The Convertible Note Subscription Agreement is a crucial financing instrument in the Malaysian corporate landscape, particularly utilized by startups and growth companies seeking to raise capital without immediately setting a company valuation. This document is typically employed in bridge financing rounds or early-stage investments where traditional equity valuation may be premature or challenging. The agreement must comply with Malaysian corporate and securities laws, including the Companies Act 2016 and Capital Markets and Services Act 2007, while incorporating international best practices for convertible instruments. It covers essential elements such as subscription terms, conversion mechanics, interest rates, maturity dates, and investor protections, providing a balanced framework for both companies seeking capital and investors looking for potential equity upside with debt security.
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1. Parties: Identifies the company issuing the convertible notes, the investor(s), and any other relevant parties to the agreement
2. Background: Recitals explaining the company's intention to issue convertible notes and the investor's intention to subscribe
3. Definitions and Interpretation: Defines key terms used throughout the agreement and sets out interpretation rules
4. Subscription and Issue: Details of the note subscription, including amount, price, and closing mechanics
5. Conditions Precedent: Conditions that must be satisfied before the subscription can complete
6. Closing: Procedures and requirements for completing the subscription, including timing and deliverables
7. Interest: Interest rate, calculation method, and payment terms
8. Conversion: Terms and mechanics of converting the notes to equity, including trigger events and conversion price
9. Company Warranties: Company's representations and warranties about its business, operations, and authority
10. Investor Warranties: Investor's representations and warranties, including investment capacity and sophistication
11. Company Covenants: Ongoing obligations of the company while notes are outstanding
12. Events of Default: Circumstances constituting default and consequences
13. Transferability: Terms governing transfer or assignment of the notes
14. Confidentiality: Obligations regarding confidential information
15. Notices: Process for giving formal notices under the agreement
16. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, and amendments
1. Security: Include when the notes are to be secured against company assets
2. Tag-Along Rights: Include when investors are given the right to participate in sale of shares by other shareholders
3. Board Observer Rights: Include when investors are granted rights to attend and observe board meetings
4. Information Rights: Include when specific financial or operational information rights are granted beyond standard reporting
5. Pre-emptive Rights: Include when investors are given rights to participate in future funding rounds
6. Most Favored Nation: Include when investors should receive the benefit of more favorable terms given to future investors
7. Anti-dilution Protection: Include when specific protection against dilution is required beyond standard conversion adjustments
1. Schedule 1 - Note Certificate Terms: Form and terms of the convertible note certificate
2. Schedule 2 - Company Details: Detailed company information including capital structure and subsidiaries
3. Schedule 3 - Warranties: Detailed list of company warranties
4. Schedule 4 - Conversion Mechanics: Detailed procedures and formulae for conversion calculations
5. Schedule 5 - Conditions Precedent: Detailed list of conditions precedent including required documents
6. Schedule 6 - Deed of Adherence: Form of deed for new shareholders upon conversion
7. Appendix A - Form of Notice of Conversion: Template for conversion notice
8. Appendix B - Disclosure Letter: Company's disclosures against warranties
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