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The Convertible Loan Note Agreement is widely used in South Africa's growing startup and scale-up ecosystem as a flexible financing instrument. It provides companies with immediate access to funding while offering investors the potential upside of equity participation. This document type is particularly relevant when companies need bridge financing before a larger equity round, or when valuation determination is challenging at the time of investment. The agreement must comply with South African legal requirements, including the Companies Act 71 of 2008, relevant financial sector regulations, and where applicable, exchange control regulations. It contains detailed provisions on loan terms, conversion mechanics, company obligations, and investor rights, making it suitable for both local and international investment transactions. The document is structured to protect both lender and borrower interests while maintaining flexibility for future funding rounds and exit scenarios.

1. Parties: Identification of the Lender(s), Company (Borrower), and any guarantors or other relevant parties

2. Background: Context of the agreement, including the company's business and purpose of the loan

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

4. Loan Amount and Purpose: Specification of the loan amount, drawdown conditions, and permitted use of funds

5. Interest: Interest rate, calculation method, payment periods, and default interest provisions

6. Repayment Terms: Repayment schedule, prepayment rights, and maturity date

7. Conversion Rights: Terms and conditions for converting the loan into equity, including conversion price and timing

8. Conversion Mechanics: Detailed process for executing the conversion, including notices and documentation requirements

9. Company's Representations and Warranties: Standard and specific warranties about the company's status, capacity, and business

10. Lender's Representations and Warranties: Warranties regarding the lender's capacity and authority to enter into the agreement

11. Company Covenants: Positive and negative obligations of the company during the loan term

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

13. Taxes and Expenses: Allocation of tax liabilities and transaction costs

14. Confidentiality: Obligations regarding confidential information

15. Notices: Process and requirements for formal communications between parties

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