The Convertible Loan Note Agreement is commonly used in the UAE's growing startup and scale-up ecosystem as a flexible financing instrument that bridges the gap between debt and equity funding. This document is particularly valuable when companies seek growth capital but prefer to defer equity valuation discussions until a later funding round. It must be carefully structured to comply with UAE federal laws, including the Commercial Companies Law (Federal Law No. 8 of 2004), Central Bank regulations, and relevant securities laws. The agreement details loan terms, conversion mechanisms, interest calculations (in compliance with UAE interest rate restrictions), and investor protections. It's especially relevant for growth-stage companies, technology startups, and businesses seeking alternative financing structures in the UAE market.
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1. Parties: Identification of the Lender(s), Company (Borrower), and any Guarantors
2. Background: Context of the agreement, including company status and purpose of the loan
3. Definitions and Interpretation: Key terms, including Conversion Price, Qualified Financing, Maturity Date, and interpretation rules
4. Subscription and Issuance: Terms of loan note issuance and payment mechanics
5. Interest: Interest calculation, payment terms, and compliance with UAE interest rate regulations
6. Repayment and Prepayment: Terms for loan repayment, early repayment options and restrictions
7. Conversion Rights: Conditions and mechanics for converting the loan into shares
8. Conversion Mechanics: Detailed process for executing the conversion, including compliance with UAE company law
9. Company Warranties: Company representations regarding its status, authority, and compliance
10. Lender Warranties: Lender representations regarding authority and investment understanding
11. Company Covenants: Ongoing obligations of the company during the loan term
12. Events of Default: Circumstances constituting default and consequences
13. Transferability: Terms governing transfer of the loan notes
14. Notices: Communication requirements and methods
15. Governing Law and Jurisdiction: UAE law governance and jurisdiction provisions
1. Security: Include when the loan is secured by company assets or guarantees
2. Subordination: Include when the loan needs to be subordinated to other company debt
3. Tag-Along Rights: Include when lenders should have tag-along rights post-conversion
4. Board Observer Rights: Include when lenders are granted board observation rights
5. Information Rights: Include when specific information rights are granted beyond statutory requirements
6. Anti-dilution Protection: Include when additional protection against dilution is required
7. Shareholder Approval: Include when specific shareholder approval mechanics are required under UAE law
8. Sharia Compliance: Include when the instrument needs to be Sharia-compliant
1. Schedule 1: Form of Conversion Notice: Template for exercising conversion rights
2. Schedule 2: Cap Table: Current and post-conversion capitalization table
3. Schedule 3: Company Details: Detailed company information including registration, directors, and share capital
4. Schedule 4: Conversion Calculations: Detailed methodology for calculating conversion price and share allocation
5. Schedule 5: Warranties: Detailed list of company warranties
6. Schedule 6: Conditions Precedent: List of conditions to be satisfied before loan drawdown
7. Schedule 7: Form of Accession Deed: Template for new lenders joining the agreement
8. Appendix A: Regulatory Compliance Checklist: Checklist ensuring compliance with UAE regulations
Relevant legal definitions
Clauses
Relevant Industries
Technology
Financial Services
E-commerce
Healthcare
Real Estate
Manufacturing
Renewable Energy
Professional Services
Media and Entertainment
Education Technology
Biotechnology
Retail
Logistics
Software Development
Telecommunications
Relevant Teams
Legal
Finance
Corporate Development
Investment
Compliance
Risk Management
Treasury
Corporate Secretariat
Executive Leadership
Business Development
Relevant Roles
Chief Executive Officer
Chief Financial Officer
Investment Director
Legal Counsel
Corporate Lawyer
Investment Manager
Finance Director
Venture Capital Associate
Company Secretary
Business Development Director
Strategy Director
Financial Controller
Compliance Officer
Risk Manager
Corporate Development Manager
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