The Convertible Note Agreement is a crucial financing instrument in the UAE startup and growth company ecosystem, particularly used by companies seeking early-stage or bridge financing. This document is typically employed when a company needs immediate funding but either cannot or prefers not to establish a firm valuation. Under UAE law, specific considerations must be addressed, including compliance with Federal Law No. 32 of 2021, foreign ownership restrictions, and free zone regulations where applicable. The agreement provides detailed terms for the initial debt investment, including interest rates and maturity dates, along with specific triggers and mechanisms for converting the debt into equity shares. It may also need to account for Sharia compliance depending on the parties involved and can be adapted for use in UAE mainland, DIFC, or ADGM jurisdictions.
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1. Parties: Identification of the Issuer (Company) and the Noteholder(s), including full legal names and registration details as required under UAE law
2. Background: Context of the investment, company status, and purpose of the convertible note
3. Definitions: Key terms used throughout the agreement, including specific UAE legal and regulatory terminology
4. Subscription and Issue: Terms of note issuance, subscription amount, and payment mechanics
5. Interest: Interest rate, calculation method, and payment terms (ensuring Sharia compliance if required)
6. Maturity and Repayment: Maturity date and repayment terms, including any early repayment provisions
7. Conversion Rights: Terms and mechanics of conversion into equity, including timing and procedures
8. Conversion Price: Formula for determining conversion price, including any discounts or caps
9. Qualifying Financing: Definition and terms of qualifying financing triggering automatic conversion
10. Company Representations and Warranties: Standard and UAE-specific warranties regarding company status, authority, and compliance
11. Noteholder Representations: Noteholder's warranties and acknowledgments
12. Information Rights: Noteholder's rights to company information and financial statements
13. Events of Default: Circumstances constituting default and consequences
14. Transferability: Restrictions on transfer of the note, considering UAE foreign ownership restrictions
15. Confidentiality: Confidentiality obligations and permitted disclosures
16. Notices: Communication procedures and addresses for notices
17. Governing Law and Jurisdiction: UAE law as governing law and jurisdiction provisions
1. Security: Include when the note is secured against company assets
2. Subordination: Include when the note needs to be subordinated to other company debt
3. Board Observer Rights: Include when noteholder is granted board observation rights
4. Anti-dilution Protection: Include specific anti-dilution provisions beyond standard conversion adjustments
5. Tag-Along Rights: Include when noteholders are granted tag-along rights pre-conversion
6. Sharia Compliance: Include specific provisions for Sharia compliance if required
7. DIFC/ADGM Specific Provisions: Include when any party is based in DIFC or ADGM free zones
1. Schedule 1: Form of Conversion Notice: Standard form for noteholder to exercise conversion rights
2. Schedule 2: Cap Table: Current and post-conversion capitalization table
3. Schedule 3: Calculation of Conversion Price: Detailed formula and examples of conversion price calculations
4. Schedule 4: Company Information: Key company details, including registration information and current directors
5. Schedule 5: Warranties: Detailed company warranties and disclosures
6. Appendix A: Board Resolution: Copy of board resolution approving note issuance
7. Appendix B: Shareholders' Resolution: Copy of shareholders' resolution (if required) approving note issuance
Relevant legal definitions
Clauses
Relevant Industries
Technology
E-commerce
Financial Services
Healthcare
Education Technology
Logistics
Real Estate Technology
Clean Energy
Digital Media
Food and Beverage
Manufacturing
Professional Services
Artificial Intelligence
Blockchain
Retail
Relevant Teams
Legal
Finance
Corporate Development
Compliance
Executive Leadership
Investment
Company Secretariat
Treasury
Risk Management
Corporate Governance
Relevant Roles
Chief Executive Officer
Chief Financial Officer
General Counsel
Investment Manager
Corporate Lawyer
Finance Director
Company Secretary
Venture Capital Associate
Investment Analyst
Managing Director
Board Member
Financial Controller
Corporate Development Manager
Compliance Officer
Legal Counsel
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