The Equity Promissory Note serves as a crucial financing instrument in the South African business environment, particularly for companies seeking flexible funding options while preserving cash flow. This document type is commonly used in growth-stage companies, startup investments, and corporate financing scenarios where traditional debt or immediate equity investment may not be optimal. The Equity Promissory Note combines the security of debt with the potential upside of equity investment, providing a balanced risk-reward structure for both issuers and investors. It must comply with South African corporate and securities laws, including the Companies Act 71 of 2008 and the Financial Markets Act 19 of 2012, while addressing specific requirements for negotiable instruments under local legislation. The document typically includes comprehensive provisions for payment terms, conversion rights, shareholder protections, and default remedies.
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1. Parties: Identification of the issuer (maker) and the payee (holder) of the promissory note
2. Background: Context of the transaction, including the purpose of the note and any relevant corporate approvals
3. Definitions: Key terms used in the note, including financial terms, conversion-related definitions, and technical terms
4. Promise to Pay: The fundamental promise to pay, including the principal amount, interest rate, and payment terms
5. Conversion Rights: Terms and conditions for converting the note into equity, including conversion price and timing
6. Conversion Mechanics: Detailed process for executing the conversion, including notice requirements and share issuance procedures
7. Representations and Warranties: Issuer's statements regarding authority, share issuance capacity, and other material facts
8. Events of Default: Circumstances constituting default and consequential rights of the holder
9. Notices: Requirements for formal communications between parties
10. General Terms: Standard legal provisions including governing law, jurisdiction, and amendment procedures
1. Security: Include when the note is secured by specific assets or guarantees
2. Pre-emptive Rights: Include when existing shareholders have rights regarding the conversion shares
3. Transfer Restrictions: Include when there are limitations on transferring the note or conversion shares
4. Board Observer Rights: Include when the holder is granted rights to attend board meetings
5. Information Rights: Include when the holder is entitled to receive specific company information
6. Most Favored Nation: Include when the holder should benefit from better terms given to future investors
7. Change of Control: Include when specific provisions apply in case of company sale or change of control
1. Schedule 1 - Certificate Form: Form of the physical promissory note certificate if required
2. Schedule 2 - Conversion Notice: Form of notice to be used when exercising conversion rights
3. Schedule 3 - Share Capital Structure: Current and post-conversion share capital structure of the issuer
4. Schedule 4 - Corporate Authorizations: Copies or details of relevant corporate approvals for the note issuance
5. Appendix A - Calculation Methods: Detailed methods for calculating interest, conversion price adjustments, and other financial terms
Relevant legal definitions
Agreement
Business Day
Change of Control
Companies Act
Company
Conversion Date
Conversion Notice
Conversion Period
Conversion Price
Conversion Rights
Conversion Shares
Default Event
Default Interest Rate
Effective Date
Encumbrance
Equity Securities
Financial Year
Holder
Interest Rate
Issue Date
Issuer
Maturity Date
MOI
Note Amount
Ordinary Shares
Parties
Payment Date
Principal Amount
Qualified Financing
Regulatory Approvals
Securities
Security
Shareholders Agreement
Share Capital
Signature Date
Subscription Price
Trigger Event
Valuation
ZAR
Business Day
Change of Control
Companies Act
Company
Conversion Date
Conversion Notice
Conversion Period
Conversion Price
Conversion Rights
Conversion Shares
Default Event
Default Interest Rate
Effective Date
Encumbrance
Equity Securities
Financial Year
Holder
Interest Rate
Issue Date
Issuer
Maturity Date
MOI
Note Amount
Ordinary Shares
Parties
Payment Date
Principal Amount
Qualified Financing
Regulatory Approvals
Securities
Security
Shareholders Agreement
Share Capital
Signature Date
Subscription Price
Trigger Event
Valuation
ZAR
Clauses
Payment Terms
Interest
Conversion Rights
Conversion Mechanics
Representations and Warranties
Security
Events of Default
Remedies
Share Issuance
Pre-emptive Rights
Transfer Restrictions
Tag-Along Rights
Drag-Along Rights
Information Rights
Board Rights
Most Favored Nation
Anti-dilution
Change of Control
Notices
Assignment
Amendments
Governing Law
Jurisdiction
Dispute Resolution
Costs
Force Majeure
Severability
Entire Agreement
Counterparts
Confidentiality
Interest
Conversion Rights
Conversion Mechanics
Representations and Warranties
Security
Events of Default
Remedies
Share Issuance
Pre-emptive Rights
Transfer Restrictions
Tag-Along Rights
Drag-Along Rights
Information Rights
Board Rights
Most Favored Nation
Anti-dilution
Change of Control
Notices
Assignment
Amendments
Governing Law
Jurisdiction
Dispute Resolution
Costs
Force Majeure
Severability
Entire Agreement
Counterparts
Confidentiality
Relevant Industries
Technology and Software
Financial Services
Venture Capital
Private Equity
Startup Ecosystem
Biotechnology
Renewable Energy
E-commerce
Manufacturing
Real Estate Development
Mining and Resources
Healthcare
Agriculture Technology
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Compliance
Risk Management
Investment
Corporate Secretariat
Board of Directors
Executive Committee
Relevant Roles
Chief Executive Officer
Chief Financial Officer
General Counsel
Corporate Finance Manager
Investment Manager
Legal Counsel
Company Secretary
Financial Director
Investment Analyst
Corporate Development Manager
Venture Capital Partner
Private Equity Manager
Compliance Officer
Risk Manager
Treasury Manager
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