The Convertible Bond Agreement is a critical financing instrument used by Canadian companies seeking to raise capital while offering investors the flexibility to convert their debt investment into equity. This document is particularly relevant for growth-stage companies or established corporations requiring significant capital for expansion, acquisition, or operational needs. The agreement must comply with Canadian securities regulations, including provincial securities laws and federal legislation such as the Canada Business Corporations Act. It typically includes detailed provisions on conversion mechanics, anti-dilution protections, and security arrangements. The document is essential for companies looking to offer more attractive investment terms than straight debt while potentially delaying equity dilution.
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1. Parties: Identification of the Bond Issuer and the Bondholders/Trustees
2. Background: Context of the bond issuance, corporate authority, and purpose of the financing
3. Definitions and Interpretation: Definitions of key terms and interpretation rules
4. Bond Terms: Principal amount, interest rate, maturity date, and basic terms of the bonds
5. Conversion Rights: Terms and conditions for converting bonds into shares, including conversion price and ratio
6. Conversion Procedures: Detailed process for exercising conversion rights
7. Interest Payments: Interest calculation, payment dates, and payment mechanics
8. Issuer Covenants: Ongoing obligations of the issuer, including financial covenants and reporting requirements
9. Events of Default: Circumstances constituting default and consequences
10. Bondholder Rights: Rights and protections of bondholders, including voting rights and meetings
11. Transfer Restrictions: Limitations and procedures for transferring the bonds
12. Representations and Warranties: Standard declarations by the issuer regarding its status and capacity
13. Security and Ranking: Priority of bonds and any security provided
14. Notices: Communication procedures between parties
15. Governing Law and Jurisdiction: Applicable law and dispute resolution procedures
1. Anti-dilution Provisions: Used when additional protection against share dilution is required
2. Redemption Rights: Include when early redemption options are offered to either party
3. Security Trustee Provisions: Required when a security trustee is appointed to hold security for bondholders
4. International Payment Provisions: Needed for cross-border transactions or multiple currency provisions
5. Tax Gross-up: Include when tax implications need to be addressed specifically
6. Change of Control Provisions: Used when specific provisions for change in company control are needed
7. Registration Rights: Include when bondholders need rights to register converted shares
8. Subordination Provisions: Required when bonds are subordinated to other debt
1. Form of Bond Certificate: Template of the physical or electronic bond certificate
2. Conversion Notice: Standard form for bondholders to exercise conversion rights
3. Financial Covenants: Detailed financial ratios and calculations
4. Share Capital Structure: Details of the issuer's share capital and rights
5. Conversion Price Adjustments: Detailed mechanisms for adjusting conversion price
6. Form of Transfer Certificate: Template for transferring bonds between holders
7. Meeting Procedures: Detailed procedures for bondholder meetings
8. Compliance Certificate: Template for regular compliance reporting
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