A Promissory Note Convertible To Equity is commonly used in England and Wales for bridge financing or early-stage investment scenarios where company valuation may be difficult to determine. It provides flexibility by allowing companies to defer equity valuation while securing immediate funding. The document includes crucial terms such as conversion price, qualified financing thresholds, maturity date, and interest rates. It's particularly useful for startups seeking to raise capital while maintaining cash flow and offering potential equity upside to investors.
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1. Parties: Identifies the issuer and holder of the note
2. Background: Context of the loan and conversion rights
3. Definitions: Key terms used throughout the document
4. Principal Amount and Interest: Loan amount, interest rate, and payment terms
5. Conversion Rights: Terms and conditions for converting debt to equity
6. Maturity Date: When the note becomes due
7. Events of Default: Circumstances triggering immediate repayment
1. Security: Details of any collateral securing the note - include when the note is secured
2. Subordination: Ranking of the note relative to other debt - include when there are multiple creditors
3. Pre-emptive Rights: Rights of existing shareholders - include when required by shareholders' agreement
1. Conversion Mechanics: Detailed process for converting debt to equity
2. Form of Conversion Notice: Template notice for exercising conversion rights
3. Capitalization Table: Current and post-conversion ownership structure
4. Payment Schedule: Schedule of interest payments if applicable
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