Convertible Note Contract Template for Hong Kong

The Convertible Note Contract is a vital financing instrument in Hong Kong's startup ecosystem, commonly used for seed or bridge funding rounds where company valuation might be premature or uncertain. This document type emerged as a practical solution for early-stage investments, offering the security of debt with the upside potential of equity. The agreement must comply with Hong Kong's legal framework, particularly the Companies Ordinance (Cap. 622) and Securities and Futures Ordinance (Cap. 571), while addressing both debt and equity aspects of the investment. It typically includes detailed provisions for conversion triggers, such as qualified financing rounds, company sale, or maturity, along with investor protections and information rights. The document's structure reflects Hong Kong's common law tradition while incorporating international best practices in venture financing.

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

2. Background: Context of the convertible note issuance and the parties' intentions

3. Definitions and Interpretation: 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 mechanics

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

6. Conversion Rights: Terms and conditions for converting the note into equity, including conversion price and mechanics

7. Conversion Price Adjustments: Mechanisms for adjusting conversion price based on corporate actions or anti-dilution provisions

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

9. Company Covenants: Ongoing obligations of the company, including information rights and operational restrictions

10. Events of Default: Circumstances constituting default and consequences thereof

11. Transferability: Terms governing the transfer of the note to other parties

12. Notices: Process for formal communications between parties

13. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, and amendments