The Convertible Debt Agreement is commonly used by growth companies seeking flexible financing options. It serves as a bridge between debt and equity financing, allowing companies to defer equity valuation while accessing immediate capital. Under English and Welsh law, this document provides a structured framework for both companies and investors, detailing conversion mechanisms, interest rates, and investor protections. The agreement is particularly valuable for companies planning future equity rounds or exit events, as it provides investors with the security of debt creditors while maintaining the potential for equity participation.
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1. Parties: Identification and details of the contracting parties, including registered addresses and company numbers
2. Background: Context and purpose of the convertible debt arrangement, including the company's intention to borrow and the lender's intention to provide the convertible loan
3. Definitions: Key terms used throughout the agreement, including financial terms, conversion mechanisms, and technical definitions
4. Subscription and Issue: Terms of debt issuance and subscription, including loan amount, closing conditions, and mechanics of advance
5. Interest: Interest rate, calculation method, payment terms, and default interest provisions
6. Conversion Rights: Terms and conditions for converting debt to equity, including conversion price, timing, and mechanics
7. Repayment Terms: Conditions for repayment of the principal amount, including maturity date and early repayment provisions
8. Events of Default: Circumstances constituting default and consequences, including acceleration rights
9. Covenants: Ongoing obligations of the company, including financial and operational commitments
10. Assignment and Transfer: Rules regarding the transfer of notes and assignment of rights under the agreement
1. Security: Terms of any security provided for the debt, including type of security and enforcement rights
2. Warranties and Representations: Additional assurances from the issuing company regarding its status, capacity, and business
3. Information Rights: Rights of noteholders to receive company information and financial statements
4. Tag-Along Rights: Rights of noteholders to participate in sale of company shares
5. Anti-dilution Protection: Provisions protecting noteholders from dilution of their potential equity stake
6. Most Favored Nation: Provisions ensuring noteholders receive the benefit of more favorable terms granted to subsequent investors
1. Form of Conversion Notice: Template document for noteholders to exercise their conversion rights
2. Cap Table: Current and post-conversion shareholding structure of the company
3. Calculation of Conversion Price: Detailed methodology and examples for determining the conversion price
4. Form of Note Certificate: Template for the physical convertible loan note certificate
5. Company's Constitutional Documents: Articles of association and other relevant constitutional documents
6. Conditions Precedent: List of documents and conditions required before completion
Relevant legal definitions
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