The Convertible Equity Agreement is primarily utilized in early-stage funding rounds in India where company valuation may be challenging to determine or when parties prefer to defer valuation discussions to a future date. This document is essential for structuring investments that provide future equity participation rights while complying with Indian regulatory requirements, including the Companies Act 2013, SEBI regulations, and where applicable, FEMA guidelines for foreign investments. It typically includes detailed provisions for conversion mechanics, valuation methodologies, investor rights, and protection mechanisms, making it particularly suitable for startup funding rounds, bridge financing, and strategic investments. The agreement balances the interests of both investors seeking potential equity upside and companies requiring immediate capital without immediate dilution.
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1. Parties: Identification of the Company, the Investor(s), and any other relevant parties to the agreement
2. Background: Context of the investment and purpose of the agreement
3. Definitions: Definitions of key terms used throughout the agreement
4. Investment Amount: Details of the investment amount and payment terms
5. Conversion Rights: Terms and conditions for conversion of the investment into equity shares
6. Conversion Price: Methodology for determining the price at which the investment converts to equity
7. Automatic Conversion Events: Circumstances that trigger automatic conversion of the investment
8. Voluntary Conversion: Process and conditions for investor-initiated conversion
9. Company Representations and Warranties: Company's statements of fact and assurances about its business and operations
10. Investor Representations and Warranties: Investor's statements regarding their investment capacity and eligibility
11. Information Rights: Investor's rights to receive company information and financial statements
12. Pre-emptive Rights: Rights of the investor to participate in future funding rounds
13. Transfer Restrictions: Limitations on the transfer of the investment or resulting shares
14. Confidentiality: Obligations regarding confidential information
15. Notices: Process for formal communications between parties
16. Governing Law and Jurisdiction: Applicable law and courts for dispute resolution
17. Execution: Signature blocks and execution formalities
1. Most Favored Nation: Ensures investor receives the benefit of more favorable terms given to future investors - used in early-stage investments
2. Anti-dilution Protection: Protects investor from dilution in down rounds - included for sophisticated investors
3. Board Observer Rights: Grants investor right to observe board meetings - used for larger investments
4. Tag-Along Rights: Allows investor to join in sale of shares by founders - included for minority investor protection
5. Drag-Along Rights: Requires investor to join in sale approved by majority - included when company wants exit flexibility
6. Foreign Investment Compliance: Additional provisions for foreign investors to comply with FEMA regulations
7. Founders' Obligations: Specific commitments from founders - included when founders are made parties to the agreement
8. Exit Preference: Preferential rights in case of company sale or IPO - used for larger investments
1. Schedule 1: Cap Table: Current capitalization table of the company
2. Schedule 2: Company Information: Detailed company information including corporate and financial details
3. Schedule 3: Conversion Calculations: Detailed methodology and examples of conversion calculations
4. Schedule 4: Representations and Warranties: Detailed list of company representations and warranties
5. Schedule 5: Conditions Precedent: List of conditions to be satisfied before investment
6. Schedule 6: Reserved Matters: List of decisions requiring investor consent
7. Appendix A: Investment Terms Summary: Summary of key commercial terms of the investment
8. Appendix B: Form of Conversion Notice: Template for exercising conversion rights
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