Convertible Note Purchase Agreement

---
name: convertible-note-purchase-agreement
description: Drafts a Convertible Note Purchase Agreement (CNPA) for U.S. early-stage venture capital and angel financings involving convertible debt securities. Structures the preamble, purchase and sale terms, company and purchaser representations and warranties, closing conditions, post-closing covenants, note economic terms (interest rate, maturity, conversion triggers, valuation cap, discount rate, anti-dilution), events of default, indemnification, and miscellaneous provisions. Use when drafting a convertible note purchase agreement, bridge note, convertible debt financing, or SAFE alternative for a startup or early-stage company on the issuer/company side.
tags:
  - agreement
  - corporate
  - drafting
  - transactional
---

# 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