security Agreement for each Convertible Note which encumbers all of the assets of the Company. If the assets were liquidated pursuant to a default and foreclosure, there would not be sufficient cash generated to pay off the principal or interest due on the Convertible Promissory Notes.

THE COMPANY IS OFFERING THE SECURITIES PURSUANT TO AVAILABLE EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS. IF THE INVESTORS’ PROMISSORY NOTES ARE CONVERTED, ADDITIONAL RISKS WILL BE DISCLOSED ACCORDING TO A PRIVATE PLACEMENT MEMORANDUM AT THE TIME OF THE CONVERSION. THESE SECURITIES WHEN ISSUED WILL BE RESTRICTED SECURITIES AND GENERALY MUST BE HELD INDEFINATELY. THEY MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN AVAILABLE EXEMPTION FROM REGISTRATION WITH AN OPINION FROM LEGAL COUNSEL TO THAT EFFECT SATISFACTORY TO THE COMPANY. THE COMPANY IS UNDER NO OBLIGATION AND HAS NO INTENTION, TO REGISTER THE SECURITIES AND IS UNDER NO OBLIGATION TO ATTEMPT TO SECURE AN EXEMPTION FOR ANY SUBSEQUENT SALE.

Additional disclosures may have been required if this Note Purchase Agreement and related documents had been reviewed by federal or state securities regulators.

Because this transaction is a private offering and not registered under the U.S. Securities Act of 1933 or state securities laws, it has not been reviewed by the Securities and Exchange Commission or the state securities regulators. Review may have resulted in additional disclosures by the Company.

Investment in the Securities involves complex tax consequences; no tax opinion has been secured.

The tax consequences related to an investment in the Convertible Notes is complex and may involve the application of United States, state and local taxes. There has been no tax opinion secured related to the taxation of the Limited Partnership Units or any other advice or counsel for the investors. INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OR TO SECURE THEIR OWN TAX OPINIONS.

Conclusion.

GENERALLY, IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS INVESTMENT, POTENTIAL INVESTORS SHOULD KEEP IN MIND OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.

THE INVESTORS CONSIDERING THESE CONVERTIBLE PROMISSORY NOTE SECURITIES ARE ADVISED TO SEEK LEGAL, TAX AND FINANCIAL COUNSEL PRIOR TO PARTICIPATING IN THE INVESTMENT POGRAM.

IN WITNESS WHEREOF, this document is executed on the day and year first above written.

COMPANY: XYZ CORPORATION, AN <STATE> CORPORATION
By: __________________________________

The Aforementioned Risks are Acknowledged and Understood:

INVESTOR: __________________________

Name: ______________________________
Title: _______________________________

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

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