Convertible Note Agreement

1.	ISSUE OF NOTES

2.	SALE AND PURCHASE OF NOTES AND STOCK

3.	REPRESENTATIONS AND WARRANTIES BY THE COMPANY

4.	REPRESENTATIONS AND WARRANTIES BY THE NOTE HOLDERS

5.	PREPAYMENT OF THE NOTES

6.	CONVERSION

7.	COVENANTS

8.	EVENT OF DEFAULT

9.	MISCELLANEOUS

Document Description:

A Convertible Note Agreement is used when one or more investors agree to lend a specific amount of money to a company and in exchange, they collect interest and are given the right to convert the entire principal amount into common stock. As an investor, this is a high-risk investment, yet it has the potential to yield a high return.

For example, your company is a start-up and your friends agree to invest in exchange for convertible notes. Three months later, your company is generating a profit and you are approached by a venture capitalist who offers to purchase a certain amount of shares for a certain price. At this point, your friends have the option of selling their stock for the price the venture capitalist is offering and your company now has a measurable market value.