The Continuous Agreement for Future Equity (CAFE) has emerged as a popular investment instrument in Malaysia's growing startup ecosystem, offering a streamlined alternative to traditional convertible notes. This agreement type is particularly suitable for early-stage funding rounds where immediate equity pricing may be challenging or impractical. Under Malaysian law, specifically the Companies Act 2016 and relevant securities regulations, the CAFE provides a framework for investors to make immediate cash investments while deferring equity pricing and issuance until a future financing event. The document typically includes provisions for valuation caps, discount rates, conversion mechanisms, and investor rights, while ensuring compliance with Malaysian corporate law and securities regulations. It's especially valuable for startups seeking quick access to capital without the complexity and expense of establishing a current company valuation.
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1. Parties: Identification of the Company and the Investor(s)
2. Background: Context of the agreement and general intention of the parties
3. Definitions: Key terms used throughout the agreement, including technical and financial terms
4. Purchase and Sale: Terms of the initial investment and purchase price
5. Conversion Rights: Mechanisms and conditions for converting the investment into equity
6. Company Representations: Company's warranties about its legal status, authority, and business condition
7. Investor Representations: Investor's warranties about investment capacity and compliance
8. Information Rights: Investor's rights to receive company information and financial reports
9. Participation Right: Right to participate in future equity financing rounds
10. Company Covenants: Ongoing obligations of the company during the term of the agreement
11. Events of Default: Circumstances constituting default and consequences
12. General Provisions: Standard clauses including governing law, notices, and amendment procedures
1. Board Observer Rights: Grants investor right to attend board meetings - used for larger investments
2. Most Favored Nation: Ensures investor gets best terms offered to future CAFE investors - used when negotiating with early investors
3. Foreign Investment Provisions: Additional provisions required for foreign investors under Malaysian law
4. Drag Along Rights: Forces minority shareholders to join in sale of company - used for larger investments
5. Tag Along Rights: Allows minority investors to join in sale of majority stake - used for investor protection
6. Anti-dilution Protection: Protects investor from dilution in down rounds - used for sophisticated investors
1. Schedule 1: Investment Amount and Conversion Terms: Details of investment amount, valuation cap, discount rate, and conversion mechanics
2. Schedule 2: Company Information: Key corporate details including share capital, directors, and existing shareholders
3. Schedule 3: Form of Conversion Notice: Template for investor to exercise conversion rights
4. Schedule 4: Compliance Certificates: Required certificates and forms under Malaysian law
5. Schedule 5: Pre-emption Rights Procedures: Detailed procedures for exercising pre-emption rights in future rounds
6. Appendix A: Capitalization Table: Current and projected capital structure of the company
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