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The Convertible Loan Agreement is a sophisticated financing instrument commonly used in Pakistan's growing startup and scale-up ecosystem. It provides a bridge between traditional debt financing and equity investment, offering companies access to capital while giving investors the flexibility to convert their loan into equity shares under specified conditions. This document is particularly useful for companies seeking growth capital who may not want to establish a firm valuation immediately or prefer the initial security of a debt instrument. The agreement must comply with Pakistani corporate law, particularly the Companies Act 2017 and Securities Act 2015, and typically includes detailed provisions on conversion mechanics, valuation frameworks, and investor rights. It's especially relevant for early-stage companies, growth-phase businesses seeking additional capital, or companies preparing for a larger equity round.

1. Parties: Identification of the lender(s), borrower company, and any guarantors

2. Background: Context of the loan, relationship between parties, and purpose of the financing

3. Definitions and Interpretation: Key terms used in the agreement, including financial definitions and conversion-related terms

4. Loan Amount and Disbursement: Details of the loan amount, disbursement conditions and mechanics

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

6. Repayment Terms: Repayment schedule, prepayment provisions, and payment mechanics

7. Conversion Rights: Terms and conditions for converting the loan into equity, including conversion price and mechanism

8. Conversion Triggers: Events that trigger mandatory or optional conversion rights

9. Representations and Warranties: Standard and specific declarations by the borrower about its status and capacity

10. Covenants: Positive and negative obligations of the borrower during the loan term

11. Events of Default: Circumstances constituting default and consequences

12. Information Rights: Borrower's obligations to provide financial and other information to lender

13. Assignments and Transfers: Rules for transferring or assigning rights under the agreement

14. Notices: Communication procedures between parties

15. Governing Law and Jurisdiction: Choice of Pakistani law and jurisdiction details

16. General Provisions: Standard boilerplate clauses including amendments, waivers, and severability