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Convertible Debenture Agreement

Convertible Debenture Agreement Template for South Africa

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Key Requirements PROMPT example:

Convertible Debenture Agreement

"I need a Convertible Debenture Agreement for my South African tech startup to raise R5 million from a single investor, with a 12% annual interest rate and automatic conversion to equity upon a Series A funding round expected in March 2025."

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Document background
The Convertible Debenture Agreement is a crucial financing instrument in South African corporate law, typically used by companies seeking growth capital while maintaining flexibility in their capital structure. This document is essential when a company wishes to raise funds through debt that can later be converted into equity, offering investors the security of debt with the potential upside of equity participation. The agreement must comply with South African legislative requirements, particularly the Companies Act 71 of 2008 and Financial Markets Act 19 of 2012, and includes detailed provisions on conversion mechanics, security arrangements (if any), and investor rights. It's commonly used in scale-up situations, pre-IPO financing, or when companies need substantial capital for expansion while wanting to defer equity dilution.
Suggested Sections

1. Parties: Identification of the issuing company and the debenture holder(s)

2. Background: Context of the agreement, including the company's authority to issue debentures and the purpose of the financing

3. Definitions and Interpretation: Detailed definitions of terms used throughout the agreement and rules of interpretation

4. Issue of Debentures: Terms of issuance, including amount, interest rate, and maturity date

5. Interest and Payments: Interest calculation methods, payment dates, and payment mechanics

6. Conversion Rights: Terms and conditions under which debentures may be converted to equity, including conversion price and ratio

7. Conversion Procedure: Step-by-step process for exercising conversion rights

8. Company Covenants: Promises and obligations of the company, including financial covenants and reporting requirements

9. Events of Default: Circumstances constituting default and consequences thereof

10. Representations and Warranties: Statements of fact and assurances from both parties

11. Transferability: Terms governing the transfer of debentures to third parties

12. Notices: Communication procedures between parties

13. General Provisions: Standard legal provisions including governing law, jurisdiction, and amendment procedures

Optional Sections

1. Security: Details of any security or collateral backing the debentures - include when debentures are secured

2. Debenture Holders' Representative: Appointment and powers of a representative - include when there are multiple holders

3. Anti-dilution Provisions: Protections against share dilution - include when specifically negotiated

4. Tag-Along Rights: Rights of debenture holders to participate in share sales - include in venture capital contexts

5. Pre-emptive Rights: Rights of first refusal on future security issuances - include when specifically negotiated

6. Information Rights: Enhanced information access rights - include for sophisticated investors

7. Board Observer Rights: Rights to appoint board observers - include for major investors

Suggested Schedules

1. Schedule 1 - Debenture Certificate Form: Form of certificate evidencing debenture ownership

2. Schedule 2 - Conversion Notice Form: Standard form for exercising conversion rights

3. Schedule 3 - Financial Covenants: Detailed financial ratios and requirements

4. Schedule 4 - Calculation of Interest: Detailed methods and examples of interest calculations

5. Schedule 5 - Company Information: Key company details including share capital structure

6. Appendix A - Security Documents: Security agreements and related documents (if applicable)

7. Appendix B - Required Corporate Approvals: Copies of board and shareholder resolutions

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶Òõ¶ÌÊÓƵ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

alex.den.21@genieai.co
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Manufacturing

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E-commerce

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Infrastructure Development

Relevant Teams

Legal

Finance

Treasury

Corporate Development

Compliance

Risk Management

Corporate Secretariat

Investment

Corporate Finance

Executive Leadership

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Finance Director

Corporate Lawyer

Investment Manager

Company Secretary

Financial Controller

Treasury Manager

Investment Banker

Venture Capital Partner

Private Equity Manager

Corporate Finance Manager

Legal Counsel

Compliance Officer

Risk Manager

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Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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