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A short-form convertible promissory note for a U.S. startup financing, documenting an Investor loan that converts into equity on agreed financing, exit, maturity, or optional-conversion terms.
Delaware, United States · New York, United States · California, United States · United States (Federal)
Highlighted blanks are the details your parties fill in.
This agreement is dated the date on which it is signed by the last of the parties.
This agreement is made between [TO BE CONFIRMED — Company] (the "Company") and [TO BE CONFIRMED — Investor] (the "Investor").
"Principal Amount" means [TO BE CONFIRMED — Principal amount].
"Funding Date" means [TO BE CONFIRMED — Funding date].
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A convertible loan note for an ADGM private company: an unsecured loan from one Investor that converts into shares on a qualified financing at a discount and/or under a valuation cap, with repayment or conversion on an exit, at maturity or on default, governed by ADGM law with the ADGM Courts.
"Maturity Date" means [TO BE CONFIRMED — Maturity date].
"Qualified Financing" means the Company’s next bona fide equity financing in which it sells Preferred Stock for aggregate gross cash proceeds of at least [TO BE CONFIRMED — Qualified Financing minimum gross proceeds], excluding conversion of this Note and other convertible securities.
"Valuation Cap" means [TO BE CONFIRMED — Valuation cap].
"Discount Rate" means [TO BE CONFIRMED — Conversion discount].
"Fallback Valuation" means [TO BE CONFIRMED — Fallback valuation (for conversion other than in a Qualified Financing)].
"Exit Event" means a transaction or series of related transactions resulting in (a) the sale, lease, exclusive license, or other disposition of all or substantially all of the Company’s assets, or (b) a merger, consolidation, share exchange, reorganization, or other transaction after which the holders of the Company’s voting securities immediately before the transaction hold less than a majority of the voting power of the surviving or acquiring entity.
"Exit Return Multiple" means [TO BE CONFIRMED — Exit repayment multiple].
"Governing Law" means the law of [TO BE CONFIRMED — Governing law], without regard to its conflict-of-laws rules.
"Forum" means [TO BE CONFIRMED — Exclusive forum].
Where a party is an individual, "it" and "its" include him or her, and "his" and "her"; a reference to a party being duly organized, or to its organizational documents, officers or board, applies only to a party that is an entity; and a reference to a party’s authority to enter into this Note includes, for an individual, his or her legal capacity.
For value received, the Company promises to pay the Investor the Principal Amount, together with interest as provided in the Interest and Payment clause. The Investor shall fund the Principal Amount to the Company on the Funding Date. This instrument is the Company’s unsecured convertible promissory note (this "Note").
Interest accrues on the unpaid Principal Amount from the Funding Date at the Interest Rate, calculated on the basis of a 365-day year and actual days elapsed. Unless converted earlier under the Conversion clause, all unpaid principal and accrued interest are due on the Maturity Date. Accrued interest does not convert: if this Note converts, the Company shall pay all accrued and unpaid interest to the Investor in cash at the time of conversion. The Company may not prepay this Note without the Investor’s written consent.
Nothing in this Note requires the Company to pay, or permits the Investor to charge or receive, interest or any other amount treated as interest under applicable law in excess of the maximum rate that law permits. If any excess is charged or received, it is applied in reduction of the unpaid Principal Amount or, if the Principal Amount has been paid or converted in full, refunded to the Company, and the interest payable is reduced to the maximum lawful amount.
Immediately before the closing of a Qualified Financing, the outstanding Principal Amount and all accrued and unpaid interest on it (the "Conversion Amount", which, on a conversion, excludes any accrued interest that the Interest and Payment clause requires the Company to pay in cash on conversion) automatically converts into the same series of Preferred Stock sold in that Qualified Financing. The conversion price per share is the lowest of: (a) the cash price per share paid by new-money investors in that Qualified Financing; (b) that price reduced by the Discount Rate; and (c) the price per share obtained by dividing the Valuation Cap by the Company’s fully diluted capitalization immediately before the Qualified Financing. For this purpose, fully diluted capitalization includes all outstanding shares of the Company’s capital stock, all shares reserved for issuance under equity incentive plans, and all shares issuable on conversion or exercise of outstanding convertible securities and options or warrants, but excludes shares issuable on conversion of this Note and other convertible securities converting in the Qualified Financing. The Company shall issue the resulting whole number of shares to the Investor and pay cash for any fractional share.
On any conversion of this Note other than in a Qualified Financing, the conversion price per share (the "Fallback Price") is the price obtained by dividing the Valuation Cap by the Company’s fully diluted capitalization immediately before the conversion and, except as the Exit Event clause provides, the Conversion Amount converts into shares of the Company’s most senior class or series of Preferred Stock then outstanding or, if no Preferred Stock is then outstanding, the Company’s common stock ("Common Stock"). For this purpose, fully diluted capitalization includes all outstanding shares of the Company’s capital stock (with Preferred Stock counted on an as-converted basis), all shares reserved for issuance under equity incentive plans, and all shares issuable on conversion or exercise of outstanding convertible securities and options or warrants, but excludes shares issuable on conversion of this Note and of other convertible securities converting at the same time. The Company shall issue the resulting whole number of shares to the Investor and pay cash for any fractional share.
