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Convertible Note Subscription Agreement

Convertible Note Subscription Agreement Generator for United States

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Key Requirements PROMPT example:

Convertible Note Subscription Agreement

"I need a Convertible Note Subscription Agreement for a $500,000 investment in my software startup, with a 20% discount rate, 8% interest rate, and a $10M valuation cap, to be completed before March 2025."

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Document background
The Convertible Note Subscription Agreement is commonly used in early-stage financing when determining a company's valuation is challenging or premature. This document, governed by U.S. federal and state securities laws, provides a structured framework for debt that can convert to equity, typically during a future financing round. It outlines key terms such as conversion discount, valuation cap, interest rate, and maturity date, while ensuring compliance with securities regulations and protecting both investor and company interests. The agreement is particularly popular among startups seeking bridge financing between equity rounds.
Suggested Sections

1. Parties: Identification of the issuing company and the investor(s)

2. Background: Context of the investment and purpose of the note

3. Definitions: Key terms used throughout the agreement including conversion mechanics, qualified financing, and other critical definitions

4. Subscription and Issuance: Terms of the note subscription and issuance, including purchase price and closing conditions

5. Conversion Rights: Terms and conditions for converting the note to equity, including conversion price, triggers, and mechanics

6. Interest: Interest rate, calculation method, and payment terms

7. Maturity and Repayment: Maturity date, repayment provisions, and procedures for extension

8. Company Representations: Company's warranties and representations regarding authority, compliance, and business condition

9. Investor Representations: Investor's warranties and representations regarding investment intent and accredited status

10. Events of Default: Circumstances constituting default and corresponding remedies

11. Miscellaneous: Standard boilerplate provisions including notices, amendments, and governing law

Optional Sections

1. Security Interest: Provisions for securing the note with company assets, including collateral description and enforcement rights

2. Board Observer Rights: Rights of investor to observe board meetings and receive board materials

3. Information Rights: Rights to receive financial statements, budgets, and other company information

4. Pre-emptive Rights: Rights to participate in future financing rounds to maintain pro rata ownership

5. Most Favored Nation: Provisions ensuring investor receives best terms offered to other note holders

Suggested Schedules

1. Form of Note: The actual convertible promissory note document with detailed terms

2. Capitalization Table: Current ownership structure of the company including all outstanding securities

3. Disclosure Schedule: Exceptions to company representations and warranties

4. Form of Security Agreement: If applicable, the security agreement detailing collateral and security interest terms

5. Investor Questionnaire: Accredited investor verification documentation and investment suitability questions

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Industries

Securities Act of 1933: Federal law governing private placements and securities offerings, particularly Sections 4(a)(2) and Regulation D for exemption requirements

Securities Exchange Act of 1934: Federal law regulating secondary market trading and ongoing reporting requirements for securities

State Blue Sky Laws: State-specific securities regulations including registration requirements and exemptions that vary by jurisdiction

Investment Company Act of 1940: Federal law governing investment company regulations and requirements if the issuing entity could be classified as an investment company

Internal Revenue Code: Tax regulations including Section 1272 (Original Issue Discount), Section 409A (Deferred compensation), and tax implications of debt-to-equity conversion

Uniform Commercial Code: State-adopted uniform law, particularly Articles 8 (Investment Securities) and 9 (Secured Transactions)

State Corporate Laws: State-specific laws governing corporate authority, issuance of debt and equity securities, and fiduciary duties

State Contract Laws: State-specific requirements for contract formation, Statute of Frauds, and enforceability provisions

Federal Reserve Regulations: Federal banking regulations, particularly Regulation U if applicable to margin stock

Dodd-Frank Act: Federal law containing provisions relevant to financial instruments and securities transactions

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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