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Markup for the convertible promissory note purchase agreement
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sebdeckers committed Dec 14, 2013
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309 changes: 122 additions & 187 deletions _posts/2013-12-01-convertible_promissory_note_purchase_agreement.html
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<h1>Convertible Promissory Note Purchase Agreement</h1>

<aside>
<p>Foreword to startups:</p>

<p>I’ve reviewed quite a few convertible notes documents in my short time as angel investor - and there is a ton of literature out there about term sheets, convertible notes, etc.</p>

<p>And yet many startups have told me that those are too complicated and they wanted something they could understand without lawyers or hours of work.</p>

<p>And since I am right now fund-raising for my startup Homie and need to prepare for this anyway, I’ve picked one that is the most founder-friendly, the shortest (3page only) and the simplest convertible note which I intend to use for our own purpose. So you know this one is on your side.</p>

<p>A few important notes:</p>
<p><b>This agreement</b> (the <dfn>Agreement</dfn>) is made on <input type="date" /></p>
<p><b>between:</b></p>
<ul>
<li>obviously all the numbers in there are template sample numbers</li>
<li><input placeholder="Company Name" />, (<input placeholder="Reg No." />) a company incorporated in Singapore with its registered office <input placeholder="Company Address" /> (the <dfn>Company</dfn>); and</li>
<li><input placeholder="Investor Name" />, (Identification Number: <input placeholder="Investor Co. Reg/Passport/ID number" />) of <input placeholder="Investor Address" /> (the <dfn>Investor</dfn>)</li>
</ul>
<p>(the Company and the Investor shall collectively be known as the <dfn>Parties</dfn> and each, a <dfn>Party</dfn>).</p>
<p><b>Whereas:</b></p>
<ul>
<li>The Company is a private company incorporated in Singapore limited by shares.</li>
<li>The Investor and the Company desire and wish to enter into this Agreement to regulate the affairs of the Company and the relationship between the Parties.</li>
</ul>
<p><b>It is hereby agreed</b> as follows:</p>
<ol>
<li>
you should understand the principles of convertible note and why they are good:
<h4>Definitions</h4>
<ol>
<li>They are quick because they let you skip nasty long negotiations, esp about valuation.
(to an investor, he is investing at, say, 25% off the next round at the maximum of $5M, that’s much easier to decide on since you are simple delaying the valuation exercise for the next round investors to decide, at which point you will have a lot more information about the startup)</li>
<li>they enable you to do rolling close, so you can simply get each signed investor to start giving you money without waiting for the whole round to be done. (and you can keep raising money as you go along)</li>
<li>they are simple to negotiate - there are really only 3 main things: discount rate, cap, and interest. </li>
<li>they are a note, (i.e. a debt) and are not actually equity until they are converted - it saves you a lot of overhead dealing with administration and other time-sink for having equity shareholders.</li>
<li>In this Agreement, except to the extent that the context otherwise requires, the following terms shall have the meanings set forth below:</li>
<dl>
<dt>Qualified Financing</dt>
<dd>The issuing of equity securities (<dfn>Equity Securities</dfn>) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Company of at least S$<input type="number" value="1000000" />, including conversion of the Notes and any other indebtedness.</dd>
</dl>
</ol>
</li>
<li>for the sake of simplicity and speed, a lot of legal protection on both side has been removed (such as “company representation” - long long paragraphs that says this company is real and registered and not bankrupt and not into gambling or prostitution, etc. you get the idea) - at such early stage of the startup, my 2 cents is that worrying about any of these is like worrying about whether the color of your ship</li>
<li>this actually removes a lot of investor-protection safeguards, and place implicit trust in the entrepreneur. Don’t abuse it.</li>
</ul>

<p>Darius Cheung</p>
</aside>

<p><b>This agreement</b> is made on the _______ day of _____________, [YYYY] BETWEEN:</p>
<pre>
(1) [COMPANY NAME], ([Reg No.]) a company incorporated in Singapore with its registered office

[COMPANY Address] (the "Company"); and

(2) [Investor Name], (Identification Number: [Investor Co. Reg/Passport/ID number]) of [Investor

Address] (the “Investor”)

(the Company and the Investor shall collectively be known as the "Parties" and each, a "Party").

WHEREAS:-

(A) The Company is a private company incorporated in Singapore limited by shares.

(B) The Investor and the Company desire and wish to enter into this Agreement to regulate the affairs of the

Company and the relationship between the Parties.

IT IS HEREBY AGREED as follows:

1. DEFINITIONS

1.1 In this Agreement, except to the extent that the context otherwise requires, the following terms shall have

the meanings set forth below:

“Qualified Financing” The issuing of equity securities (“Equity Securities”) in a transaction or series

of related transactions resulting in aggregate gross proceeds to the Company of at

least [S$1,000,000], including conversion of the Notes and any other indebtedness.

