A Convertible Note Agreement is commonly used in early-stage funding rounds where establishing a company valuation may be premature or complex. Under English and Welsh law, this instrument provides companies with immediate access to capital while deferring equity valuation discussions. The agreement typically includes provisions for interest accrual, conversion triggers (such as qualified financing rounds), discount rates, and valuation caps. It serves as a bridge between debt and equity financing, offering investors the potential upside of equity while providing the security of debt, all within the established framework of English corporate and securities law.
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1. Parties: Identification of the parties entering into the agreement
2. Background: Context and purpose of the convertible note arrangement
3. Definitions: Key terms used throughout the agreement
4. Subscription: Terms of the note subscription including amount and payment
5. Interest: Interest rate and payment terms
6. Conversion Rights: Terms and conditions for converting the note to equity
7. Repayment: Terms for repayment if conversion doesn't occur
8. Events of Default: Circumstances constituting default and consequences
1. Security: Security arrangements if the note is secured against company assets
2. Information Rights: Rights of noteholder to receive company information and financial reports
3. Board Observer Rights: Rights of noteholder to attend and observe board meetings
1. Form of Conversion Notice: Template notice for exercising conversion rights
2. Capitalization Table: Current and post-conversion capital structure
3. Conditions Precedent: Conditions to be satisfied before completion
4. Form of Note Certificate: Template for the physical note certificate if required
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