Convertible Note Purchase Agreement

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:

1. Parties — legal names, jurisdictions, authorized signatories (issuer + each purchaser)
2. Economics — aggregate principal, 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. Cap table — all outstanding equity and debt (for rep accuracy)
5. Authorization — term sheet or board resolution confirming deal economics
6. 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

8. Events of Default and Remedies

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