Convertible Note Purchase Agreement
Drafts a company-side CNPA for U.S. early-stage convertible debt financings. Covers the full agreement from preamble through miscellaneous provisions.
Prerequisites
Gather before drafting:
- Parties — legal names, jurisdictions, authorized signatories (issuer + each purchaser)
- Economics — aggregate principal, purchase price, interest rate (simple/compound), maturity date, valuation cap, discount rate
- Conversion mechanics — qualified financing threshold, optional conversion triggers, conversion price formula
- Cap table — all outstanding equity and debt (for rep accuracy)
- Authorization — term sheet or board resolution confirming deal economics
- Use of proceeds — stated business purpose
Drafting Workflow
1. Preamble
Date, full legal names, recitals stating financing purpose and issuance authority.
2. Purchase and Sale of Notes
- Note description: aggregate principal, per-note denomination, series designation
- Purchase price: face value or specify OID if issued at discount
- Closing mechanics: date, wire instructions, deliverables (executed notes to Purchasers; funds to Company)
3. Company Representations and Warranties
Include reps for: organization and good standing, corporate authority (board authorization, no charter/bylaw conflicts), capitalization (fully-diluted cap table with all convertible instruments), no material litigation, compliance with law, financial statement accuracy, no default under material agreements, and use of proceeds.
4. Purchaser Representations and Warranties
Include reps for: accredited investor status under Rule 501 [VERIFY], investment intent (own account, not for distribution), restricted securities acknowledgment, sophistication and ability to bear loss, and independent investigation.
5. Conditions to Closing
- Reps and warranties true as of closing
- All pre-closing covenants performed
- No material adverse change
- Legal opinion from Company counsel (if required)
- All ancillary documents executed (side letters, ROFR waivers)
- Board/stockholder approvals obtained
- No injunction or legal prohibition
6. Post-Closing Covenants
- Use of proceeds restricted to stated purpose
- Financial reporting to Noteholders (specify frequency/format)
- Additional indebtedness: parity or subordination rules
- Maintain corporate existence; no dissolution without majority Noteholder consent
- Prompt default notice to Noteholders
- Inspection rights (if negotiated)
7. Note Terms
| Term |
Detail |
| Interest |
Annual rate; simple vs. compound; accrual start date |
| Maturity |
Date principal + accrued interest due |
| Automatic conversion |
Triggers on Qualified Financing exceeding threshold (e.g., $1M+ equity) |
| Optional conversion |
Noteholder election at/after maturity or upon Change of Control |
| Conversion price |
Lesser of: (i) Valuation Cap / Fully-Diluted Shares; (ii) Next Round Price x (1 - Discount Rate) |
| Anti-dilution |
Broad-based weighted-average; specify excluded share carve-outs |
| Change of Control |
Cash repayment at premium, or Noteholder election to convert |
| MFN |
If applicable, match superior terms offered to later note purchasers |
8. Events of Default and Remedies
| Default |
Remedy |
| Failure to pay at maturity |
Acceleration; default interest rate |
| Breach of rep/warranty |
Acceleration after notice + cure period |
| Breach of covenant |
Acceleration after notice + cure period |
| Insolvency/bankruptcy |
Automatic acceleration; no notice required |
| Unapproved Change of Control |
Convert at cap price or cash repayment at premium |
9. Indemnification
Company indemnifies Purchasers for breach of Company reps, warranties, or covenants. Specify: claim notice procedure, rep survival period, indemnification cap (if any), and basket/deductible (if any).
10. Miscellaneous
Governing law (typically Delaware), dispute resolution and venue, notice provisions, amendment (Company + majority-in-interest by principal), entire agreement/integration, severability, counterpart execution with electronic signatures, and jury trial waiver (confirm enforceability).
