Convertible Equity Instrument (International)
Parties
This Convertible Equity Instrument (the "Instrument") takes effect on the date on which it is signed by the last of the parties.
Between (1) [Company legal name and details], a company incorporated under the laws of [Company's jurisdiction of incorporation] (the "Company"), and (2) [Investor legal name and details], of [Investor's place of residence or incorporation] (the "Investor").
Key Terms
"Investment Amount" means [Purchase Amount (with currency)].
"Valuation Cap" means [Valuation cap].
"Discount" means [Discount (percentage off the financing price)].
"Financing Threshold" means [Minimum cash raised for an Equity Round].
"Home Jurisdiction" means [Company's jurisdiction of incorporation], the place under whose law the Company is incorporated.
"Governing Law" means the law of [Governing law of the Instrument].
Definitions
"Company Equity" means the shares, stock, quotas or other equity interests in the Company's capital that carry the rights of ownership under the law of the Home Jurisdiction, in the form that law and the Company's constitution allow.
"Equity Round" means the first issue by the Company, after the date of this Instrument, of a class of Company Equity with preferential or priority rights for cash at an agreed company valuation, in one transaction or a series of related ones, raising at least the Financing Threshold from persons who are not the Investor or its affiliates, not counting conversion of any Convertible Interest.
"Round Equity" means the class of Company Equity issued for cash in the Equity Round and "Round Price" means the lowest price paid per unit of it.
"Convertible Interest" means this Instrument and every other right to receive Company Equity in the future on conversion terms, whether created by a SAFE, an advance subscription agreement, a convertible note or any other instrument.
"Sale of the Company" means a transaction or series of transactions by which a person or group acting together acquires more than half the voting rights in the Company, a transfer of all or substantially all of its business or assets, or a first public listing of its equity on a stock exchange.
"Wind-Down" means the dissolution, liquidation or winding up of the Company, voluntary or involuntary, under the law of the Home Jurisdiction, or any general arrangement for the benefit of its creditors.
"Business Day" means a day other than a Saturday, a Sunday or a public holiday in both the Home Jurisdiction and the place where the Investor is based, on which banks are open for general business in each.
"Company Capital" is the total of Company Equity that would exist immediately before the Equity Round if every option, warrant and promised award were exercised, every Convertible Interest including this Instrument were converted, and everything reserved for employee incentives and not yet awarded were issued, with nothing counted twice; any increase of that reserve made for the Equity Round counts only up to the awards already promised.
Payment
The Investor will pay the Investment Amount to the Company's bank account, in cleared funds and in the currency stated in the Key Terms, within 10 Business Days of the date of this Instrument. The Company will issue a written receipt and will use the Investment Amount for its business.
The Investment Amount is paid for a right to receive Company Equity in the future. It is not a loan. It carries no interest, has no maturity date and is not repayable except as the Wind-Down provision states. The Investor is not a creditor of the Company merely because it has paid.
Issue of Company Equity
The Company will issue Company Equity to the Investor on conversion in the form, and following the steps, that the law of the Home Jurisdiction and the Company's constitution require. The Company will obtain the board, shareholder, regulatory and notarial approvals, waive or disapply any pre-emption right of existing holders, make every register entry and public filing, and pay any registration fee or transfer tax that the issue needs, and the Company will not issue Company Equity below any minimum or nominal value the Home Jurisdiction prescribes.
Conversion
If an Equity Round completes while this Instrument is in force, the Investment Amount converts automatically at completion into the number of units of Round Equity obtained by dividing the Investment Amount by the Conversion Price, rounded down, with the Company paying in cash for any fraction. The Investor will sign the subscription and shareholder documents signed by the cash investors, on the same terms, except that it gives warranties only about its own capacity, title and status and does not take on the indemnity liabilities of the other investors.
Conversion Price
The "Conversion Price" is the Valuation Cap divided by the Company Capital. There is no discount.
Sale of the Company
If a Sale of the Company happens while this Instrument is in force, the Company will pay the Investor, at or before completion and from the proceeds, the greater of the Investment Amount and the amount payable on the number of units of ordinary Company Equity equal to the Investment Amount divided by the Valuation Cap and multiplied by the Company Capital at that date, in the same form of consideration as the ordinary holders receive. The Investor may elect instead to take ordinary Company Equity immediately before completion.
