Convertible Note Purchase Agreement

Convertible Note Purchase Agreement

Drafts a company-side Convertible Note Purchase Agreement for U.S. early-stage convertible debt financings.

Prerequisites

1. Party details — full legal names, jurisdiction of incorporation, and authorized signatories for issuer and each purchaser
2. Economic terms — aggregate principal amount, purchase price, interest rate (simple/compound), maturity date, valuation cap, discount rate
3. Conversion mechanics — qualified financing threshold, optional conversion triggers, conversion price formula
4. Capitalization table — all current equity and debt outstanding (for reps & warranties accuracy)
5. Term sheet or board resolution — confirms deal economics and corporate authorization
6. Use of proceeds — stated business purpose for the financing

Output Structure

1. Preamble

• Agreement date, full legal names of Company and each Purchaser
• Recitals stating the purpose of the financing and authority for the issuance

2. Purchase and Sale of Notes

3. Representations and Warranties — Company

4. Representations and Warranties — Purchaser

5. Conditions to Closing

• Representations and warranties true and correct as of closing date
• Company has performed all pre-closing covenants
• No material adverse change to business, operations, or financial condition
• Legal opinion from Company counsel (if required by deal)
• Execution of all ancillary documents (e.g., side letters, ROFR waivers)
• Required board or stockholder approvals obtained and certified
• No injunction or legal prohibition on the closing

6. Company Covenants (Post-Closing)

7. Note Terms

8. Events of Default & Remedies

9. Indemnification

• Company indemnifies Purchasers against losses arising from breach of Company reps, warranties, or covenants
• Specify: (i) claim notice procedure and timeframe; (ii) survival period for representations post-closing; (iii) indemnification cap (if negotiated); (iv) basket or deductible (if any)

10. Miscellaneous

• Governing law and jurisdiction (typically Delaware or state of incorporation)
• Dispute resolution — litigation or arbitration; specify venue
• Notice provisions — addresses, permitted email delivery, deemed-receipt timing
• Amendment — written consent of Company + majority-in-interest of Noteholders by principal amount
• Entire agreement / integration clause superseding prior negotiations
• Severability of invalid provisions
• Counterpart execution; electronic signatures expressly authorized
• Waiver of jury trial (confirm enforceability under governing law)

Guidelines

• Securities exemption: Notes must be issued under a valid federal exemption — typically Reg D Rule 506(b) or 506(c) [VERIFY]; confirm all Purchasers are accredited investors before closing; file Form D within 15 days of first sale [VERIFY]
• State blue sky: Confirm applicable state notice or exemption filings for each Purchaser's state of residence
• Authorized shares: Verify Company has sufficient authorized but unissued shares to cover full conversion at the cap price; flag if stockholder approval to increase authorized shares is needed prior to or concurrent with a Qualified Financing
• Cap vs. discount: Both apply simultaneously at conversion — use whichever yields a lower per-share price (more favorable to Noteholder) unless the parties negotiate otherwise
• OID / tax: If notes are issued below face value, flag for tax counsel review of original issue discount rules
• Subordination: Confirm whether notes are senior, pari passu, or subordinated to existing and future indebtedness; obtain any required lender consent
• SAFEs outstanding: If Company has issued SAFEs, address priority, interaction at conversion, and whether SAFE holders have MFN or pro-rata rights that could affect this issuance
• Jurisdiction: Targets U.S. transactions only; any non-U.S. purchaser or issuer elements require local counsel review