Convertible Note Purchase Agreement Template for Nigeria

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Key Requirements PROMPT example:

Convertible Note Purchase Agreement

"I need a Convertible Note Purchase Agreement under Nigerian law for a ₦10 million investment in my fintech startup, with a 20% discount rate on conversion and a valuation cap of ₦100 million, planning to close by March 2025."

What is a Convertible Note Purchase Agreement?

The Convertible Note Purchase Agreement is commonly used in Nigeria's growing startup ecosystem as a bridge financing instrument, particularly suitable for early-stage companies seeking capital without establishing an immediate valuation. This document structure complies with Nigerian corporate and securities laws, including CAMA 2020 and relevant SEC regulations. It outlines the terms of the investment, including the principal amount, interest rate, maturity date, conversion mechanisms, and investor protections. The agreement is particularly valuable when companies need quick access to capital while deferring complex valuation discussions, or when bridging between larger equity funding rounds. It provides investors with the security of debt and the upside potential of equity, while giving companies flexibility in their fundraising strategy.

What sections should be included in a Convertible Note Purchase Agreement?

1. Parties: Identifies the company issuing the note, the investor(s), and any other relevant parties

2. Background: Sets out the context of the transaction and the company's intention to issue convertible notes

3. Definitions and Interpretation: Defines key terms used throughout the agreement and establishes interpretation rules

4. Purchase and Sale of Notes: Details the purchase price, closing conditions, and mechanics of the note purchase

5. The Notes: Describes the key terms of the notes including interest rate, maturity date, and ranking

6. Conversion Rights: Specifies the conditions and mechanics for converting the notes into equity

7. Conversion Price and Anti-dilution Provisions: Details the conversion price calculation and protections against dilution

8. Company Representations and Warranties: Company's statements about its legal status, authority, and business condition

9. Investor Representations and Warranties: Investor's statements about their authority and investment sophistication

10. Covenants: Ongoing obligations of the company during the term of the notes

11. Events of Default: Circumstances that trigger default and remedies available to noteholders

12. Termination: Conditions and process for terminating the agreement

13. Miscellaneous: Standard legal provisions including notices, amendments, governing law, and jurisdiction

What sections are optional to include in a Convertible Note Purchase Agreement?

1. Information Rights: Grants investors rights to receive financial and other company information, typically included for larger investments

2. Board Observer Rights: Gives investors the right to attend board meetings, usually for significant investments

3. Pre-emptive Rights: Allows noteholders to participate in future funding rounds, included when negotiated by investors

4. Tag-Along Rights: Gives noteholders the right to join in any sale of shares by founders, included for investor protection

5. Foreign Investment Provisions: Additional provisions required when involving foreign investors, addressing currency and regulatory requirements

6. Multiple Closings: Provisions for issuing notes in multiple tranches, used in larger or phased investments

7. Security Interest: Provisions for securing the notes against company assets, if applicable

8. Most Favored Nation Clause: Ensures investors get the benefit of better terms offered in future note issuances

What schedules should be included in a Convertible Note Purchase Agreement?

1. Form of Note: Template of the actual convertible note certificate

2. Capitalization Table: Current capital structure of the company and impact of potential conversion

3. Disclosure Schedule: Detailed disclosures related to company representations and warranties

4. Corporate Authorizations: Copies of board and shareholder resolutions approving the note issuance

5. Conversion Notice Form: Template for investors to exercise their conversion rights

6. Investment Amount and Note Details: Specific details of each investor's investment and note terms

7. Company Information: Key company details including registration information and corporate structure

8. Compliance Certificates: Templates for various compliance certificates required under the agreement

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

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