The Note Conversion Agreement serves as a critical document in the startup and growth company ecosystem, particularly in the United States. It is commonly used when a company's convertible note reaches maturity, triggers a conversion event, or when parties mutually agree to convert outstanding debt into equity. This agreement details the specific terms of conversion, including the number of shares to be issued, the conversion price, and any special rights attached to the converted shares. The document must comply with both federal securities laws and state-specific regulations, making it essential for proper documentation of the transition from debt to equity investment.
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1. Parties: Identification of the parties to the agreement, including the note holder and the company
2. Background: Context of the original note and reasons for conversion
3. Definitions: Key terms used throughout the agreement including conversion price, securities, and other relevant definitions
4. Conversion Terms: Details of conversion, including conversion price, ratio, and timing
5. Mechanics of Conversion: Process and procedures for executing the conversion
6. Representations and Warranties: Statements of fact by both parties regarding authority, securities law compliance, and ownership
7. Governing Law: Jurisdiction and applicable law governing the agreement
1. Anti-dilution Provisions: Protection mechanisms against dilution of converted shares, used when requested by noteholder or standard for similar transactions
2. Registration Rights: Rights to register converted shares, typically included for larger investments or sophisticated investors
3. Board Rights: Rights to board representation post-conversion, included for significant investments
4. Tag-Along Rights: Rights allowing minority shareholders to join in sale of shares by majority shareholders
1. Schedule A - Original Promissory Note: Copy of the original note being converted
2. Schedule B - Capitalization Table: Pre and post-conversion cap table showing ownership structure
3. Schedule C - Form of Notice of Conversion: Template for executing conversion
4. Schedule D - Disclosure Schedule: Exceptions to representations and warranties
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