Narrative. A convertible note is a debt instrument that automatically converts into equity at a future priced round. Before the SAFE ecosystem took over around 2018, convertible notes were the dominant pre-seed instrument. They remain useful where investors require creditor protections (SAFEs are expressly not debt), where tax considerations favor debt treatment, or where the transaction involves international investors who are more comfortable with notes than with novel instruments. Big-law drafting levers: (1) principal and interest rate — typically 4–8% simple interest, (2) maturity date — typically 18–24 months, (3) qualified-financing conversion mechanics (automatic conversion at a discount to the round price and/or a valuation cap), (4) change-of-control treatment (choice of 1–2x payout, conversion at the cap, or both), (5) most-favored-nations clause, and (6) amendment by holders of a majority in principal. The note is usually accompanied by a Note Purchase Agreement that bundles reps, warranties, and schedules.

THIS CONVERTIBLE PROMISSORY NOTE (“Note”) has been issued pursuant to the Note Purchase Agreement dated as of the date hereof (the “Purchase Agreement”) by and between the Company and the Holder.

Principal Amount: $[PRINCIPAL AMOUNT] Issue Date: [DATE] Holder: [INVESTOR NAME] (the “Holder”) Maker: [COMPANY NAME], Inc., a Delaware corporation (the “Company”)

FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder the Principal Amount, together with simple interest accruing at the rate of [5%] per annum, on the terms set forth below.

1. Maturity

Unless earlier converted or prepaid in accordance with this Note, the outstanding principal and accrued but unpaid interest shall be due and payable in full on [MATURITY DATE, typically 18–24 months after issuance] (the “Maturity Date”). The Company may not prepay this Note without the written consent of the Holder.

2. Conversion

2.1 Automatic Conversion on Qualified Financing

If the Company closes a Qualified Financing prior to the Maturity Date, the entire outstanding principal and accrued interest under this Note shall automatically convert into the securities issued in such Qualified Financing at a conversion price per share equal to the lesser of (a) the price per share paid by new-money investors in the Qualified Financing multiplied by the Discount Rate, or (b) the price per share implied by dividing the Valuation Cap by the Company’s fully-diluted capitalization as of immediately prior to the Qualified Financing (excluding the notes and the option pool increase contemplated in the Qualified Financing).

2.2 Optional Conversion at Maturity

If this Note has not converted prior to the Maturity Date and remains outstanding, the Holder may elect to either (a) receive repayment of the outstanding principal and accrued interest, or (b) convert this Note into shares of the Company’s Common Stock at a price per share equal to the Valuation Cap divided by the Company’s fully-diluted capitalization as of the Maturity Date.

2.3 Change of Control

If a Change of Control occurs prior to conversion or repayment, the Holder shall, at the Holder’s election, receive either (a) a cash payment equal to [1.5x / 2.0x] the outstanding principal and accrued interest, or (b) conversion of this Note into Common Stock at a price per share equal to the Valuation Cap divided by the Company’s fully-diluted capitalization as of immediately prior to the Change of Control.

2.4 Definitions

– Qualified Financing means the Company’s next sale (or series of related sales) of preferred stock for aggregate gross proceeds of at least $[MINIMUM AMOUNT, e.g., $2,000,000], excluding the conversion of any convertible notes or SAFEs. – Discount Rate is [80%]. – Valuation Cap is $[CAP]. – Change of Control means (a) any transaction in which more than 50% of the voting power is transferred, (b) a sale of all or substantially all of the Company’s assets, or (c) a merger or consolidation in which the Company is not the surviving entity.

3. Subordination

The obligations under this Note are subordinated to all indebtedness of the Company now or hereafter owing to any bank or other institutional lender, except as otherwise agreed in writing.

4. Events of Default

Each of the following constitutes an “Event of Default”: (a) the Company’s failure to pay amounts when due and such failure continues for ten (10) business days; (b) the Company’s material breach of any other covenant under this Note or the Purchase Agreement that remains uncured for thirty (30) days after notice; (c) the commencement of a voluntary or involuntary bankruptcy, insolvency, or reorganization proceeding against the Company. Upon an Event of Default, the outstanding principal and accrued interest shall become immediately due and payable.

5. Most-Favored Nations

If the Company issues any convertible notes or SAFEs on terms more favorable than those set forth in this Note prior to conversion or repayment, the Holder shall have the right, upon written notice, to exchange this Note for such more favorable instrument.

6. Miscellaneous

6.1 Amendment

Any term of this Note may be amended with the written consent of the Company and the holders of a majority in aggregate principal of all notes issued under the Purchase Agreement.

6.2 Assignment

The Holder may not assign this Note without the Company’s prior written consent, except to affiliates.

6.3 Governing Law

This Note is governed by the laws of the State of [Delaware / California].

6.4 Investor Status

The Holder represents that it is an “accredited investor” as defined in Rule 501 of Regulation D and is acquiring this Note for investment purposes.

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IN WITNESS WHEREOF, the Company has executed this Convertible Promissory Note as of the Issue Date first set forth above.

[COMPANY NAME], Inc.

By: _________________________ Name: Title:

Acknowledged and Agreed:

HOLDER: _________________________ Name:

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This form is provided for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Every situation is different; consult qualified legal counsel before using or adapting this document. © Montague Law.