The Preferred Equity Agreement is a crucial document used when companies seek to raise capital through the issuance of preferred shares, offering investors certain advantages over common equity while maintaining specific corporate control elements. This agreement type is particularly relevant in the Canadian market, where it must comply with both federal and provincial securities regulations, including the Canada Business Corporations Act and provincial securities laws. The document outlines essential terms such as dividend rights, liquidation preferences, conversion rights, and voting privileges, while also addressing anti-dilution protections and investor information rights. Preferred Equity Agreements are commonly used in growth-stage companies, restructuring situations, or when companies need to raise capital without immediately diluting common shareholders' voting rights. The agreement's structure reflects Canadian legal requirements while providing flexibility to accommodate various investment scenarios and investor preferences.
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1. Parties: Identification of the issuing company and the preferred equity investor(s)
2. Background: Context of the investment, corporate status, and purpose of the agreement
3. Definitions: Key terms used throughout the agreement
4. Share Issuance and Subscription: Details of the preferred shares being issued, including number, class, and subscription price
5. Payment Terms: Terms and mechanics for payment of the subscription price
6. Rights and Preferences: Core rights attached to the preferred shares, including dividend rights, liquidation preferences, and voting rights
7. Conversion Rights: Terms and conditions for converting preferred shares to common shares
8. Anti-dilution Protection: Provisions protecting the investor's ownership percentage from dilution
9. Transfer Restrictions: Limitations on the transfer of preferred shares
10. Information Rights: Investor's rights to receive financial and other company information
11. Board Representation: Rights regarding appointment of directors to the company's board
12. Representations and Warranties: Standard corporate and securities law representations by both parties
13. Covenants: Ongoing obligations of the company and preferred shareholders
14. Events of Default: Circumstances constituting default and resulting remedies
15. General Provisions: Standard legal provisions including notices, amendments, governing law, etc.
1. Pre-emptive Rights: Right of first refusal on new share issuances, included when negotiated by investors
2. Tag-Along Rights: Right to participate in sales by other shareholders, included for minority investor protection
3. Drag-Along Rights: Right to force other shareholders to join in a sale, included when requested by majority investors
4. Registration Rights: Rights related to future public offerings, included when IPO is contemplated
5. Redemption Rights: Terms for company or investor-initiated share buybacks, included when exit mechanism desired
6. Protective Provisions: Special voting rights on specific corporate actions, included for additional investor control
7. Participation Rights: Rights to participate in growth of company beyond preferred return, included in participating preferred structures
8. Employee Matters: Provisions regarding employee stock options and hiring, included when relevant to investment thesis
1. Schedule A - Share Terms: Detailed terms and conditions of the preferred shares
2. Schedule B - Capitalization Table: Current and pro-forma capitalization of the company
3. Schedule C - Financial Statements: Recent financial statements of the company
4. Schedule D - Disclosure Schedule: Exceptions to representations and warranties
5. Schedule E - Corporate Information: Corporate documents, bylaws, and material contracts
6. Appendix 1 - Form of Directors' Resolution: Template resolution approving share issuance
7. Appendix 2 - Form of Legal Opinion: Template legal opinion confirming valid issuance
8. Appendix 3 - Conversion Mechanics: Detailed procedures for share conversion
Relevant legal definitions
Affiliate
Anti-dilution Adjustment
Articles of Incorporation
Board of Directors
Business Day
Change of Control
Class [X] Preferred Shares
Common Shares
Company Material Adverse Effect
Conversion Price
Conversion Rate
Conversion Rights
Deemed Liquidation Event
Dividend
Dividend Rate
Drag-Along Right
EBITDA
Equity Securities
Exit Event
Fair Market Value
Fully-Diluted Basis
Governmental Authority
Initial Public Offering
Information Rights
Issue Date
Issue Price
Junior Securities
Liquidation Event
Liquidation Preference
Original Issue Price
Participating Rights
Parity Securities
Permitted Transferee
Pre-emptive Rights
Preferred Directors
Protected Matters
Qualified IPO
Redemption Date
Redemption Price
Registration Rights
Related Party Transaction
Senior Securities
Subscription Amount
Subsidiary
Tag-Along Rights
Transfer
Voting Rights
Anti-dilution Adjustment
Articles of Incorporation
Board of Directors
Business Day
Change of Control
Class [X] Preferred Shares
Common Shares
Company Material Adverse Effect
Conversion Price
Conversion Rate
Conversion Rights
Deemed Liquidation Event
Dividend
Dividend Rate
Drag-Along Right
EBITDA
Equity Securities
Exit Event
Fair Market Value
Fully-Diluted Basis
Governmental Authority
Initial Public Offering
Information Rights
Issue Date
Issue Price
Junior Securities
Liquidation Event
Liquidation Preference
Original Issue Price
Participating Rights
Parity Securities
Permitted Transferee
Pre-emptive Rights
Preferred Directors
Protected Matters
Qualified IPO
Redemption Date
Redemption Price
Registration Rights
Related Party Transaction
Senior Securities
Subscription Amount
Subsidiary
Tag-Along Rights
Transfer
Voting Rights
Clauses
Share Subscription
Share Issuance
Dividend Rights
Liquidation Preference
Conversion Rights
Anti-dilution Protection
Voting Rights
Board Representation
Information Rights
Pre-emptive Rights
Tag-Along Rights
Drag-Along Rights
Redemption Rights
Registration Rights
Transfer Restrictions
Representations and Warranties
Covenants
Default
Remedies
Confidentiality
Non-competition
Assignment
Amendment
Termination
Governing Law
Dispute Resolution
Notices
Force Majeure
Severability
Entire Agreement
Share Issuance
Dividend Rights
Liquidation Preference
Conversion Rights
Anti-dilution Protection
Voting Rights
Board Representation
Information Rights
Pre-emptive Rights
Tag-Along Rights
Drag-Along Rights
Redemption Rights
Registration Rights
Transfer Restrictions
Representations and Warranties
Covenants
Default
Remedies
Confidentiality
Non-competition
Assignment
Amendment
Termination
Governing Law
Dispute Resolution
Notices
Force Majeure
Severability
Entire Agreement
Relevant Industries
Technology
Real Estate
Manufacturing
Healthcare
Financial Services
Clean Energy
Infrastructure
Mining
Telecommunications
Biotechnology
E-commerce
Software Development
Professional Services
Agriculture
Consumer Goods
Relevant Teams
Legal
Finance
Corporate Development
Investment
Executive Leadership
Board of Directors
Compliance
Treasury
Corporate Secretariat
Business Development
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Corporate Lawyer
Investment Banker
Private Equity Manager
Venture Capitalist
Corporate Secretary
Finance Director
Investment Manager
Legal Counsel
Board Member
Compliance Officer
Financial Controller
Business Development Director
Corporate Development Manager
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