The Convertible Debt Agreement is a crucial financing instrument commonly used by Canadian companies, particularly startups and growth-stage businesses, seeking to raise capital while deferring company valuation. This document type combines elements of debt and equity financing, providing investors with the security of debt and the potential upside of equity participation. It's particularly useful in bridge financing scenarios or when companies and investors want to postpone determining a precise equity valuation. The agreement must comply with Canadian federal and provincial securities regulations, corporate law, and tax requirements. It typically includes detailed provisions for conversion mechanics, investor rights, and protection mechanisms, making it a preferred choice for sophisticated investors and companies in growth phases.
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1. Parties: Identification of the issuing company and the lender(s)
2. Background: Context of the agreement and general purpose of the convertible debt issuance
3. Definitions: Key terms used throughout the agreement, including financial and technical definitions
4. Loan Amount and Terms: Principal amount, interest rate, maturity date, and payment terms
5. Conversion Rights: Terms and conditions for converting debt to equity, including conversion price and mechanics
6. Conversion Triggers: Events that trigger automatic or optional conversion, including qualified financing rounds
7. Representations and Warranties: Statements of fact by both parties regarding their capacity and authority
8. Covenants: Ongoing obligations of the company during the term of the debt
9. Events of Default: Circumstances constituting default and corresponding remedies
10. Amendments and Waivers: Procedures for modifying the agreement or waiving rights
11. Assignment and Transfer: Terms governing the transfer of the convertible debt
12. Notices: Communication requirements and contact information
13. Governing Law: Specification of Canadian law and jurisdiction
14. General Provisions: Miscellaneous legal provisions including severability and entire agreement
1. Security Interest: Used when the convertible debt is secured by company assets
2. Information Rights: Added when lenders are granted specific rights to company information
3. Board Observer Rights: Included when lenders are granted rights to observe board meetings
4. Pre-emptive Rights: Used when lenders are given rights to participate in future financing rounds
5. Most Favored Nation Provision: Added to protect lenders if better terms are offered in subsequent convertible debt issuances
6. Tax Provisions: Detailed tax treatments when complex tax implications are involved
7. Foreign Investment Provisions: Required when involving non-Canadian investors
8. Registration Rights: Included when addressing future public offering scenarios
1. Schedule A - Conversion Calculations: Detailed methodology for calculating conversion price and number of shares
2. Schedule B - Form of Conversion Notice: Standard form for exercising conversion rights
3. Schedule C - Capitalization Table: Current capital structure of the company
4. Schedule D - Company Disclosure Schedule: Exceptions to representations and warranties
5. Schedule E - Security Agreement: Details of security interest if debt is secured
6. Appendix 1 - Wire Transfer Instructions: Banking details for funding the loan
7. Appendix 2 - Shareholder Rights: Rights attached to shares post-conversion
Relevant legal definitions
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Relevant Industries
Technology
Software
Biotechnology
Clean Energy
Financial Services
E-commerce
Healthcare Technology
Manufacturing
Consumer Products
Professional Services
Media and Entertainment
Telecommunications
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Executive Leadership
Board of Directors
Investment Relations
Compliance
Corporate Governance
Strategy
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Corporate Counsel
Investment Manager
Venture Capitalist
Corporate Secretary
Finance Director
Treasury Manager
Investment Banker
Board Member
Financial Controller
General Counsel
Business Development Director
Startup Founder
Managing Partner
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