The Unsecured Convertible Promissory Note serves as a bridge financing instrument, particularly useful for companies seeking interim funding before a larger equity round. This document type is widely used in the Canadian startup ecosystem, providing a balanced approach between debt and equity financing. It details the loan amount, interest rate, maturity date, and conversion mechanisms, while complying with Canadian federal and provincial securities laws. The note's convertible nature offers investors the potential upside of equity participation while providing initial debt security. Key features include conversion triggers (such as qualified financing rounds), valuation caps, and discount rates. The unsecured nature means no specific company assets are pledged as collateral, making it a more flexible instrument for early-stage companies.
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1. Parties: Identification of the Lender and Borrower with their complete legal names and addresses
2. Background: Brief context of the loan arrangement and purpose
3. Definitions: Key terms used throughout the note including 'Conversion Price', 'Maturity Date', 'Qualified Financing', etc.
4. Promise to Pay: Core obligation stating the principal amount and promise to repay
5. Interest: Interest rate, calculation method, and payment terms
6. Maturity: Maturity date and repayment terms
7. Conversion Rights: Terms and conditions for converting the note into equity, including conversion price and mechanics
8. Conversion Mechanics: Detailed process for executing the conversion, including notice requirements and documentation
9. Events of Default: Circumstances constituting default and consequences
10. Representations and Warranties: Basic representations by the borrower regarding authority, binding nature, and no conflicts
11. General Provisions: Standard provisions including notices, amendments, governing law, and assignment restrictions
1. Qualified Financing Definition: Detailed terms of what constitutes a qualified financing event triggering automatic conversion, used when automatic conversion is desired
2. Prepayment: Terms allowing early repayment, if permitted
3. Security Interest: Although typically unsecured, can include negative pledge or other protective covenants
4. Information Rights: Lender's rights to receive financial information, included for sophisticated investors
5. Subordination: Terms regarding subordination to other debt, if applicable
6. Most Favored Nation: Protection ensuring the lender gets the benefit of better terms offered to future note holders
7. Change of Control: Provisions dealing with sale or merger of the company
8. Board Observer Rights: Rights of the lender to attend board meetings, typically for larger investments
1. Form of Conversion Notice: Standard form for the lender to execute conversion rights
2. Calculation of Conversion Price: Detailed methodology and examples of conversion price calculations
3. Cap Table: Current capitalization table of the company
4. Form of Shareholders Agreement: Agreement to be signed upon conversion, if applicable
5. Payment Schedule: If interest payments are periodic, schedule of payment dates and amounts
Relevant legal definitions
Agreement
Applicable Law
Business Day
Change of Control
Common Shares
Company
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Default Interest Rate
Event of Default
Governmental Authority
Holder
Interest Rate
Lender
Maturity Date
Next Equity Financing
Note
Ordinary Course of Business
Person
Principal Amount
Qualified Financing
Qualified Financing Securities
Securities
Securities Laws
Subscription Agreement
Term
Valuation Cap
Conversion Discount
Conversion Shares
Material Adverse Effect
Permitted Indebtedness
Pre-Money Valuation
Shareholders Agreement
Subsidiary
Applicable Law
Business Day
Change of Control
Common Shares
Company
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Default Interest Rate
Event of Default
Governmental Authority
Holder
Interest Rate
Lender
Maturity Date
Next Equity Financing
Note
Ordinary Course of Business
Person
Principal Amount
Qualified Financing
Qualified Financing Securities
Securities
Securities Laws
Subscription Agreement
Term
Valuation Cap
Conversion Discount
Conversion Shares
Material Adverse Effect
Permitted Indebtedness
Pre-Money Valuation
Shareholders Agreement
Subsidiary
Clauses
Promise to Pay
Interest
Maturity
Conversion Rights
Conversion Price
Default
Acceleration
Representations and Warranties
Covenants
Information Rights
Subordination
Assignment
Amendment
Waiver
Notice
Governing Law
Jurisdiction
Counterparts
Severability
Entire Agreement
Further Assurances
Confidentiality
Most Favored Nation
Change of Control
Events of Default
Remedies
Transfer Restrictions
Prepayment
Registration Rights
Indemnification
Expenses
Interest
Maturity
Conversion Rights
Conversion Price
Default
Acceleration
Representations and Warranties
Covenants
Information Rights
Subordination
Assignment
Amendment
Waiver
Notice
Governing Law
Jurisdiction
Counterparts
Severability
Entire Agreement
Further Assurances
Confidentiality
Most Favored Nation
Change of Control
Events of Default
Remedies
Transfer Restrictions
Prepayment
Registration Rights
Indemnification
Expenses
Relevant Industries
Technology
Startups
Venture Capital
Financial Services
Biotechnology
Clean Technology
Software Development
E-commerce
Healthcare Technology
Manufacturing
Real Estate Technology
Consumer Products
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Executive Leadership
Investment
Risk Management
Compliance
Corporate Secretariat
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Investment Manager
Venture Capital Associate
Corporate Lawyer
Investment Banker
Startup Founder
Finance Director
Treasury Manager
Corporate Development Manager
Legal Counsel
Company Secretary
Angel Investor
Investment Analyst
Risk Manager
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