Connecticut Convertible Secured Promissory Note

• Category: Corporations - Financing
• State: Multi-State
• Control #: US-ENTREP-0036-2
• Format: Word; Rich Text

Description

A Convertible Note Subscription Agreement details the factors in the coversion of a note. A convertible note is aform of short-term debt that converts into equity, typically in conjunction with a future financing round; in effect, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company.

Connecticut Convertible Secured Promissory Note is a legal document that outlines the terms and conditions of a loan agreement between a lender and a borrower in the state of Connecticut. This type of promissory note provides a secure way for lenders to lend money to borrowers while offering an option to convert the debt into equity, typically in the form of shares of stock, at a future date. A Convertible Secured Promissory Note serves as a written contract, detailing the amount of the loan, interest rates, repayment terms, security interest provided by the borrower, and provisions for conversion into equity. It is commonly used in both startup funding and small businesses seeking a borrowing option with the potential for equity participation. Key features of a Connecticut Convertible Secured Promissory Note include: 1. Loan amount: The note specifies the principal amount borrowed by the borrower from the lender. 2. Interest rate: The note outlines the interest rate at which the loan will accrue, often with a specified maturity date. 3. Repayment terms: It defines the repayment period over which the borrower must repay the loan in full, typically through regular installments or a lump-sum payment. 4. Security interest: The borrower pledges specific assets as collateral to secure the loan, usually in the form of personal or business property. 5. Conversion provision: This provision allows the lender to convert the outstanding loan balance into equity at a predetermined conversion rate and date, typically upon the occurrence of certain events, such as a qualified funding round or the company's initial public offering (IPO). 6. Conversion price and ratio: The note specifies the conversion price per share and the conversion ratio, which determine the number of shares of stock the lender receives upon conversion of the debt. 7. Prepayment terms: The note may contain provisions allowing the borrower to prepay all or a portion of the outstanding loan balance before the maturity date, while typically including penalties or prepayment fees. Different types or variations of Connecticut Convertible Secured Promissory Notes may include: 1. Traditional Convertible Secured Promissory Note: This is the standard type of promissory note with provisions for both interest accrual and conversion into equity. 2. Convertible Bridge Note: Often used in seed or early-stage funding, a bridge note is a short-term loan that "bridges" the gap between two financing rounds. It offers the flexibility of converting the debt into equity in the subsequent financing round based on a mutually agreed valuation. 3. Convertible Note with a Cap: This variation includes a valuation cap that sets the maximum company valuation at which the debt can convert into equity, protecting the lender from potentially unfavorable future valuations. 4. Convertible Note with a Discount: This type provides the lender with a discount on the conversion price, encouraging early investment and rewarding the lender for taking on early-stage risk. Overall, a Connecticut Convertible Secured Promissory Note is a valuable legal instrument that allows lenders to provide financing to borrowers, while also granting an opportunity to convert the loan into equity, potentially offering higher returns in case of the borrower's success. It serves as a means for startups and businesses to secure funding and for lenders to potentially participate in the future growth of the borrower's enterprise.