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Capital Waters convertible loan agreement version 2.1 is online

Version 2.1 of the Capital Waters convertible loan agreement is now online. No material changes have been made (so this version does not deserve to be called version 3 just yet). We mainly made some textual improvements and a few minor tweaks.

We changed the definition of Valuation Cap to Conversion Cap in order to try to avoid the previous term triggering an argument with future round investors that the Cap should be considered the maximum valuation in the next investment round. Of course, it might not help much to only change the word valuation into conversion in the cap definition, but it could help a little. In our view it better serves the goal of the cap as a way of protecting the lenders under the convertibles against the company’s value skyrocketing, resulting in the stake the lenders end up with following conversion to be next to nothing without the cap.

We furthermore explicitly added that the Agreement terminates upon conversion, repayment of the loan or payment of the multiple in the event of a sale.

Finally we added that each party is prohibited to transfer the convertible or any rights/and obligations thereunder without the consent of the other party. For transferring an entire agreement pursuant to Dutch law the cooperation is already required (which is not entirely the same as approval, since cooperation can more easily be granted implicitly), but for transferring individual rights under an agreement such cooperation or approval is not explicitly required by law. This could mean that for instance an investor might be allowed to assign its right to convert under the convertible to a third party without the consent of the company, which might not be desirable. In order to avoid this risk the requirement of explicit prior approval is now inserted.

The new version can be downloaded here both in English and Dutch.

As always, should you have any suggestions, questions or comments regarding the revised Capital Waters convertible loan agreement, do let us know.

Finally, remember that the use of our documentation is at your own risk, so please read the disclaimer.

Maurits Bos, Benvalor attorneys-at-law

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