CONVERTIBLE NOTE AGREEMENT
THIS CONVERTIBLE NOTE AGREEMENT ("Agreement") is made as of [Date],
BETWEEN:
[Company Name], a [State] corporation, at [Address] ("Company"),
AND:
[Investor Name], at [Address] ("Investor").
1. DEFINITIONS
1.1 "Principal Amount" means $[Amount], the total amount loaned by Investor to Company.
1.2 "Interest Rate" means [Percentage]% per annum, accruing from the date of disbursement.
1.3 "Maturity Date" means [Date], being [18/24] months from the date of this Agreement.
1.4 "Qualified Financing" means an equity financing in which the Company raises aggregate gross proceeds of at least $[Amount] from investors.
1.5 "Conversion Price" means the lesser of: (a) the price per share paid by investors in the Qualified Financing multiplied by the Discount Rate; or (b) the Valuation Cap divided by the Company's fully-diluted capitalization immediately prior to the Qualified Financing.
1.6 "Discount Rate" means [Percentage]% (i.e., a [20]% discount to the Qualified Financing price).
1.7 "Valuation Cap" means $[Amount], representing the maximum pre-money valuation at which the Note may convert.
1.8 "Conversion Shares" means shares of the Company's preferred stock issued in the Qualified Financing, or if converting at Maturity, shares of Common Stock.
2. THE LOAN
2.1 Disbursement. Investor shall advance the Principal Amount to Company within [5] business days of executing this Agreement by wire transfer to Company's designated account.
2.2 Interest. The Principal Amount shall bear simple interest at the Interest Rate. Interest shall accrue daily and shall not be compounded. No interest payments shall be due prior to the Maturity Date or a conversion event.
2.3 No Prepayment. Company may not prepay the Note without Investor's written consent.
3. CONVERSION
3.1 Automatic Conversion. Upon the closing of a Qualified Financing, the outstanding Principal Amount plus accrued interest shall automatically convert into Conversion Shares at the Conversion Price.
3.2 Voluntary Conversion at Maturity. If no Qualified Financing occurs before the Maturity Date, Investor may elect to: (a) convert the outstanding balance into shares of Common Stock at a price based on the Valuation Cap divided by the fully-diluted capitalization; or (b) demand repayment of the outstanding Principal Amount plus accrued interest.
3.3 Change of Control Conversion. If a Change of Control (defined as a merger, acquisition, or sale of substantially all assets) occurs before conversion, Investor may elect to: (a) receive [2x] the outstanding balance at closing; or (b) convert into Common Stock at the Valuation Cap price immediately prior to the Change of Control.
3.4 Mechanics. Upon conversion, Company shall issue the applicable shares within [10] business days and deliver certificates or book-entry confirmations. Fractional shares shall be rounded to the nearest whole share.
3.5 Most Favored Nation. If Company issues convertible securities on more favorable terms before conversion, Investor may adopt those terms for this Note.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY
4.1 Company is duly organized, validly existing, and in good standing. The execution of this Agreement and issuance of shares upon conversion have been authorized by all necessary corporate action.
4.2 There is no litigation pending or threatened that would materially affect Company's ability to perform.
4.3 The financial information provided to Investor is materially accurate.
4.4 Company has sufficient authorized but unissued shares to fulfill its conversion obligations.
5. REPRESENTATIONS OF INVESTOR
5.1 Investor is an accredited investor as defined under Rule 501 of Regulation D.
5.2 Investor is acquiring the Note and any Conversion Shares for investment purposes, not for resale.
5.3 Investor understands this is a high-risk investment and the entire principal may be lost.
6. COVENANTS
6.1 Information Rights. Company shall provide Investor with: (a) quarterly financial updates; (b) annual financial statements; (c) prompt notice of any Qualified Financing, Change of Control, or material adverse event.
6.2 Negative Covenants. Without Investor's consent, Company shall not: (a) issue debt senior to this Note; (b) declare dividends; (c) change its capital structure materially; (d) enter transactions with affiliates on non-arm's-length terms.
6.3 Pro-Rata Rights. Investor shall have the right to participate in the Qualified Financing to maintain its ownership percentage (on an as-converted basis).
7. EVENTS OF DEFAULT
7.1 The following constitute Events of Default: (a) failure to pay principal or interest when due; (b) breach of any representation or covenant not cured within [30] days of notice; (c) Company's insolvency, bankruptcy filing, or assignment for benefit of creditors; (d) dissolution or cessation of business operations.
7.2 Upon an Event of Default, Investor may declare the entire outstanding balance immediately due and payable.
8. SUBORDINATION
8.1 This Note is unsecured and subordinated to any senior indebtedness of the Company as agreed in writing between the parties.
9. TRANSFER RESTRICTIONS
9.1 This Note may not be transferred without Company's prior written consent, except to Investor's affiliates or family members.
10. GOVERNING LAW
10.1 This Agreement shall be governed by and construed in accordance with the laws of the State of [State/Jurisdiction], without regard to its conflict of law provisions.
10.2 Any disputes arising under this Agreement shall be resolved in the courts of [County], [State], and each Party consents to the exclusive jurisdiction thereof.
11. SEVERABILITY
11.1 If any provision of this Agreement is held invalid or unenforceable, the remaining provisions shall continue in full force and effect.
12. ENTIRE AGREEMENT
12.1 This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings. No amendment shall be valid unless in writing signed by both Parties.
13. NOTICES
13.1 All notices shall be in writing and delivered by: (a) personal delivery; (b) certified mail, return receipt requested; or (c) overnight courier, to the addresses set forth above.
14. FORCE MAJEURE
14.1 Neither Party shall be liable for failure to perform due to circumstances beyond reasonable control, including acts of God, natural disasters, war, pandemics, or government actions.
DISCLAIMER: This template is for informational purposes only and does not constitute legal advice. Consult qualified legal counsel before executing.
SIGNATURES
[PARTY A]:
Signature: _________________________ Name: [Full Name] Title: [Title] Date: __________
[PARTY B]:
Signature: _________________________ Name: [Full Name] Title: [Title] Date: __________