2. SUBSCRIPTION

2.1 The Investor agrees to invest [S$100,000], (the “Investment Amount”) in the Company by way of the

Convertible Promissory Notes (the “Notes”) issued by the Company to the Investor in denominations of

S$5,000 each.

3. MATURITY DATE

3.1 The Notes and unpaid accrued interest on the Notes will be due and payable [24] months from the date of

the signing of this Purchase Agreement (the “Maturity Date”).

4. INTEREST

4.1 Interest on the Notes will accrue on an annual basis at the rate of [5%] per annum based on a 365 days

year.

5. CONVERSION PRICE

5.1 The lesser of [(i) [70%] of the per share price paid by the purchasers of such Equity Securities in the

Qualified Financing (the “Discounted Conversion Price”)], or [(ii) the price per share equal to

[S$4,000,000] divided by the aggregate number of outstanding shares of the Company’s Common Stock as

of immediately after the initial closing of the Qualified Financing (assuming full conversion or exercise of

all convertible and exercisable securities then outstanding other than the Notes) (the “Valuation Cap”)].

6. AUTOMATIC CONVERSION

Convertible Promissory Note Purchase Agreement

6.1 Automatic Conversion in a Qualified Financing. If the Company issues Equity Securities in a Qualified

Financing, then the Notes, and any accrued but unpaid interest thereon, will automatically convert into the

equity securities issued pursuant to the Qualified Financing at the Conversion Price.

6.2 Automatic Conversion at the Maturity Date. If the Notes have not been previously converted pursuant to a

Qualified Financing, then, effective upon the Maturity Date, the Notes, and any accrued but unpaid interest

thereon, will automatically convert into Equity Securities at 70% of the Valuation Cap.

7. OPTIONAL CONVERSION

7.1 If the Maturity Date or a Qualified Financing has not occurred, the Investor may elect to convert the entire

Investment Amount into Equity Securities at the Valuation Cap.

8. SALE OF THE COMPANY

8.1 If a Qualified Financing has not occurred and the Company elects to consummate a sale of the Company

prior to the Maturity Date, then upon the election of the Investor, either (i) the Investor shall receive a

payment equal to one and half (1.5) times the Note, or (ii) the entire Investment Amount shall convert into

Equity Securities at the Valuation Cap.

9. PRE-PAYMENT

9.1 The principal and accrued interest may not be prepaid unless approved in writing by Investors holding

Notes whose aggregate principal amount represents a majority of the outstanding principal amount of all

then-outstanding Notes (the “Requisite Holders”).

10. PARTICIPATION RIGHTS

10.1 After converting to Equity Securities upon the conditions laid out in clause 6 and 7, Investor will have the

rights to participate in subsequent financing rounds of the Company in order to maintain their percentage

(%) shareholding in the Company.

11. AMENDMENT AND WAIVER

11.1 The terms of this Agreement and the Notes may be amended, or any term thereof waived, upon the written

consent of the Company and the Requisite Holders.

12. NO SECURITY INTEREST

12.1 The Notes will be a general unsecured obligation of the Company.

13. INVESTOR RIGHTS

13.1 The Investor will have customary information and inspection rights, including receiving an annual budget,

annual unaudited financial statements, quarterly unaudited financial statements, and any other information

reports prepared for shareholders while the Note remains outstanding.

14. FEES AND EXPENSES

14.1 The Parties will bear their own fees and expenses incurred in the transaction.

15. GOVERNING LAW AND JURISDICTION

15.1 This Agreement shall be governed by and construed according to the laws of Singapore.

Convertible Promissory Note Purchase Agreement

AS WITNESS this Agreement has been signed by or on behalf of each of the Parties hereto the day and year first

before written.

[COMPANY NAME]

Signed by [FOUNDER] )

for and on behalf of )

[COMPANY NAME] )

in the presence of :- )

[INVESTOR NAME]

