By Abhijith Ganapavaram

Nov 25 (Reuters) - UK-based Vertical Aerospace ( EVTWF )

and Mudrick Capital have signed a non-binding term sheet under

which the investor will convert half of its outstanding

convertible debt to equity and extend the repayment date on the

remainder to December 2028, the air-taxi maker said.

Mudrick will commit $25 million in upfront funding for

Vertical's next equity round and an additional $25 million

backstop, which can be reduced by amounts raised from third

parties.

The company's U.S.-listed shares surged 18% in morning

trading.

If finalized, the agreement will extend Vertical's cash

runway into the fourth quarter of next year. The company had

previously flagged going concern doubts.

The term sheet includes an option for Vertical's founder,

Stephen Fitzpatrick, to invest a further $25 million within the

next year.

"By addressing our more immediate capital needs and

positioning us well to secure funding for the long-term, we can

focus on advancing our piloted flight test programme and

bringing the VX4 to market," Fitzpatrick said in a statement.

In September, Vertical said it was in talks with Fitzpatrick

about his investment commitment after a balance due on August 14

became outstanding.

Mudrick earlier this month served a default notice to

Vertical on convertible senior secured notes due 2026 after the

company warned it might breach certain covenants.

Under the term sheet unveiled on Monday, approximately $130

million of Mudrick's convertible notes will be converted into

equity at $2.75 per share, Vertical said.

The agreement is subject to implementation, execution of

final transaction agreements, and shareholder approval of

amendments to Vertical's articles of association.

Vertical is among the several eVTOL makers aiming to

revolutionize urban travel, but faces regulatory hurdles,

battery limitations, and the challenge of convincing the public

of their aircraft's safety.