A Convertible Loan Stock Agreement is typically used when companies seek to raise capital while deferring immediate equity dilution. This document, governed by English and Welsh law, provides a framework for issuing debt securities that can later convert into equity shares, usually at a predetermined price or at a discount to a future funding round. The agreement includes detailed provisions on conversion triggers, interest rates, redemption rights, and security (if applicable). It's particularly popular among growth-stage companies and start-ups where current valuation might be challenging to determine.
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1. Parties: Identification of the company and loan stockholders
2. Background: Context of the convertible loan stock issuance
3. Definitions: Key terms used throughout the agreement
4. Issue of Loan Stock: Terms of issuance including amount and denomination
5. Interest: Interest rate, calculation method, and payment terms
6. Conversion Rights: Terms and mechanisms for converting loan stock to shares
7. Redemption: Terms for redemption of the loan stock
8. Warranties and Representations: Standard warranties given by the company and stockholders
9. Covenants: Ongoing obligations of the company
10. Notices: Process for serving notices under the agreement
11. Governing Law and Jurisdiction: Specification of English and Welsh law as governing law
1. Security: Details of any security provided, used when loan stock is secured
2. Transferability Restrictions: Restrictions on transfer of loan stock, if applicable
3. Events of Default: Circumstances constituting default and consequences
4. Tag Along Rights: Rights of stockholders to participate in sale of company shares
5. Drag Along Rights: Rights to force minority stockholders to join in sale of company
1. Form of Certificate: Template for the loan stock certificate
2. Conversion Notice: Form of notice for exercising conversion rights
3. Terms and Conditions: Detailed terms applying to the loan stock
4. Conversion Calculations: Formulae and examples of conversion calculations
5. Deed of Adherence: Form of deed for new stockholders to adhere to the agreement
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