The Convertible Note Purchase Agreement is a crucial financing instrument commonly used in Hong Kong's startup and growth-stage company ecosystem. It serves as a bridge between debt and equity financing, allowing companies to raise capital without immediately determining a firm valuation. This document is typically used when a company needs interim financing before a larger equity round, or when parties prefer to defer valuation discussions. The agreement, governed by Hong Kong law, must comply with local securities regulations and corporate law requirements. It includes essential terms such as conversion price, interest rate, maturity date, and investor rights, while also addressing Hong Kong-specific regulatory considerations. The document is particularly valuable for startups and growth companies in Hong Kong's dynamic business environment, offering flexibility in fundraising while providing investors with potential equity upside.
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1. Parties: Identification of the company issuing the notes and the purchaser(s)
2. Background: Context of the transaction and purpose of the convertible note issuance
3. Definitions: Key terms used throughout the agreement
4. Purchase and Sale of Notes: Core terms of the note purchase, including purchase price and closing mechanics
5. Closing Conditions: Conditions precedent to the purchase of notes
6. Conversion Rights: Terms and mechanics for converting notes into equity
7. Interest: Interest rate, calculation method, and payment terms
8. Representations and Warranties of the Company: Company's statements about its legal status, authority, and business condition
9. Representations and Warranties of the Purchasers: Purchasers' statements about their investment capacity and eligibility
10. Covenants: Ongoing obligations of the company and restrictions on its activities
11. Events of Default: Circumstances constituting default and consequences
12. Miscellaneous: Standard legal provisions including notices, amendments, governing law, etc.
1. Multiple Closings: Required when the note purchase will occur in multiple tranches
2. Information Rights: Specific rights of noteholders to receive company information
3. Board Observer Rights: Rights of noteholders to appoint board observers
4. Pre-emptive Rights: Rights of noteholders to participate in future financing rounds
5. Most Favored Nation Provision: Protection ensuring noteholders receive best terms offered in subsequent note issuances
6. Security Interest: Required if the notes are to be secured by company assets
7. Subordination: Required if there are multiple layers of debt or specific ranking requirements
1. Schedule A - Form of Note: The actual form of convertible note instrument
2. Schedule B - Capitalization Table: Current cap table of the company pre-investment
3. Schedule C - Disclosure Schedule: Exceptions to representations and warranties
4. Schedule D - Corporate Resolutions: Board and shareholder resolutions approving the note issuance
5. Schedule E - Investment Representations: Detailed investor representations and warranties
6. Schedule F - Conversion Mechanics: Detailed procedures and calculations for note conversion
7. Schedule G - Company Information: Key company information including corporate documents and financial statements
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