Deal Structures Call Option A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call date(s), the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price. The call price will usually exceed the par or issue price. In certain cases, mainly in the high-yield debt market, there can be a substantial call premium.

Subordinated Convertible Debt 
Deal Terms: 
✓ 7 year maturity ✓ 25% interest (rationale: you are telling people they will get at least 25% annualized return on investment) ✓ Principal & interest accrue until maturity ✓ Preference over all equity, subordinated to other debt ✓ Converts to equity in certain events 
Conversion: 
a. in an equity funding event (including an IPO) of $5M or more, all accrued debt converts to the same class of equity as the new investor(s) at a 25% discount to the price being paid. 
b. in a sale, merger or liquidation event involving 50% of more of the company’s assets, value or equity then the accrued value of the note is converted into equity at a price equal to 75% of any equity previously sold to any insider or professional investor closest to the time when the debt was originally sold, with the notes so converted forming a preference (meaning that the debt investors receive their accrued value back as first-money-out, and then participate with all other equity holders in the remaining amount according to their ownership percentages). 
Summary: This gives investors the best upside opportunity, along with some protection for their investment, while at the same time minimizing the problems for the management team.
 Debt with Revenue Participation 
Deal Terms: 
✓ 3 or 4 year term ✓ 8% interest ✓ Principal & interest amortized and paid monthly or quarterly ✓ Preference over all equity and most debt ✓ Revenue kicker; a. 5% revenue participation for 3 years starting after the debt is fully retired (this is the real upside for 
 investors, and helps keep initial borrowing costs low), or, b. 75% of the increase in value of assets (e.g. a real estate deal).
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