Legal Templates
Compulsory Convertible Debentures Agreement

Compulsory Convertible Debentures Agreement for the United States

Compulsory Convertible Debentures Agreement Template for United States

A Compulsory Convertible Debentures Agreement is a legally binding document under U.S. securities law that governs the issuance of debt instruments which must be converted into equity shares of the issuing company at a predetermined time and conversion ratio. The agreement outlines the terms of issuance, interest payments, conversion mechanics, and rights and obligations of all parties involved, while ensuring compliance with federal and state securities regulations, including SEC requirements and applicable Blue Sky laws.

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What is a Compulsory Convertible Debentures Agreement?

The Compulsory Convertible Debentures Agreement is utilized when companies seek to raise capital while ensuring future equity conversion. This instrument is particularly valuable for companies planning future IPOs or seeking to strengthen their equity base without immediate dilution. The agreement must comply with U.S. federal securities laws, including the Securities Act of 1933 and Exchange Act of 1934, as well as state-specific regulations. It typically includes detailed provisions for conversion timing, ratios, interest payments, and investor protections, making it a complex but versatile financing tool.

What sections should be included in a Compulsory Convertible Debentures Agreement?

1. Parties: Identification of issuer and debenture holders

2. Background: Context of the debenture issuance and purpose

3. Definitions: Key terms used throughout the agreement

4. Issuance of Debentures: Terms of issuance, face value, and number of debentures

5. Conversion Terms: Conversion ratio, timing, and mechanism

6. Interest: Interest rate, calculation method, and payment terms

7. Maturity and Redemption: Maturity date and redemption provisions

8. Company Covenants: Issuer's obligations and restrictions

9. Events of Default: Circumstances constituting default and remedies

What sections are optional to include in a Compulsory Convertible Debentures Agreement?

1. Security: Terms of any security/collateral (used when debentures are secured)

2. Trustee Provisions: Appointment and duties of trustee (used when offering exceeds Trust Indenture Act thresholds)

3. Anti-dilution Provisions: Protection against dilution of conversion rights (used when additional protection for holders is required)

4. Tag-Along Rights: Rights to participate in sale of shares (used when requested by major investors)

What schedules should be included in a Compulsory Convertible Debentures Agreement?

1. Form of Debenture Certificate: Template of the physical debenture certificate

2. Conversion Notice: Form for exercising conversion rights

3. Financial Covenants: Detailed financial obligations of the issuer

4. Shareholder Resolutions: Approvals for issuance and conversion

5. Security Documents: Details of security/collateral if applicable

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Jurisdiction

United States

Publisher

Genie AI

Document Type

Security Agreement

Sector

Investment

Cost

Free to use
Relevant legal definitions
Agreement
Applicable Law
Business Day
Certificate of Incorporation
Company
Conversion Date
Conversion Notice
Conversion Price
Conversion Ratio
Conversion Rights
Conversion Shares
Debenture Certificate
Debenture Holders
Debentures
Default Interest Rate
Event of Default
Face Value
Financial Year
Governmental Authority
Interest Payment Date
Interest Rate
Issue Date
Issuer
Lien
Maturity Date
Material Adverse Effect
Ordinary Shares
Party/Parties
Person
Principal Amount
Record Date
Redemption Date
Register of Debenture Holders
Securities Laws
Security
Security Documents
Subscription Amount
Subsidiary
Tax
Trading Day
Transaction Documents
Transfer
Trustee
Industries

Securities Act of 1933: Federal law governing registration requirements and exemptions for securities offerings, crucial for the initial issuance of convertible debentures

Securities Exchange Act of 1934: Federal law establishing ongoing reporting requirements and trading regulations for securities, including convertible instruments

Regulation D: SEC regulations providing safe harbor exemptions for private placement offerings, often used for convertible debenture issuances

Rule 144: SEC rule governing resale restrictions on securities, affecting transferability of convertible debentures

Blue Sky Laws: State-specific securities laws governing registration, disclosure requirements, and investor protection provisions

Delaware General Corporation Law: State corporate law (if Delaware corporation) governing corporate actions, authorized shares, and conversion rights

Internal Revenue Code: Federal tax laws affecting convertible securities, including Original Issue Discount rules and Section 305 provisions

Investment Company Act of 1940: Federal law regulating investment companies and their activities, may apply depending on issuer status

Trust Indenture Act of 1939: Federal law governing bond and debenture offerings exceeding certain thresholds, including requirements for trustee appointment

Uniform Commercial Code: State-adopted uniform laws governing commercial transactions, particularly Articles 8 (Investment Securities) and 9 (Secured Transactions)

SEC Disclosure Requirements: Regulatory framework establishing mandatory disclosures for securities offerings and ongoing reporting

Stock Exchange Rules: Requirements set by stock exchanges for listed companies issuing convertible securities

FINRA Regulations: Rules governing broker-dealers involved in the offering and trading of convertible debentures

Federal Reserve Margin Regulations: Regulations governing margin requirements and leverage in securities transactions

Bankruptcy Code: Federal laws affecting creditor rights and priority in bankruptcy proceedings, relevant for debenture holders

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