The Convertible Agreement Regarding Equity (CARE) is designed for early-stage funding scenarios in India where traditional equity valuation may be premature or challenging. This document is typically used when companies seek bridge financing or initial investment rounds, allowing them to defer complex valuation discussions while providing investors with the security of future equity conversion. The agreement incorporates essential elements required under Indian corporate law and securities regulations, including specific provisions for foreign investment if applicable. It outlines key terms such as investment amount, conversion mechanisms, valuation caps, and discount rates, while ensuring compliance with Indian regulatory requirements. This instrument is particularly valuable for startups and growing companies that need immediate capital injection while maintaining flexibility in their capitalization structure.
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1. Parties: Identification of the Company and the Investor(s)
2. Background: Context of the investment and purpose of the agreement
3. Definitions: Key terms used throughout the agreement
4. Investment Amount: Details of the investment sum and payment terms
5. Conversion Mechanism: Terms and conditions for converting the investment into equity
6. Valuation Cap: Maximum valuation for conversion purposes
7. Discount Rate: Applicable discount on conversion during qualified financing
8. Qualified Financing: Definition and terms of qualifying financing event
9. Company Representations: Company's warranties and representations
10. Investor Representations: Investor's warranties and representations
11. Information Rights: Investor's rights to company information and reports
12. Most Favored Nation: Protection ensuring investor gets best terms offered to other investors
13. Termination: Conditions and process for agreement termination
14. Governing Law: Applicable law and jurisdiction
1. Foreign Investment Compliance: Required when foreign investors are involved, covering FEMA compliance
2. Board Observer Rights: Optional rights for investor to attend board meetings
3. Pre-emptive Rights: Right to participate in future funding rounds
4. Tag-Along Rights: Right to join in sale of shares by other shareholders
5. Assignment and Transfer: Terms for transferring rights under the agreement
6. Anti-dilution Protection: Protection against dilution in certain circumstances
7. Confidentiality: Required when dealing with sensitive company information
1. Schedule 1 - Company Details: Comprehensive company information including cap table
2. Schedule 2 - Investment Terms: Detailed investment terms including payment schedule
3. Schedule 3 - Conversion Calculations: Formulas and examples of conversion calculations
4. Schedule 4 - Shareholders' Agreement Terms: Key terms to be included in future shareholders' agreement
5. Schedule 5 - Company Warranties: Detailed list of company warranties
6. Appendix A - Board Resolutions: Copy of relevant board resolutions approving the agreement
7. Appendix B - KYC Documents: Required KYC documentation for all parties
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