The Promissory Note Convertible To Equity is a sophisticated financing instrument commonly used in Hong Kong's startup and growth-stage company ecosystem. It provides a bridge between traditional debt financing and equity investment, offering companies immediate access to capital while deferring complex equity valuation discussions. This document type is particularly valuable when a company needs immediate funding but its valuation is not yet determined or when parties want to postpone equity negotiations to a future funding round. The agreement must comply with Hong Kong's Companies Ordinance, Securities and Futures Ordinance, and relevant financial regulations. It typically includes detailed terms about interest rates, maturity dates, conversion triggers (such as qualified financing rounds), conversion price calculations, and investor protections. The document is especially popular among technology startups and innovative companies seeking flexible financing solutions in the Hong Kong market.
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1. Parties: Identification of the Issuer (Company) and the Noteholder
2. Background: Context of the investment and purpose of the note
3. Definitions: Key terms used throughout the agreement including Maturity Date, Conversion Price, Qualified Financing, etc.
4. Loan Amount and Interest: Principal amount, interest rate, and calculation method
5. Maturity and Repayment: Maturity date and repayment terms
6. Conversion Rights: Conditions and mechanics for converting the note into equity
7. Conversion Price: Formula for determining the price at which the note converts to equity
8. Company Representations and Warranties: Standard company warranties about its authority, compliance, and financial condition
9. Noteholder Representations: Noteholder's warranties regarding investment capacity and sophistication
10. Events of Default: Circumstances constituting default and consequences
11. General Provisions: Standard clauses including notices, amendments, governing law, and jurisdiction
1. Security: Include when the note is secured by company assets
2. Subordination: Include when there are multiple creditors and hierarchies need to be established
3. Information Rights: Include when noteholder is granted specific information access rights
4. Board Observer Rights: Include when noteholder is granted board observation rights
5. Most Favored Nation: Include to ensure noteholder gets best terms if company issues other notes
6. Pre-emptive Rights: Include when noteholder gets rights to participate in future funding rounds
7. Tag-Along Rights: Include when noteholder gets right to participate in founder share sales
8. Change of Control: Include specific provisions for company sale scenarios
1. Conversion Calculations: Detailed examples of conversion calculations under different scenarios
2. Form of Conversion Notice: Template notice for noteholder to exercise conversion rights
3. Cap Table: Current and post-conversion capitalization table
4. Existing Security Interests: List of existing security interests if note is secured
5. Corporate Authorizations: Copies of board and shareholder resolutions authorizing the note
6. Term Sheet: Original term sheet or investment memorandum if referenced
7. Disclosure Schedule: Company disclosures against representations and warranties
Relevant legal definitions
Accrued Interest
Applicable Law
Articles of Association
Business Day
Change of Control
Company
Completion
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Discount Rate
Effective Date
Encumbrance
Event of Default
Fully Diluted Share Capital
Group
HKD
Holding Company
Hong Kong
Interest Rate
Investment Amount
IPO
Issuer
Liquidation Event
Maturity Date
Material Adverse Effect
Next Equity Financing
Note
Noteholder
Original Issue Date
Parties
Pre-money Valuation
Principal Amount
Qualified Financing
Qualified IPO
Repayment Date
Securities
Security Interest
Shareholders Agreement
Subsidiary
Valuation Cap
Voluntary Conversion
Working Day
Applicable Law
Articles of Association
Business Day
Change of Control
Company
Completion
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Discount Rate
Effective Date
Encumbrance
Event of Default
Fully Diluted Share Capital
Group
HKD
Holding Company
Hong Kong
Interest Rate
Investment Amount
IPO
Issuer
Liquidation Event
Maturity Date
Material Adverse Effect
Next Equity Financing
Note
Noteholder
Original Issue Date
Parties
Pre-money Valuation
Principal Amount
Qualified Financing
Qualified IPO
Repayment Date
Securities
Security Interest
Shareholders Agreement
Subsidiary
Valuation Cap
Voluntary Conversion
Working Day
Clauses
Loan Terms
Interest
Repayment
Conversion Rights
Conversion Price
Qualified Financing
Maturity
Events of Default
Acceleration
Representations and Warranties
Information Rights
Most Favored Nation
Pre-emptive Rights
Tag-Along Rights
Drag-Along Rights
Security
Subordination
Assignment
Transferability
Confidentiality
Notices
Amendment
Waiver
Severability
Entire Agreement
Governing Law
Jurisdiction
Dispute Resolution
Force Majeure
Costs and Expenses
Taxes
Further Assurance
Counterparts
Time of Essence
Company Covenants
Investor Covenants
Change of Control
Anti-dilution
Board Rights
Registration Rights
Interest
Repayment
Conversion Rights
Conversion Price
Qualified Financing
Maturity
Events of Default
Acceleration
Representations and Warranties
Information Rights
Most Favored Nation
Pre-emptive Rights
Tag-Along Rights
Drag-Along Rights
Security
Subordination
Assignment
Transferability
Confidentiality
Notices
Amendment
Waiver
Severability
Entire Agreement
Governing Law
Jurisdiction
Dispute Resolution
Force Majeure
Costs and Expenses
Taxes
Further Assurance
Counterparts
Time of Essence
Company Covenants
Investor Covenants
Change of Control
Anti-dilution
Board Rights
Registration Rights
Relevant Industries
Technology Startups
Financial Services
E-commerce
Healthcare Innovation
Biotechnology
Fintech
Software Development
Renewable Energy
Manufacturing
Consumer Products
Professional Services
Real Estate Technology
Education Technology
Digital Media
Telecommunications
Relevant Teams
Legal
Finance
Corporate Development
Executive Leadership
Investment
Compliance
Company Secretarial
Treasury
Corporate Strategy
Risk Management
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Chief Legal Officer
Investment Director
Corporate Lawyer
Investment Manager
Company Secretary
Financial Controller
Venture Capital Associate
Investment Banker
Startup Founder
Corporate Finance Manager
Business Development Director
Board Director
Compliance Officer
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