A Convertible Loan Agreement is commonly used in Hong Kong's startup and growth company ecosystem as a bridge financing tool. This type of agreement is particularly valuable when companies need immediate funding but determining an accurate company valuation is challenging or premature. The document structures a loan that can convert into equity shares upon specified trigger events (such as a qualified financing round, IPO, or maturity), offering investors potential upside through equity participation while providing initial downside protection through debt characteristics. The agreement must comply with Hong Kong's legal framework, particularly the Companies Ordinance and Securities and Futures Ordinance, and typically includes provisions for interest rates, conversion discounts, valuation caps, and investor protections. It's especially popular among startups and growth-stage companies seeking to raise capital while deferring valuation discussions.
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1. Parties: Identification of the Lender and Borrower (and any guarantors if applicable)
2. Background: Context of the agreement, including the purpose of the loan and intention for potential conversion
3. Definitions and Interpretation: Definitions of key terms and interpretation rules for the agreement
4. Loan Amount and Drawdown: Specification of the loan amount, drawdown conditions and mechanics
5. Interest: Interest rate, calculation method, and payment terms
6. Repayment: Terms and conditions for repayment of the loan
7. Conversion Rights: Conditions and mechanism for converting the loan into shares
8. Conversion Price and Adjustments: Specification of conversion price and circumstances requiring adjustments
9. Representations and Warranties: Standard representations and warranties from the borrower
10. Borrower Covenants: Positive and negative covenants binding the borrower
11. Events of Default: Circumstances constituting default and consequences
12. Termination: Circumstances and process for terminating the agreement
13. Notices: Process and requirements for giving notices under the agreement
14. Assignment and Transfer: Rights and restrictions regarding transfer of the agreement or rights under it
15. General Provisions: Standard boilerplate provisions including governing law, jurisdiction, etc.
1. Security: Terms of any security or guarantees provided - include when loan is secured
2. Multiple Lenders: Additional provisions for managing multiple lenders - include when there is more than one lender
3. Information Rights: Rights of lender to receive financial and other information - include for sophisticated investors
4. Board Representation: Rights of lender to appoint board observer/director - include when negotiated
5. Pre-emptive Rights: Rights of lender to participate in future fundraising - include for strategic investors
6. Tag-Along Rights: Rights of lender to participate in sale of shares - include for significant investments
7. Anti-dilution Protection: Protection against dilution through future share issues - include when specifically required
8. Subordination: Terms of subordination to other debt - include when there are multiple creditors
1. Commercial Terms: Key commercial terms including loan amount, interest rate, maturity date
2. Form of Drawdown Notice: Template for borrower to request drawdown of the loan
3. Form of Conversion Notice: Template for lender to exercise conversion rights
4. Conversion Mechanics: Detailed procedures for implementing the conversion
5. Warranties: Detailed list of warranties given by the borrower
6. Relevant Corporate Documents: Copies of relevant corporate approvals and documents
7. Security Documents: Forms of any security documents (if applicable)
8. Calculation of Conversion Price: Detailed methodology for calculating and adjusting conversion price
Relevant legal definitions
Advance
Agreement
Anti-dilution Provisions
Approved Jurisdictions
Board
Business Day
Change of Control
Companies Ordinance
Company
Completion
Conditions Precedent
Confidential Information
Conversion
Conversion Date
Conversion Discount
Conversion Notice
Conversion Period
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Directors
Drawdown
Drawdown Date
Drawdown Notice
Encumbrance
Event of Default
Exit Event
Financial Year
Group
Hong Kong
Interest Payment Date
Interest Period
Interest Rate
IPO
Lender
Loan
Loan Amount
Long Stop Date
Material Adverse Change
Maturity Date
Ordinary Shares
Qualifying Financing
Qualifying Financing Price
Repayment Date
Security
Shareholders
Shares
Subsidiary
Taxes
Transaction Documents
Valuation Cap
Warranties
Agreement
Anti-dilution Provisions
Approved Jurisdictions
Board
Business Day
Change of Control
Companies Ordinance
Company
Completion
Conditions Precedent
Confidential Information
Conversion
Conversion Date
Conversion Discount
Conversion Notice
Conversion Period
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Directors
Drawdown
Drawdown Date
Drawdown Notice
Encumbrance
Event of Default
Exit Event
Financial Year
Group
Hong Kong
Interest Payment Date
Interest Period
Interest Rate
IPO
Lender
Loan
Loan Amount
Long Stop Date
Material Adverse Change
Maturity Date
Ordinary Shares
Qualifying Financing
Qualifying Financing Price
Repayment Date
Security
Shareholders
Shares
Subsidiary
Taxes
Transaction Documents
Valuation Cap
Warranties
Clauses
Loan Terms
Interest
Repayment
Conversion Rights
Conversion Price
Anti-dilution
Representations and Warranties
Conditions Precedent
Information Rights
Confidentiality
Events of Default
Acceleration
Security
Board Rights
Pre-emptive Rights
Tag-Along Rights
Assignment
Transferability
Subordination
Further Assurance
Costs and Expenses
Notices
Amendments
Waiver
Severability
Entire Agreement
Counterparts
Governing Law
Jurisdiction
Service of Process
Interest
Repayment
Conversion Rights
Conversion Price
Anti-dilution
Representations and Warranties
Conditions Precedent
Information Rights
Confidentiality
Events of Default
Acceleration
Security
Board Rights
Pre-emptive Rights
Tag-Along Rights
Assignment
Transferability
Subordination
Further Assurance
Costs and Expenses
Notices
Amendments
Waiver
Severability
Entire Agreement
Counterparts
Governing Law
Jurisdiction
Service of Process
Relevant Industries
Technology
Fintech
Biotechnology
E-commerce
Software Development
Healthcare
Clean Energy
Digital Media
Manufacturing
Professional Services
Consumer Products
Real Estate Technology
Education Technology
Financial Services
Telecommunications
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Executive Management
Company Secretarial
Compliance
Risk Management
Investment
Corporate Finance
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Chief Legal Officer
Investment Director
Corporate Lawyer
Investment Manager
Company Secretary
Finance Director
Venture Capital Partner
Private Equity Manager
Startup Founder
Managing Director
Corporate Development Manager
Treasury Manager
General Counsel
Legal Counsel
Investment Banker
Financial Controller
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