Before the closing of an Exit Event, the Company shall give the Investor written notice of the material terms. At that closing, the Investor may elect, by written notice, either (a) payment of the Conversion Amount or (b) conversion of the Conversion Amount into the class or series of securities that would give the Investor the greatest cash value payable at the Exit Event, at the Fallback Price determined under the Fallback Conversion clause. If the Investor does not make a timely election, the Company shall pay the Conversion Amount at the closing. Payment or conversion under this clause discharges this Note in full.
If this Note remains outstanding on the Maturity Date, the Investor may elect, by written notice to the Company, either payment of the Conversion Amount or conversion of the Conversion Amount on the terms of the Fallback Conversion clause. The Company shall complete the elected payment or conversion within 10 business days after receiving the election.
As a condition to receiving conversion shares, the Investor shall execute the definitive financing documents customarily required of investors purchasing that class or series, provided that those documents impose on the Investor obligations no more burdensome than those imposed on similarly situated new-money investors, other than obligations relating to the Investor’s particular status. The Company shall reserve sufficient authorized but unissued shares to perform its conversion obligations. Conversion is effective immediately before the relevant closing or at the time specified in the Maturity and Optional Conversion clause, as applicable, and the Investor is then treated as the holder of the conversion shares. The Company shall promptly deliver evidence of the issuance.
Each party represents to the other that it is duly organized or legally capable of entering into this Note, has taken all necessary action to authorize its execution and performance, and that this Note is its legal, valid, and binding obligation, enforceable against it subject to bankruptcy, insolvency, and equitable-principles limitations. The Company represents that the issuance of this Note and the conversion shares, when issued in accordance with this Note, will be duly authorized and will not violate its organizational documents or any law or agreement binding on it.
The Investor represents that it is acquiring this Note and any conversion shares for investment for its own account and not with a view to distribution in violation of securities laws. The Investor understands that this Note and the conversion shares have not been registered under the U.S. Securities Act of 1933 or applicable state securities laws and may not be offered, sold, pledged, or transferred except under an effective registration statement or an available exemption, in each case in compliance with applicable law. The Investor has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of this investment, is able to bear the economic risk of losing its entire investment, and has had the opportunity to ask questions of, and receive answers from, the Company about the Company and this investment.
The Investor represents that it is, and on the Funding Date will be, an "accredited investor" as defined in Rule 501(a) of Regulation D under the U.S. Securities Act of 1933, and shall promptly notify the Company if that representation ceases to be true before the Funding Date. The Investor shall give the Company any information it reasonably requests to verify that status.
This Note bears, and each certificate or book-entry notation for conversion shares shall bear, a legend substantially as follows, together with any other legend required by state securities law or the Company’s organizational documents: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE. THEY ARE RESTRICTED SECURITIES WITHIN THE MEANING OF RULE 144 UNDER THAT ACT AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT OR AN AVAILABLE EXEMPTION FROM ITS REGISTRATION REQUIREMENTS, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS."
The Investor may not transfer this Note or any rights under it without the Company’s prior written consent, except to an affiliate of the Investor or in connection with an estate-planning transfer, in each case if the transferee agrees in writing to be bound by this Note and the transfer complies with applicable securities laws. The Company may assign this Note only to a successor in an Exit Event that assumes the Company’s obligations in writing.
Each of the following is an event of default: the Company fails to pay an amount due under this Note within 10 business days after written notice from the Investor; the Company materially breaches this Note and fails to cure the breach within 20 business days after written notice; or the Company becomes subject to a voluntary or involuntary bankruptcy, insolvency, receivership, assignment for the benefit of creditors, or similar proceeding that is not dismissed within 60 days. After an event of default, the Investor may declare the Conversion Amount immediately due and payable by written notice, subject to applicable law. No remedy is exclusive, but the Investor may not obtain duplicate recovery.
A notice under this Note must be in writing and delivered personally, by nationally recognized overnight courier, or by email with confirmation of transmission, to the Company at [TO BE CONFIRMED — Company notice address] and to the Investor at [TO BE CONFIRMED — Investor notice address], or to another address or email address notified in writing. A notice is effective on personal delivery, one business day after courier dispatch, or when the sender receives email confirmation, provided that an email sent after 5:00 p.m. at the recipient’s location is effective on the next business day.
Each party shall process personal data received in connection with this Note in compliance with applicable privacy and data-protection law and shall use reasonable administrative, technical, and organizational safeguards. The processing covered by this clause is [TO BE CONFIRMED — Personal data processing details].
This Note, including the Key Terms, is the entire agreement between the parties about its subject matter and supersedes prior discussions and agreements about that subject matter. An amendment or waiver is effective only if it is in writing and signed by the Company and the Investor. A waiver on one occasion is not a waiver on another. If a provision is unenforceable, it shall be modified to the minimum extent necessary, and the rest of this Note remains effective. Neither party is liable for delay caused by events beyond its reasonable control, except for a payment obligation. This Note may be signed electronically and in counterparts, each of which is an original and together form one instrument.
The Governing Law governs this Note and any non-contractual obligation arising from it. Each party irrevocably submits to the exclusive jurisdiction of the state and federal courts located in the Forum for any action arising out of or relating to this Note, and waives any objection based on venue or inconvenient forum.
TO THE EXTENT PERMITTED BY LAW, EACH PARTY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS NOTE.
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