The Convertible Equity Agreement is a crucial document in Hong Kong's startup and growth company ecosystem, typically used for early-stage investments where company valuation may be difficult to determine or when parties wish to defer valuation discussions to a later funding round. It provides investors with the right to convert their investment into equity shares upon specified trigger events, such as a qualified financing round, sale, or IPO. The agreement must comply with Hong Kong's regulatory framework, particularly the Companies Ordinance (Cap. 622) and Securities and Futures Ordinance (Cap. 571), while addressing specific requirements for share issuance, transfer, and foreign investment regulations. This document type has gained popularity in Hong Kong's dynamic business environment as it offers flexibility for both investors and companies while providing a clear framework for future equity conversion.
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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 and Interpretation: Key terms used throughout the agreement and rules for interpretation
4. Investment Amount and Equity Rights: Details of the investment amount and the equity rights granted in return
5. Conversion Mechanics: Terms and conditions for converting the investment into equity, including triggering events and conversion price calculations
6. Company Representations and Warranties: Standard and specific warranties about the company's status, operations, and authority
7. Investor Representations and Warranties: Warranties from the investor regarding their investment capacity and authority
8. Pre-Conversion Rights: Investor rights before conversion, including information rights and observer rights
9. Most Favored Nation Provision: Assurance that the investor will receive the best terms offered to other investors
10. Confidentiality: Obligations regarding confidential information
11. General Provisions: Standard clauses including notices, amendments, governing law, and dispute resolution
1. Anti-Dilution Protection: Protection against dilution through subsequent funding rounds, used when specifically negotiated
2. Pro-rata Rights: Right to participate in future funding rounds, included for strategic investors
3. Board Observation Rights: Rights to attend board meetings as an observer, typically for larger investments
4. Dividend Rights: Terms for participation in dividend distributions prior to conversion, if applicable
5. Tag-Along Rights: Right to participate in sales of shares by founders or major shareholders, included for investor protection
6. Founders' Obligations: Specific commitments from founders, included when founders are key to the business
7. Exit Provisions: Specific terms relating to company sale or IPO, included for larger investments
1. Schedule 1: Company Information: Detailed company information including capital structure and subsidiaries
2. Schedule 2: Conversion Terms: Detailed mechanics and formulae for conversion calculations
3. Schedule 3: Warranties: Comprehensive list of company warranties
4. Schedule 4: Deed of Adherence: Form of deed for new shareholders to agree to company's articles
5. Schedule 5: Cap Table: Current and post-conversion capitalization tables
6. Appendix A: Definitions: Extended definitions of terms used in the agreement
7. Appendix B: Form of Conversion Notice: Template for exercising conversion rights
Authors
Relevant legal definitions
Clauses
Relevant Industries
Technology
Financial Services
E-commerce
Healthcare
Biotechnology
Software Development
Clean Technology
Consumer Products
Digital Media
Manufacturing
Education Technology
Internet of Things
Artificial Intelligence
Retail Innovation
Professional Services
Relevant Teams
Legal
Finance
Corporate Development
Investment
Compliance
Company Secretarial
Executive Management
Board of Directors
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Chief Legal Officer
General Counsel
Investment Director
Venture Capital Partner
Corporate Lawyer
Investment Manager
Financial Controller
Company Secretary
Compliance Officer
Business Development Director
Startup Founder
Angel Investor
Private Equity Manager
Corporate Development Manager
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