The Convertible Debt Agreement serves as a crucial financing instrument in the Indian market, particularly for startups and growing companies seeking capital while deferring valuation discussions. This document is typically used when companies need immediate funding but want to postpone equity valuation negotiations until a later financing round. The agreement must comply with Indian regulatory requirements, including the Companies Act 2013, SEBI guidelines, and FEMA regulations if foreign investment is involved. It details the loan terms, conversion mechanisms, investor rights, and protection measures while ensuring alignment with Indian corporate law framework. The document becomes especially relevant during bridge financing rounds, seed funding, or when companies need working capital with the flexibility of future equity conversion.
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1. Parties: Identification of the Company (Borrower) and the Lender(s)
2. Background: Context of the investment, company's business, and purpose of the convertible debt
3. Definitions: Key terms used throughout the agreement including Conversion Price, Qualified Financing, Maturity Date, etc.
4. Loan Amount and Issuance: Details of the principal amount, issuance date, and disbursement terms
5. Interest: Interest rate, calculation method, and payment terms
6. Conversion Rights: Conditions triggering conversion, conversion price mechanics, and procedures
7. Maturity and Repayment: Maturity date, repayment terms, and prepayment provisions
8. Company Representations and Warranties: Standard company representations about its legal status, authority, and business
9. Investor Representations and Warranties: Investor's declarations regarding investment capacity and understanding of risks
10. Information Rights: Company's obligations to provide financial and other information to the investor
11. Events of Default: Circumstances constituting default and consequent investor rights
12. General Terms: Standard provisions including notices, amendments, governing law, and jurisdiction
1. Foreign Investment Compliance: Required when the lender is a foreign entity, addressing FEMA compliance and RBI regulations
2. Multiple Lender Provisions: Required when there are multiple investors, addressing voting rights and pro-rata rights
3. Security: Used when the convertible debt is secured by company assets
4. Most Favored Nation: Optional protection ensuring investor gets best terms if company issues better terms to future investors
5. Anti-dilution Protection: Additional protection against dilution beyond standard conversion adjustments
6. Board Observer Rights: Optional rights for investor to attend board meetings
7. Tag-Along Rights: Optional exit rights in case of share sale by founders
8. Pre-emptive Rights: Optional rights for investor to participate in future funding rounds
1. Schedule 1 - Company Information: Details of company registration, directors, shareholding pattern
2. Schedule 2 - Terms of Conversion: Detailed conversion mechanics, valuation caps, discounts
3. Schedule 3 - Calculation of Interest: Detailed methodology for interest calculation
4. Schedule 4 - Form of Conversion Notice: Template notice for exercising conversion rights
5. Schedule 5 - Competitors List: List of competitors for transfer restriction purposes
6. Schedule 6 - Disclosure Schedule: Company disclosures against representations and warranties
7. Appendix A - Cap Table: Current and post-conversion capitalization tables
8. Appendix B - Compliance Certificates: Templates for ongoing compliance certifications
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