Change Of Control Premium Convertible Note

If you have an early exit convertible notes and safe have similar payout mechanisms in the event of a change in control acquisition ipo. It is however common in convertible notes. In a convertible note financing or an increasingly popular safe financing the change of control premium the benefit given to a lender if the company has an exit before the notes convert is an easily overlooked term.

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The convertible note may vary but will typically be similar.

Change of control premium convertible note. This is because it is rarely applicable especially when the financing is a seed type investment. Repayment of principal and interest in this case you will simply repay your noteholder what he she invested plus the interest accrued from investment date to change of control date. Double check my response with your attorney because the detailed terms of your convertible notes shareholder rights and merger agreement terms can make a big difference most convertible notes call for a 2x payout if there s an acquisition befo. If the company is sold before a qualified financing takes place a convertible note may provide that the amounts outstanding on the note will either.

For this reason it is optional to include when the company is drafting the note. The safe is written to give the investor the choice of a 1x payout or conversion into equity on an as converted basis. I convert into common stock at an agreed upon cap immediately prior to the change of control so that note holders can share in sale proceeds as common stockholders or ii immediately become due and payable at some multiple usually 2x. Section 2 3 of the note provides an optional clause for prepayment of the note upon a change of control prior to maturity and an additional change of control premium.

If a change of control event is to occur you will return capital to your noteholders in one of three ways only one of which is a conversion to equity. Payments upon a change of control benefits the note holder rather than the borrower. Drafting note to optional clause on change of control.