Wind-Down
If a Wind-Down starts while this Instrument is in force, the Investor is entitled to be paid the Investment Amount from the assets available after creditors are paid in full and before any distribution to holders of Company Equity, level with holders of other Convertible Interests, who share pro rata if the assets are short. Where the law of the Home Jurisdiction does not allow that ranking, the Investor has the rights that law gives it.
Before Conversion
Until Company Equity is issued to it, the Investor is not an owner of the Company and has no right to vote, to receive notice of or attend meetings of owners, to receive any dividend or to inspect owners' registers.
Participation Right
The Investor may subscribe for up to its pro rata share of the Round Equity on the same terms as the other investors. Its pro rata share is the Company Equity it receives on conversion divided by the Company Capital. It must accept within 10 Business Days of the Company's notice, and the right ends when the Equity Round completes.
Information
While this Instrument is in force, the Company will send the Investor its annual financial statements within 6 months of each financial year end and will notify it promptly of a proposed Equity Round, Sale of the Company or Wind-Down. The Investor will keep what it receives confidential.
Better Terms
If, before the Equity Round completes, the Company grants another Convertible Interest with a lower cap, a higher discount or other terms better for its holder, it will tell the Investor promptly, and the Investor may within 15 Business Days adopt those terms in place of the corresponding terms here, as a package.
Statements of the Parties
The Company states to the Investor, at the date of this Instrument, that: it is validly incorporated and in good standing under the law of the Home Jurisdiction; it has capacity and has taken all steps needed to sign and perform this Instrument; the Instrument binds it; performing it does not breach its constitution, any law or any material contract; and its capital and incentive plans are as shown in the register and capitalisation table it has given the Investor.
The Investor states to the Company that it has capacity and authority to sign this Instrument; that it invests for its own account and not for resale; that it is a person to whom the Company may lawfully offer this investment under the securities law of the place where the Investor is based and the Home Jurisdiction; that it has had the chance to ask questions; and that it understands the investment is illiquid and may be lost entirely.
Local Law Compliance
Each party is responsible for complying with the securities, financial promotion, foreign investment, exchange control, anti-money-laundering and sanctions laws that apply to it where it is based and, for the Company, in the Home Jurisdiction. Each party will give the other the documents it reasonably needs for those checks. If a law of the Home Jurisdiction prevents any part of this Instrument from working as written, the parties will agree in good faith the nearest lawful way of reaching the same result.
Payments and Tax
All payments under this Instrument are made without set-off. If the law requires a tax to be withheld from a payment to the Investor, the Company will withhold it and pay it to the authority, give the Investor a certificate, and cooperate to claim any relief available under a tax treaty. The parties give no tax advice to each other and each relies on its own advisers about the tax treatment of this Instrument and of any Company Equity issued under it.
Transfer
The Investor may not assign, transfer or hold on trust any right under this Instrument without the Company's written consent, which it will not unreasonably withhold for a transfer to a group member or to the Investor's estate; the transferee must first sign a deed of adherence and pass the Company's identity and sanctions checks.
Amendment
Any term of this Instrument may be amended or waived in writing by the Company and either the Investor or the holders of a majority of the amounts invested under all instruments on the same cap and discount, but the Investment Amount cannot be changed this way, each holder must be asked, and all must be treated alike.
Termination
This Instrument ends on the first of: Company Equity being issued to the Investor on conversion; and the sum due on a Sale of the Company or Wind-Down being paid or set aside for payment. Ending it does not affect rights that arose earlier.
Notices
A notice must be in writing in English and sent by courier, or emailed, to the Company at [Company notice address and email] or the Investor at [Investor notice address and email]. A courier notice is received on delivery; an email is received when sent if that is on a Business Day before 5.00 pm in the recipient's place, and otherwise on the next Business Day.
Language and Execution
The controlling language of this Instrument is English; any translation is for convenience. It may be signed in counterparts and by electronic signature to the extent the law of each signatory's place permits, and each party will, on request, do what is needed (notarisation, apostille, legalisation or registration) to make it valid and enforceable in the Home Jurisdiction.
General
This Instrument is the whole agreement of the parties on its subject. A provision held invalid is severed and the rest continues. A person who is not a party has no right to enforce it unless the Governing Law gives that right and the parties have agreed it in writing.
Governing Law and Disputes
This Instrument and any dispute or claim arising out of or in connection with it, whether in contract or otherwise, are governed by the Governing Law. The courts of [Courts with jurisdiction] have exclusive jurisdiction to settle any such dispute, and each party submits to them.