CONVERTIBLE LOAN TERM SHEET
I. Overview
This Term Sheet outlines the principal terms and conditions proposed for a convertible loan offered by [Lender Name] to [Borrower Name]. This financial instrument is intended to be converted into equity under certain conditions described below. The purpose of this document is to provide both parties with a clear understanding of the obligations, rights, and protections before the drafting of formal agreements.
The contents of this Term Sheet are not legally binding except for the sections labeled as "Binding Terms" and are intended solely as a framework to advance discussions. Execution of the definitive agreement shall supersede this document.
II. Principal Loan Terms
The principal amount of the convertible loan extended by [Lender Name] to [Borrower Name] is [Principal Amount], which shall be disbursed on [Effectivity Date]. The loan will mature on [Maturity Date] unless converted into shares of the borrower's company before this date as per the conditions set out in this Term Sheet.
The loan will accrue interest at a rate of 5% per annum. Interest will be calculated on a Compound basis and will be payable annually or upon conversion of the loan into equity.
III. Conversion Terms
Under the terms of this agreement, the loan is convertible into ordinary shares of [Borrower Company Name] at the lender's discretion either automatically upon certain triggering events or optionally at any point before the loan maturity.
A. Conversion is contingent upon the following:
Upon the occurrence of a Trigger Event, such as a subsequent financing round of at least $30,000, the outstanding principal amount of the loan shall automatically convert into equity at the prevailing conversion rate determined by the terms of the financing round.
B. Optional Conversion
At the discretion of the lender, conversion may occur at any time before the maturity date of the loan. The conversion price shall be calculated as the lower of:
10% of the price per share of the most recent financing round; or
A price per share based on a valuation cap of $5,000,000.
IV. Representations and Warranties
Both parties agree to make certain customary representations and warranties as of the date of the agreement. These include, but are not limited to, authority to enter into the agreement, compliance with laws, and accuracy of financial statements.
[Borrower Name] shall also warrant that there has been no material adverse change in its financial condition since the date of the most recent financial statements provided to [Lender Name]. These representations and warranties are to be further detailed in the definitive agreement.
V. Pre-emptive Rights
In connection with the conversion of the loan into equity, [Lender Name] shall receive pre-emptive rights to participate pro-rata in future financing rounds to maintain its equity ownership percentage in the borrower's company.
This will ensure that the lender has the option to avoid dilution of its newly acquired equity if the borrower's company raises additional capital in the future.
VI. Binding Terms
This Term Sheet includes binding obligations regarding confidentiality, exclusive dealing, and costs. Both parties agree to keep the terms of this deal and the negotiations confidential and not to engage in negotiations with other parties for a similar purpose for the duration defined until the execution of the definitive agreements.
Each party will bear its costs in connection with the preparation of this Term Sheet and the negotiation of the definitive agreements.
VII. Governing Law
This Term Sheet and the definitive agreement will be governed by and construed under the laws of [Jurisdiction]. Any disputes or legal proceedings arising out of this term sheet or the definitive agreements will be resolved exclusively in the courts of [Jurisdiction].
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