The Unsecured Convertible Promissory Note is a strategic financing instrument widely used in the Indian startup and growth company ecosystem. It serves as a bridge between debt and equity financing, offering investors the security of debt with the upside potential of equity participation. This document is typically used when companies need immediate funding but prefer to defer equity valuation discussions, or when parties want to structure an investment that provides flexibility in terms of future equity conversion. The note's unsecured nature makes it particularly suitable for early-stage companies with limited assets, while its convertibility feature aligns with the high-growth expectations of startup investors. The document must comply with Indian corporate law, securities regulations, and foreign investment rules (if applicable), making it essential to include specific provisions that address these regulatory requirements.
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1. Parties: Identification of the Issuer (Company) and the Noteholder(s)
2. Background: Context of the note issuance and the company's funding requirements
3. Definitions: Key terms used throughout the document including 'Conversion Price', 'Maturity Date', 'Qualified Financing', etc.
4. Principal Amount and Issuance: Details of the loan amount and issuance terms
5. Interest: Interest rate, calculation method, and payment terms
6. Maturity: Maturity date and repayment obligations
7. Conversion Rights: Terms and conditions for converting the note into equity, including conversion triggers and price mechanisms
8. Conversion Mechanics: Procedural requirements for executing the conversion
9. Representations and Warranties: Standard company representations regarding authority, binding nature, and no conflicts
10. Events of Default: Circumstances constituting default and consequences
11. Remedies: Rights and remedies available upon default
12. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes
1. Foreign Investment Compliance: Required when the noteholder is a foreign entity, addressing FEMA compliance
2. Most Favored Nation: Optional provision ensuring the noteholder receives the best terms offered to other investors
3. Information Rights: Optional rights for noteholders to receive company financial information and updates
4. Pre-payment Terms: Optional section specifying whether and how the note can be prepaid
5. Security Interest: Although typically unsecured, can be included if partial security is provided
6. Tag-Along Rights: Optional rights for noteholders in case of company sale before conversion
7. Board Observer Rights: Optional rights for noteholder representation in board meetings
8. Amendment and Waiver: Procedures for modifying the note terms with multiple noteholders
1. Schedule A - Conversion Price Calculation: Detailed formula and examples for calculating the conversion price
2. Schedule B - Form of Conversion Notice: Template notice for exercising conversion rights
3. Schedule C - Cap Table: Current capitalization table of the company
4. Schedule D - Company Information: Key company details including registration information and directors
5. Appendix 1 - Shareholders' Agreement Terms: Key terms that will apply post-conversion
6. Appendix 2 - Compliance Certificates: Templates for compliance certificates required under the note
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