Sample Convertible Note Purchase Agreement

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This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

XYZ CORPORATION CONVERTIBLE NOTE PURCHASE AGREEMENT

THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (the “Agreement”) is made as of the__ day of _________, 20__by and between XYZ Corporation, an <State> corporation (the “Company”) and _____________________ the Purchaser (the “Purchaser”).

RECITALS:

The Company and Purchaser have executed a document entitled “Term Sheet for the Purchase and Sale of Secured Convertible Promissory Note” (the Term Sheet”) dated the __ day of _________, 20__ which is attached hereto and incorporated herein by reference as Exhibit 1. which identifies the creation of a convertible promissory note (the “Note”) as described in the following paragraph. This Note and the associated documentation that accompanies it and this Agreement are part and parcel of an investment made by the Purchaser in the business of the Company.

This Agreement establishes the terms of the Company’s sale and the Purchaser’s purchase of the Note, substantially in the form attached to this Agreement as Exhibit 2 (the “Note”) which shall be convertible on the terms stated therein into equity securities of the Company. The Notes and the equity securities issuable upon conversion thereof are collectively referred to herein as the “Securities.”

AGREEMENT

NOW THEREFORE, In consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties to this Agreement agree as follows:

1. Purchase and Sale of Notes.
a. Sale and Issuance of Notes. Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase at the Closing (as defined below) and the Company agrees to sell and issue to Purchaser a Promissory Note in the principal amount set forth opposite such Purchaser’s name on the signature page. The purchase price of each Note shall be equal to 100% of the principal amount of such Note.
b. Closing Delivery.
1) The purchase and sale of the Notes shall take place at such time and place as the Company and the Purchasers mutually agreed upon, orally or in writing (which time and place are designated as the “Initial Closing”). In the event there is more than one closing, the term “Closing” shall apply to each such closing, unless otherwise specified herein.
2) At each Closing, the Company shall deliver to Purchaser the Note to be purchased by such Purchaser against (a) payment of the purchase price therefore by check payable to the Company or by wire transfer to a bank designated by the Company, (b) delivery of counterpart signature pages to this Agreement and the Note.
3) Purchaser acknowledges that the Company may sell additional Notes and Warrants to such persons or entities as determined by the Company, or to any Purchaser who desires to acquire additional Notes and Warrants.
2. Documents for Conversion. Purchaser understands and agrees that the conversion of the Notes into equity securities of the Company, and a completion of the provisions set forth in the Term Sheet will require such Purchaser’s execution of certain agreements relating to the purchase and sale of such securities as well as any rights relating to such equity securities.
3. Representations and Warranties of the Company. The Company hereby represents and warrants to Purchaser that:
a. Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of <State> and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.
b. Authorization. The Agreement and the Notes, and the stock issuable upon conversion of the Notes have been duly authorized by the Board of Directors of the Company; however:
1) no shareholder approval has been obtained,
2) the Company has not obtained the necessary corporate approval for the authorization of any shares of Capital Stock issuable upon conversion of the Notes, and
3) a sufficient number of shares of Capital Stock has not been authorized under the Company’s Articles of Incorporation to provide for the issuance of such shares upon conversion of the Notes. The Agreement and the Notes, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance, with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4. Representations and Warranties of the Purchasers. Purchaser hereby represents and warrants to the Company that:
a. Authorization. Such Purchaser has full power and authority to enter into this Agreement. This Agreement, when executed and delivered by the Purchaser, will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating, to the availability of a specific performance, injunctive relief, or other equitable remedies.
b. Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to the Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment, for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Purchaser has not been formed for the specific purpose of acquiring any of the Securities.
c. Knowledge. The Purchaser is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities.
d. Restricted Securities. The Purchaser understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Securities are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and. qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and, on requirements relating to the Company which are outside of the Purchaser’s control and for which the Company is under no obligation and may not be able to satisfy.
e. No Public Market. The Purchaser understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Securities.
f. Legends. The Purchaser understands that the Securities, and any securities issued in respect thereof or exchange therefore, may bear one or all of the following legends:
1) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THERE OF. NO SUCH SALE OR DISTRIBUTION MAY BE AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT OF 1933.”
2) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the above described certificate.
g. Accredited Investor. The Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D or a “qualified California investor” as defined in Rule 1001 of Regulation D promulgated under the Securities Act.
h. Lock-up Agreement.
1) Lock-up Period Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters. managing such offering of the Company’s securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the registration), without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s initial public offering.
2) Limitations. The obligations described in Section 4.h.1) shall apply only if all officers and directors of the Company, all one-percent security holders and all other persons with registration rights enter into similar agreements, and shall not apply to a registration relating solely to employee benefit plans, or to a registration relating solely to a transaction pursuant to Rule 145 under the Securities Act.
3) Stop-Transfer Instructions. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of Purchaser (and the securities of every other person subject to the restrictions in Section 4.h.1).
4) Transferees Bound. Purchaser agrees that it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Agreement, provided that this Section 4.h.4) shall not apply to transfers pursuant to a registration statement or transfers after the 12-month anniversary of the effective date of the Company’s initial registration statement-subject to this Section 4.h.
5. Conditions of the Purchasers’ Obligations at Closing. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived:
a. Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing.
b. Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing.
6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived:
a. Representations and Warranties. The representations and warranties of Purchaser contained in Section 4 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.
b. Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be obtained and effective as of the Closing.
7. Miscellaneous.
a. Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
b. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of <State>, without giving effect to principles of conflicts of law.
c. Counterparts. This Agreement may be executed in two or more counter-parts, each of which shall be deemed an original and all of which together shall constitute one instrument.
d. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
e. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 48 hours -after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.
f. Finder’s Fee. Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless Purchaser from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.
g. Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of 67% in interest of the Notes. Any amendment or waiver affected in accordance with this Section 7(g) shall be binding upon Purchaser and each transferee of the Securities, each future holder of all such Securities, and the Company.
h. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the agreement shall be enforceable in accordance with its terms.
i. Entire Agreement. This Agreement and the documents referred herein constitute the entire agreement between the parties hereto pertaining to the subject mat hereof, and any and all other written or oral agreements existing between the parties hereto expressly canceled.
j. Exculpation Among Purchasers. Purchaser acknowledges that it not relying upon any person, firm or corporation, other than the Company and its officers or directors, in making its investment or decision to invest in the Company. Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, employees of any Purchaser shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities.
k. Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF <STATE>.
l. Subordination. The Company agrees not to incur, at any time after the Initial Closing and for so long as any Notes are outstanding, any debt for borrowed money (other than the Notes) unless such debt is subordinated to the Notes on terms of subordination reasonably acceptable to holders of a majority in interest of the Notes.

IN WITNESS WHEREOF, the Parties to this Agreement have executed the same on the date first written above.

INVESTOR: ______________________________.

By: __________________________. Principal amount of Note: U.S. $ ____________.

THE COMPANY: XYZ CORPORATION, an <State> corporation

By: __________
Name:_________
Title:_________

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

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