The Convertible Loan Agreement Startup is a sophisticated financing instrument widely used in the United States startup ecosystem. It provides a flexible funding solution for early-stage companies that need capital but may find it challenging to establish a firm valuation. This agreement type allows startups to defer valuation discussions while securing immediate funding, with the loan converting to equity upon specified trigger events, such as a qualified financing round. The document must comply with federal securities laws, state-specific regulations, and applicable lending rules. It typically includes detailed conversion mechanics, investor rights, and protective provisions for both parties.
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1. Parties: Identification of lender(s) and borrower, including full legal names and addresses
2. Background/Recitals: Context of the loan, purpose, and basic structure of the transaction
3. Definitions: Key terms used throughout the agreement including Conversion Price, Maturity Date, Qualified Financing, etc.
4. Loan Amount and Terms: Principal amount, interest rate, maturity date, and payment terms
5. Conversion Rights: Terms and conditions for converting the loan into equity, including triggers and conversion price
6. Representations and Warranties: Standard company and lender representations
7. Events of Default: Circumstances constituting default and remedies
8. Governing Law: Applicable jurisdiction and choice of law
1. Security: If loan is secured, details of collateral and security arrangements
2. Board Observer Rights: Rights of lender to attend board meetings
3. Information Rights: Rights to receive financial and other company information
4. Pre-emptive Rights: Rights to participate in future funding rounds
1. Form of Conversion Notice: Template notice for exercising conversion rights
2. Cap Table: Current capitalization table of the company
3. Form of Promissory Note: If separate note is issued, template of the note
4. Security Documents: If secured, relevant security agreements and filings
5. Stockholder Rights: Rights attached to shares post-conversion
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