The Convertible Note Agreement is a crucial financing instrument in the Canadian market, particularly for early-stage companies seeking capital without immediate equity dilution. This document type bridges the gap between debt and equity financing, allowing companies to defer valuation discussions while accessing necessary capital. The agreement must comply with Canadian securities laws, including provincial regulations and National Instrument 45-106, while addressing key commercial terms such as conversion rights, interest rates, and maturity dates. It's commonly used in seed rounds and bridge financings, providing investors with the security of debt and the upside potential of equity conversion. The document includes essential provisions for both parties' rights and obligations, conversion mechanics, and default scenarios, all structured within the Canadian legal framework.
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1. Parties: Identification of the issuer (company) and the noteholder(s)
2. Background: Context of the agreement and basic transaction structure
3. Definitions: Key terms used throughout the agreement including Maturity Date, Conversion Price, Qualified Financing, etc.
4. Loan Amount and Interest: Principal amount, interest rate, and payment terms
5. Maturity and Repayment: Maturity date and repayment provisions
6. Conversion Rights: Terms and mechanics for converting the note to equity
7. Conversion Price: Calculation of conversion price including any discount or valuation cap
8. Automatic Conversion: Circumstances triggering automatic conversion (e.g., qualified financing)
9. Representations and Warranties: Standard representations by both parties
10. Events of Default: Circumstances constituting default and consequences
11. Assignment and Transfer: Rules regarding transfer of the note
12. Amendment and Waiver: Procedures for modifying the agreement
13. Notices: Communication requirements and contact details
14. Governing Law: Applicable law and jurisdiction
15. Execution: Signature blocks and execution requirements
1. Security: Terms of any security interest granted to noteholder - include if note is secured
2. Subordination: Ranking provisions relative to other debt - include if there is other corporate debt
3. Information Rights: Noteholder's rights to company information - include for sophisticated investors
4. Participation Rights: Rights to participate in future financings - include if negotiated
5. Board Observer Rights: Rights to attend board meetings - include for strategic investors
6. Most Favored Nation: Rights to adopt terms of future notes - include in early-stage financings
7. Pre-emptive Rights: Rights to maintain pro-rata ownership - include for major investors
8. Co-sale Rights: Rights to participate in sale of company shares - include for significant investments
1. Form of Conversion Notice: Standard form for noteholder to exercise conversion rights
2. Capitalization Table: Current capital structure of the company
3. Form of Security Agreement: If secured, detailed terms of security interest
4. Disclosure Schedule: Exceptions to representations and warranties
5. Wire Instructions: Banking details for funding the note
6. Form of Shareholders Agreement: Agreement to be entered upon conversion
7. Certificate of Independent Legal Advice: Confirmation that parties received independent legal advice
Relevant legal definitions
Clauses
Loan Terms
Interest
Repayment
Conversion Rights
Security Interest
Event of Default
Representations and Warranties
Covenants
Information Rights
Pre-emptive Rights
Tag-along Rights
Most Favored Nation
Amendment
Assignment
Subordination
Confidentiality
Notice
Governing Law
Dispute Resolution
Force Majeure
Severability
Entire Agreement
Further Assurance
Waiver
Indemnification
Counterparts
Term and Termination
Survival
Interest
Repayment
Conversion Rights
Security Interest
Event of Default
Representations and Warranties
Covenants
Information Rights
Pre-emptive Rights
Tag-along Rights
Most Favored Nation
Amendment
Assignment
Subordination
Confidentiality
Notice
Governing Law
Dispute Resolution
Force Majeure
Severability
Entire Agreement
Further Assurance
Waiver
Indemnification
Counterparts
Term and Termination
Survival
Relevant Industries
Technology
Biotechnology
Clean Energy
Financial Services
Healthcare
E-commerce
Software Development
Manufacturing
Consumer Products
Real Estate
Media and Entertainment
Telecommunications
Professional Services
Cannabis
Mining and Resources
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Executive Leadership
Board of Directors
Compliance
Corporate Secretariat
Investment
Risk Management
Relevant Roles
Chief Executive Officer
Chief Financial Officer
General Counsel
Corporate Secretary
Investment Manager
Venture Capitalist
Angel Investor
Corporate Lawyer
Investment Banker
Financial Controller
Treasury Manager
Board Director
Company Secretary
Compliance Officer
Finance Director
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