Signed by )
<li>
<h4>Subscription</h4>
<ol>
<li>The Investor agrees to invest S$<input type="number" value="100000" />, (the <dfn>Investment Amount</dfn>) in the Company by way of the Convertible Promissory Notes (the <dfn>Notes</dfn>) issued by the Company to the Investor in denominations of S$<input type="number" value="5000" /> each.</li>
</ol>
</li>
<li>
<h4>Maturity Date</h4>
<ol>
<li>The Notes and unpaid accrued interest on the Notes will be due and payable <input type="number" value="24" /> months from the date of the signing of this Purchase Agreement (the <dfn>Maturity Date</dfn>).</li>
</ol>
</li>
<li>
<h4>Interest</h4>
<ol>
<li>Interest on the Notes will accrue on an annual basis at the rate of <input type="number" value="5" />% per annum based on a 365 days year.</li>
</ol>
</li>
<li>
<h4>Conversion Price</h4>
<ol>
<li>The lesser of
<ol>
<li><input type="number" value="70" />% of the per share price paid by the purchasers of such Equity Securities in the Qualified Financing (the <dfn>Discounted Conversion Price</dfn>), or</li>
<li>the price per share equal to S$<input type="number" value="4000000" /> divided by the aggregate number of outstanding shares of the Company’s Common Stock as of immediately after the initial closing of the Qualified Financing (assuming full conversion or exercise of all convertible and exercisable securities then outstanding other than the Notes) (the <dfn>Valuation Cap</dfn>)].</li>
</ol>
</li>
</ol>
</li>
<li>
<h4>Automatic Conversion</h4>
<ol>
<li><h5>Automatic Conversion in a Qualified Financing</h5> If the Company issues Equity Securities in a Qualified Financing, then the Notes, and any accrued but unpaid interest thereon, will automatically convert into the equity securities issued pursuant to the Qualified Financing at the Conversion Price.</li>
<li><h5>Automatic Conversion at the Maturity Date</h5> If the Notes have not been previously converted pursuant to a Qualified Financing, then, effective upon the Maturity Date, the Notes, and any accrued but unpaid interest thereon, will automatically convert into Equity Securities at 70% of the Valuation Cap.</li>
</ol>
</li>
<li>
<h4>Optional Conversion</h4>
<ol>
<li>If the Maturity Date or a Qualified Financing has not occurred, the Investor may elect to convert the entire Investment Amount into Equity Securities at the Valuation Cap.</li>
</ol>
</li>
<li>
<h4>Sale of the Company</h4>
<ol>
<li>If a Qualified Financing has not occurred and the Company elects to consummate a sale of the Company prior to the Maturity Date, then upon the election of the Investor, either
<ol>
<li>the Investor shall receive a payment equal to one and half (1.5) times the Note, or</li>
<li>the entire Investment Amount shall convert into Equity Securities at the Valuation Cap.</li>
</ol>
</li>
</ol>
</li>
<li>
<h4>Pre-Payment</h4>
<ol>
<li>The principal and accrued interest may not be prepaid unless approved in writing by Investors holding Notes whose aggregate principal amount represents a majority of the outstanding principal amount of all then-outstanding Notes (the <dfn>Requisite Holders</dfn>).</li>
</ol>
</li>
<li>
<h4>Participation Rights</h4>
<ol>
<li>After converting to Equity Securities upon the conditions laid out in clause 6 and 7, Investor will have the rights to participate in subsequent financing rounds of the Company in order to maintain their percentage (%) shareholding in the Company.</li>
</ol>
</li>
<li>
<h4>Amendment and Waiver</h4>
<ol>
<li>The terms of this Agreement and the Notes may be amended, or any term thereof waived, upon the written consent of the Company and the Requisite Holders.</li>
</ol>
</li>
<li>
<h4>No Security Interest</h4>
<ol>
<li>The Notes will be a general unsecured obligation of the Company.</li>
</ol>
</li>
<li>
<h4>Investor Rights</h4>
<ol>
<li>The Investor will have customary information and inspection rights, including receiving an annual budget, annual unaudited financial statements, quarterly unaudited financial statements, and any other information reports prepared for shareholders while the Note remains outstanding.</li>
</ol>
</li>
<li>
<h4>Fees And Expenses</h4>
<ol>
<li>The Parties will bear their own fees and expenses incurred in the transaction.</li>
</ol>
</li>
<li>
<h4>Governing Law and Jurisdiction</h4>
<ol>
<li>This Agreement shall be governed by and construed according to the laws of Singapore.</li>
</ol>
</li>
</ol>
<p><b>As witness</b> this Agreement has been signed by or on behalf of each of the Parties hereto the day and year first before written.</p>

[Investor representative] )
<p>[COMPANY NAME]</p>
<p>Signed by [FOUNDER] for and on behalf of [COMPANY NAME]</p>
<p>in the presence of [WITNESS]</p>

in the presence of :- )
</pre>
<p>[INVESTOR NAME]</p>
<p>Signed by [Investor representative]</p>
<p>in the presence of [WITNESS]</p>
2 changes: 1 addition & 1 deletion scripts/definitions.js
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!nearestAncestor(textNode, [
'DFN', 'A',
'THEAD',
'H1', 'H2', 'H3', 'H4', 'H5', 'H6'
'H1', 'H2', 'H3', 'H4', // 'H5', 'H6'
]) &&
// Prevent starting match mid-word
(offset === 0 ||
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