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Convertible Notes Agreement

Convertible Notes Agreement Template for South Africa

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Key Requirements PROMPT example:

Convertible Notes Agreement

"I need a Convertible Notes Agreement for my tech startup to secure a R5 million investment from a venture capital firm, with a 20% discount rate on conversion and a maturity date in March 2025."

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Document background
The Convertible Notes Agreement is a crucial financing instrument in the South African market, typically used by companies seeking interim funding before a larger equity round or as a bridge financing solution. This document is essential when a company wants to raise capital while deferring the valuation discussion to a future date. It must comply with South African legislative requirements, particularly the Companies Act 71 of 2008 and financial regulations. The agreement includes detailed provisions on conversion mechanics, interest rates, maturity dates, and investor rights, making it suitable for both institutional and individual investors. It's particularly popular among startups and growth companies that need immediate capital but want to avoid immediate dilution or complex valuation negotiations. The document typically includes provisions for multiple scenarios such as qualified financing rounds, exits, or maturity conversions, while ensuring compliance with local securities laws and exchange control regulations.
Suggested Sections

1. Parties: Identification of the Note Issuer (Company) and the Noteholder(s)

2. Background: Context of the agreement, including the company's funding needs and intention to issue convertible notes

3. Definitions and Interpretation: Key terms used throughout the agreement, including financial definitions and calculation methodologies

4. Issue of Notes: Terms of note issuance, including amount, issue date, and subscription process

5. Interest: Interest rate, calculation method, payment dates, and default interest provisions

6. Conversion Rights: Conversion triggers, mechanics, timing, and pricing formula

7. Maturity and Repayment: Maturity date, repayment terms, and early repayment provisions

8. Company Warranties and Undertakings: Company representations, warranties, and ongoing obligations

9. Noteholder Warranties and Undertakings: Noteholder representations and warranties, particularly regarding investment capacity

10. Events of Default: Circumstances constituting default and consequences thereof

11. Transferability: Conditions and restrictions on transfer of notes

12. Notices: Communication requirements and contact details

13. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, and entire agreement

Optional Sections

1. Security: Terms of any security or collateral provided for the notes - include when notes are secured

2. Guarantee: Terms of any guarantee provided - include when notes are guaranteed by a third party

3. Multiple Noteholders: Provisions for managing multiple noteholders - include when there is more than one noteholder

4. Tax Gross-up: Provisions for tax treatment and gross-up obligations - include when tax implications are significant

5. Information Rights: Additional information and inspection rights - include for sophisticated investors requiring enhanced reporting

6. Pre-emptive Rights: Rights of first refusal on future note issuances - include when negotiated by noteholders

7. Tag-along Rights: Co-sale rights in case of change of control - include for significant investments

8. Board Observer Rights: Rights to appoint board observer - include for strategic investors

Suggested Schedules

1. Note Certificate Form: Template for the physical note certificate if issued

2. Conversion Notice: Form of notice to be used when exercising conversion rights

3. Calculation of Conversion Price: Detailed methodology and examples of conversion price calculations

4. Company Information: Key company details including cap table and financial statements

5. Warranties: Detailed list of company warranties

6. Pre-emption Rights Process: Detailed process for exercising pre-emption rights if applicable

7. Required Consents and Approvals: List of required regulatory and corporate approvals

8. Security Documents: Forms of security documents if applicable

Authors

Alex Denne

Head of Growth (Open Source Law) @ tiktok³ÉÈË°æ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

alex.den.21@genieai.co
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Relevant Roles

Chief Executive Officer

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Corporate Lawyer

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