Under this Advance Subscription Agreement, if the company completes a successful qualifying funding round (eg an equity funding round raising a specified amount of money) after the investor’s investment, the conversion will take place immediately before the round is completed (once it is unconditionally successful). This is the ideal situation.
If an exit occurs before a qualifying funding round, conversion will take place immediately before the exit is completed. Exits include share sales and/or asset sales of the company and public listings.
You can also set a ‘longstop date’ in your Agreement. If no qualifying funding round or exit occurs before the specified longstop date, conversion will occur on this date.
If the company becomes insolvent before a qualifying funding round is completed (eg because no funding thresholds have been met), an exit is completed, or the longstop date occurs, conversion will occur immediately before the insolvency event. In the event of insolvency, the investor will become a shareholder and can make a claim on the company's assets along with the other shareholders.