Convertible Notes Agreement for Hong Kong

Convertible Notes Agreement Template for Hong Kong

A Convertible Notes Agreement under Hong Kong law is a legal document that establishes the terms and conditions for an investment structured as a debt instrument that can convert into equity. The agreement details the loan amount, interest rate, maturity date, conversion mechanisms, and investor rights. It incorporates specific provisions compliant with Hong Kong's Companies Ordinance and Securities and Futures Ordinance, addressing both debt and equity aspects of the investment. The document includes essential safeguards for investors and company stakeholders while maintaining flexibility for future funding rounds and potential exits.

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What is a Convertible Notes Agreement?

The Convertible Notes Agreement is a crucial financing instrument commonly used by companies seeking bridge funding or early-stage investment in Hong Kong. It offers the advantage of deferring company valuation while providing investors with potential equity upside through conversion rights. This document is particularly relevant when companies need quick access to capital without immediately setting a firm valuation, or when bridging between larger equity funding rounds. The agreement must comply with Hong Kong's legal framework, particularly the Companies Ordinance and Securities and Futures Ordinance, while addressing key commercial terms such as conversion triggers, interest rates, and investor protections. It's essential for both early-stage startups and growing companies looking to raise capital efficiently while maintaining flexibility for future funding rounds.

What sections should be included in a Convertible Notes Agreement?

1. Parties: Identification of the issuing company and the note holder(s)

2. Background: Context of the investment and purpose of the convertible note issuance

3. Definitions: Key terms used throughout the agreement including financial and technical definitions

4. Subscription and Issue: Terms of the note subscription, including principal amount, closing conditions, and funding mechanics

5. Interest: Interest rate, calculation method, payment terms, and default interest provisions

6. Conversion Rights: Conversion triggers, mechanics, price calculations, and procedures

7. Maturity and Repayment: Maturity date, repayment terms, and early repayment provisions

8. Company Representations and Warranties: Standard and specific representations regarding company status, authority, and business

9. Noteholder Representations and Warranties: Investor's representations regarding investment capacity and regulatory compliance

10. Company Covenants: Ongoing obligations of the company during the note term

11. Events of Default: Circumstances constituting default and consequent noteholder rights

12. Transferability: Restrictions and procedures for transferring the notes

13. Notices: Communication procedures between parties

14. General Provisions: Standard boilerplate including governing law, amendments, and confidentiality

What sections are optional to include in a Convertible Notes Agreement?

1. Multiple Closing Provisions: Required when the note issuance involves multiple tranches or closings

2. Most Favored Nation: Protection ensuring noteholders receive the benefit of better terms offered in subsequent note issuances

3. Pre-emptive Rights: Rights of noteholders to participate in future fundraising rounds

4. Board Observer Rights: Rights of noteholders to appoint board observers, typically for larger investments

5. Information Rights: Specific reporting requirements beyond standard financial statements

6. Tag-Along Rights: Rights to participate in sale of shares by major shareholders

7. Security Provisions: Required when the notes are secured against company assets

8. Subordination Provisions: Required when there are multiple classes of debt or specific ranking requirements

What schedules should be included in a Convertible Notes Agreement?

1. Schedule 1 - Note Certificate Form: Template for the physical or digital note certificate

2. Schedule 2 - Conversion Notice Form: Standard form for exercising conversion rights

3. Schedule 3 - Cap Table: Current and post-conversion capitalization table

4. Schedule 4 - Company Information: Key company details including corporate structure and existing securities

5. Schedule 5 - Warranties: Detailed list of company warranties

6. Schedule 6 - Conversion Calculations: Detailed methodology for calculating conversion price and share allocation

7. Schedule 7 - Existing Indebtedness: List of company's existing debt obligations

8. Appendix A - Key Terms Summary: Summary of principal commercial terms for quick reference

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Hong Kong

Publisher

Genie AI

Document Type

Security Agreement

Cost

Free to use
Relevant legal definitions
Relevant Industries

Technology

Biotechnology

Financial Services

E-commerce

Healthcare

Software Development

Clean Technology

Manufacturing

Consumer Products

Digital Media

Telecommunications

Professional Services

Real Estate Technology

Educational Technology

Artificial Intelligence

Relevant Teams

Legal

Finance

Corporate Development

Executive Management

Investment

Compliance

Corporate Secretarial

Treasury

Risk Management

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Corporate Lawyer

Investment Manager

Venture Capitalist

Company Director

Company Secretary

Financial Controller

Legal Counsel

Investment Banker

Corporate Finance Manager

Compliance Officer

Business Development Director

Startup Founder

Fund Manager

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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