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The Convertible Notes Agreement is a critical document used when companies seek to raise capital through debt that can convert into equity. This financing instrument is particularly popular among early-stage companies in Australia that need funding but want to defer equity valuation discussions. The agreement must comply with Australian corporate law, particularly the Corporations Act 2001 (Cth) and ASIC regulations. It typically includes detailed terms about the note's face value, interest rate, conversion mechanisms, qualifying events for automatic conversion, and investor protections. The document becomes especially relevant during seed funding rounds or bridge financing scenarios, where traditional equity funding might not be optimal. A well-structured Convertible Notes Agreement helps protect both the company's and investors' interests while providing flexibility in future funding rounds.

1. Parties: Identifies the issuing company and the noteholder(s)

2. Background: Sets out the context of the agreement, including the company's intention to issue convertible notes and the noteholder's intention to subscribe

3. Definitions and Interpretation: Defines key terms and establishes interpretation principles for the agreement

4. Issue and Subscription of Notes: Details the terms of note issuance, including face value, subscription amount, and closing conditions

5. Interest: Specifies interest rate, calculation method, and payment terms

6. Conversion Rights: Outlines when and how notes can be converted to equity, including conversion price and mechanics

7. Conversion Mechanics: Detailed process for converting notes to shares, including notice requirements and timing

8. Company Warranties: Standard warranties about company status, capacity, and authority

9. Noteholder Warranties: Warranties from the noteholder regarding capacity and authority to invest

10. Events of Default: Defines circumstances constituting default and consequences

11. Repayment and Redemption: Terms for repayment of notes if not converted

12. Security: States whether notes are secured or unsecured

13. Transferability: Rules regarding transfer of notes to other parties

14. Confidentiality: Obligations regarding confidential information

15. Notices: Process for giving formal notices under the agreement

16. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, and amendments