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Convertible Note Contract

Convertible Note Contract Template for Malaysia

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Key Requirements PROMPT example:

Convertible Note Contract

"I need a Convertible Note Contract for my Malaysian tech startup to secure RM500,000 in funding from a local angel investor, with a 15% discount rate on conversion and 8% annual interest rate, maturing on March 1, 2025."

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Document background
The Convertible Note Contract is a vital financing instrument in the Malaysian business landscape, particularly for startups and growth companies seeking to raise capital while deferring valuation discussions. This document is typically used when a company needs interim financing before a larger equity round, or when parties prefer to postpone setting a definitive company valuation. The agreement must comply with Malaysian corporate and securities laws, including the Companies Act 2016 and Capital Markets and Services Act 2007. It outlines crucial terms such as principal amount, interest rate, maturity date, conversion triggers, valuation caps, and discount rates. The document also addresses investor rights, company obligations, and various scenarios such as qualified financing rounds, exit events, or maturity conversion.
Suggested Sections

1. Parties: Identification of the Note Issuer (Company) and the Noteholder(s)

2. Background: Context of the convertible note issuance, including the company's intention to raise funds and the investor's intention to invest

3. Definitions: Definitions of key terms used throughout the agreement, including Conversion Price, Maturity Date, Qualifying Financing, etc.

4. Subscription and Issue: Details of the note subscription, including principal amount, issue date, and payment terms

5. Interest: Interest rate, calculation method, payment frequency, and compound interest provisions

6. Conversion Rights: Terms and conditions for conversion, including conversion triggers, price calculation, and mechanics

7. Maturity and Repayment: Terms regarding maturity date, repayment obligations, and early repayment provisions

8. Company Representations and Warranties: Standard representations about company status, authority, and capacity to enter into the agreement

9. Noteholder Representations and Warranties: Investor's representations regarding investment capacity and understanding of risks

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

11. Notices: Communication procedures between parties

12. General Provisions: Standard boilerplate clauses including governing law, assignment, and amendments

Optional Sections

1. Security: Include when the note is secured against company assets

2. Subordination: Include when there are multiple creditors and ranking needs to be established

3. Information Rights: Include when noteholder is granted specific information or inspection rights

4. Board Observer Rights: Include when noteholder is granted the right to appoint board observer

5. Pre-emptive Rights: Include when noteholder is granted rights to participate in future funding rounds

6. Most Favored Nation: Include when offering protection against more favorable terms in future note issuances

7. Tag-Along Rights: Include when noteholder is granted right to participate in sale of company shares

8. Foreign Investment Provisions: Include when note involves cross-border investment

Suggested Schedules

1. Schedule 1 - Note Certificate: Form of note certificate evidencing the debt

2. Schedule 2 - Conversion Notice: Form of notice to be used when exercising conversion rights

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

4. Schedule 4 - Company Information: Key company details including corporate information and existing indebtedness

5. Schedule 5 - Calculation of Conversion Price: Detailed methodology for calculating conversion price in various scenarios

6. Schedule 6 - Deed of Adherence: Form of deed for new noteholders to adhere to the agreement

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

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Business Day
Company
Completion
Completion Date
Conversion
Conversion Date
Conversion Notice
Conversion Price
Conversion Rights
Conversion Shares
Default Interest Rate
Directors
Effective Date
Event of Default
Exit Event
Financial Year
Fully Diluted Share Capital
Interest Rate
Issue Date
Maturity Date
Next Equity Financing
Note Certificate
Noteholder
Principal Amount
Qualifying Financing
Qualifying Financing Price
Ringgit Malaysia
Security
Shareholders Agreement
Shares
Subscription Amount
Valuation Cap
Conversion Discount
Constituent Documents
Encumbrance
Material Adverse Change
Ordinary Shares
Permitted Transferee
Pre-Money Valuation
Related Corporation
Relevant Indebtedness
Share Capital
Subscription Rights
Relevant Industries

Technology

Financial Services

E-commerce

Healthcare

Biotechnology

Clean Energy

Manufacturing

Software

Consumer Products

Professional Services

Real Estate

Education Technology

Telecommunications

Digital Media

Logistics

Relevant Teams

Legal

Finance

Corporate Development

Treasury

Executive Leadership

Investment

Corporate Secretarial

Risk Management

Compliance

Business Development

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Legal Officer

Investment Manager

Corporate Lawyer

Finance Director

Company Secretary

Investment Analyst

Venture Capital Associate

Fund Manager

Corporate Development Manager

Treasury Manager

Legal Counsel

Financial Controller

Business Development Director

Startup Founder

Managing Partner

Industries
Contracts Act 1950: Governs the fundamental aspects of contract formation, validity, and enforcement in Malaysia, including essential elements like offer, acceptance, consideration, and capacity to contract
Companies Act 2016: Regulates corporate affairs including share capital, issuance of shares, and debt instruments. Particularly relevant for the conversion mechanism and share issuance provisions
Capital Markets and Services Act 2007: Regulates securities and financial instruments, including convertible notes which may be classified as securities, setting out requirements for issuance and trading
Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework: Securities Commission guidelines relevant for private issuance of convertible notes, including documentation and disclosure requirements
Stamp Act 1949: Governs stamp duty requirements for financial instruments and security documents in Malaysia
Money Lenders Act 1951: Relevant if the note issuer is not a licensed financial institution, as it regulates money lending activities and interest rates
Interest Act 1953: Governs the charging of interest in Malaysia, including maximum interest rates and computation methods
Foreign Exchange Administration Rules: Bank Negara Malaysia's regulations on foreign exchange transactions, relevant if the convertible note involves foreign investors or cross-border elements
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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