Critical Checks
- Securities exemption: Issue under Reg D 506(b) or 506(c) [VERIFY]; confirm all Purchasers are accredited; file Form D within 15 days of first sale [VERIFY]
- State blue sky: Confirm notice/exemption filings for each Purchaser's state
- Authorized shares: Verify sufficient authorized but unissued shares for full conversion at cap price; flag if stockholder approval needed to increase
- Cap vs. discount: Both apply simultaneously — use whichever yields lower per-share price (more favorable to Noteholder) unless negotiated otherwise
- OID/tax: If issued below face value, flag for tax counsel review of original issue discount rules
- Subordination: Confirm senior, pari passu, or subordinated status; obtain required lender consents
- Outstanding SAFEs: Address priority and interaction at conversion; check for MFN or pro-rata rights affecting this issuance
- Jurisdiction: U.S. transactions only; non-U.S. elements require local counsel
1---2name: convertible-note-purchase-agreement3description: Drafts a company-side Convertible Note Purchase Agreement for U.S. early-stage convertible debt financings. Structures note economics, conversion mechanics, reps and warranties, closing conditions, covenants, default provisions, and miscellaneous terms. Use when drafting a convertible note purchase agreement, bridge note, convertible debt financing, or SAFE alternative for a startup or early-stage company.4license: Apache-2.05---67# Convertible Note Purchase Agreement89Drafts a company-side CNPA for U.S. early-stage convertible debt financings. Covers the full agreement from preamble through miscellaneous provisions.1011## Prerequisites1213Gather before drafting:14151. **Parties** — legal names, jurisdictions, authorized signatories (issuer + each purchaser)162. **Economics** — aggregate principal, purchase price, interest rate (simple/compound), maturity date, valuation cap, discount rate173. **Conversion mechanics** — qualified financing threshold, optional conversion triggers, conversion price formula184. **Cap table** — all outstanding equity and debt (for rep accuracy)195. **Authorization** — term sheet or board resolution confirming deal economics206. **Use of proceeds** — stated business purpose2122## Drafting Workflow2324### 1. Preamble2526Date, full legal names, recitals stating financing purpose and issuance authority.2728### 2. Purchase and Sale of Notes2930- Note description: aggregate principal, per-note denomination, series designation31- Purchase price: face value or specify OID if issued at discount32- Closing mechanics: date, wire instructions, deliverables (executed notes to Purchasers; funds to Company)3334### 3. Company Representations and Warranties3536Include reps for: organization and good standing, corporate authority (board authorization, no charter/bylaw conflicts), capitalization (fully-diluted cap table with all convertible instruments), no material litigation, compliance with law, financial statement accuracy, no default under material agreements, and use of proceeds.3738### 4. Purchaser Representations and Warranties3940Include reps for: accredited investor status under Rule 501 [VERIFY], investment intent (own account, not for distribution), restricted securities acknowledgment, sophistication and ability to bear loss, and independent investigation.4142### 5. Conditions to Closing4344- Reps and warranties true as of closing45- All pre-closing covenants performed46- No material adverse change47- Legal opinion from Company counsel (if required)48- All ancillary documents executed (side letters, ROFR waivers)49- Board/stockholder approvals obtained50- No injunction or legal prohibition5152### 6. Post-Closing Covenants5354- Use of proceeds restricted to stated purpose55- Financial reporting to Noteholders (specify frequency/format)56- Additional indebtedness: parity or subordination rules57- Maintain corporate existence; no dissolution without majority Noteholder consent58- Prompt default notice to Noteholders59- Inspection rights (if negotiated)6061### 7. Note Terms6263| Term | Detail |64|---|---|65| Interest | Annual rate; simple vs. compound; accrual start date |66| Maturity | Date principal + accrued interest due |67| Automatic conversion | Triggers on Qualified Financing exceeding threshold (e.g., $1M+ equity) |68| Optional conversion | Noteholder election at/after maturity or upon Change of Control |69| Conversion price | Lesser of: (i) Valuation Cap / Fully-Diluted Shares; (ii) Next Round Price x (1 - Discount Rate) |70| Anti-dilution | Broad-based weighted-average; specify excluded share carve-outs |71| Change of Control | Cash repayment at premium, or Noteholder election to convert |72| MFN | If applicable, match superior terms offered to later note purchasers |7374### 8. Events of Default and Remedies7576| Default | Remedy |77|---|---|78| Failure to pay at maturity | Acceleration; default interest rate |79| Breach of rep/warranty | Acceleration after notice + cure period |80| Breach of covenant | Acceleration after notice + cure period |81| Insolvency/bankruptcy | Automatic acceleration; no notice required |82| Unapproved Change of Control | Convert at cap price or cash repayment at premium |8384### 9. Indemnification8586Company indemnifies Purchasers for breach of Company reps, warranties, or covenants. Specify: claim notice procedure, rep survival period, indemnification cap (if any), and basket/deductible (if any).8788### 10. Miscellaneous8990Governing law (typically Delaware), dispute resolution and venue, notice provisions, amendment (Company + majority-in-interest by principal), entire agreement/integration, severability, counterpart execution with electronic signatures, and jury trial waiver (confirm enforceability).9192## Critical Checks9394- **Securities exemption**: Issue under Reg D 506(b) or 506(c) [VERIFY]; confirm all Purchasers are accredited; file Form D within 15 days of first sale [VERIFY]95- **State blue sky**: Confirm notice/exemption filings for each Purchaser's state96- **Authorized shares**: Verify sufficient authorized but unissued shares for full conversion at cap price; flag if stockholder approval needed to increase97- **Cap vs. discount**: Both apply simultaneously — use whichever yields lower per-share price (more favorable to Noteholder) unless negotiated otherwise98- **OID/tax**: If issued below face value, flag for tax counsel review of original issue discount rules99- **Subordination**: Confirm senior, pari passu, or subordinated status; obtain required lender consents100- **Outstanding SAFEs**: Address priority and interaction at conversion; check for MFN or pro-rata rights affecting this issuance101- **Jurisdiction**: U.S. transactions only; non-U.S. elements require local counsel
ThomasMoreAI