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

Element	Detail to Include
Note description	Aggregate principal, per-note denomination, series designation
Purchase price	Equal to face value or specify OID if issued at discount
Closing	Date, location, wire instructions, deliverable mechanics
Deliverables	Executed notes → Purchasers; purchase funds → Company

3. Representations and Warranties — Company

Rep	Key Elements
Organization & Standing	Legal existence; good standing in state of incorporation and all states of operation
Corporate Authority	Board authorization; no conflicts with charter, bylaws, or existing material agreements
Capitalization	Fully-diluted cap table; all outstanding equity, options, warrants, convertible instruments
No Material Litigation	No pending or threatened actions affecting the transaction or business
Compliance with Law	No material violations; no required government consents not yet obtained
Financial Statements	Accuracy of financials if provided; no undisclosed material liabilities
No Default	Not in breach or default under any material agreement
Use of Proceeds	Proceeds used solely for stated business purpose

4. Representations and Warranties — Purchaser

Rep	Key Elements
Accredited Investor	Qualifies under Securities Act Rule 501 [VERIFY]
Investment Intent	Acquiring for own account; not for resale or distribution
Restricted Securities	Understands notes and conversion shares are restricted; no registration pending
Sophistication	Capable of evaluating merits and risks; able to bear full economic loss
Independent Investigation	Has conducted own due diligence; not relying solely on Company representations

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)

Covenant	Scope
Use of Proceeds	Restricted to stated purpose; prohibit unauthorized distributions
Financial Reporting	Frequency and format of financials delivered to Noteholders
Additional Indebtedness	Parity or subordination rules for future debt incurrence
Corporate Existence	Maintain existence; no dissolution without majority Noteholder consent
Notice of Default	Prompt written notice to Noteholders upon occurrence of any Event of Default
Inspection Rights	Noteholder access to books and records (if negotiated)

7. Note Terms

Term	Detail
Principal	Aggregate amount; per-note denomination
Interest Rate	Annual rate (e.g., 6%); simple vs. compound; accrual start date
Maturity Date	Date principal + accrued interest becomes due and payable
Conversion — Automatic	Triggers on Qualified Financing exceeding defined threshold (e.g., $1M+ in equity)
Conversion — Optional	Noteholder election at/after maturity or upon Change of Control
Conversion Price	Lesser of: (i) Cap Price = Valuation Cap ÷ Fully-Diluted Shares; or (ii) Discount Price = Next Round Price × (1 − Discount Rate)
Valuation Cap	Dollar cap on pre-money valuation for conversion price calculation
Discount Rate	Percentage discount to next qualifying round price (e.g., 20%)
Anti-Dilution	Broad-based weighted-average preferred; specify excluded share carve-outs
Change of Control	Cash repayment at stated premium, or Noteholder election to convert
Most Favored Nation	If applicable, any superior economic terms offered to later note purchasers

8. Events of Default & Remedies

Event of Default	Remedy
Failure to pay principal or interest at maturity	Acceleration; default interest rate kicks in
Breach of representation or warranty	Acceleration after notice + cure period (specify days)
Breach of covenant	Acceleration after written notice + cure period
Insolvency / voluntary or involuntary bankruptcy	Automatic acceleration; no notice required
Change of Control without Noteholder consent	Optional conversion at cap price or cash repayment at premium

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