The Convertible Debenture Agreement is a sophisticated financing instrument used in the UAE when companies seek to raise capital while offering investors the flexibility to convert their debt investment into equity shares. This document is particularly relevant for growth-stage companies, scale-ups, and established businesses looking for alternative funding sources in the UAE market. The agreement must comply with UAE Federal Law No. 32 of 2021 (Commercial Companies Law) and UAE Central Bank regulations, making it essential to incorporate specific local legal requirements. The document typically includes detailed provisions on conversion rights, interest payments, security (if applicable), events of default, and shareholder rights post-conversion. It serves as a bridge between debt and equity financing, offering investors the security of debt with the upside potential of equity participation.
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1. Parties: Identification of the Issuer (Company) and the Debenture Holder(s)
2. Background: Context of the debenture issuance and company's authority to issue
3. Definitions and Interpretation: Key terms, calculation methods, and interpretation rules
4. Issuance of Debentures: Terms of issuance, face value, and number of debentures
5. Interest: Interest rate, calculation method, payment dates and terms
6. Conversion Rights: Conversion mechanism, price/ratio, timing, and procedures
7. Conversion Restrictions: Limitations on conversion rights and compliance with UAE law
8. Company's Covenants: Issuer's obligations, including financial covenants and reporting requirements
9. Holder's Rights and Obligations: Rights beyond conversion, including voting and participation rights
10. Events of Default: Circumstances constituting default and consequences
11. Representations and Warranties: Standard and specific representations by both parties
12. Term and Maturity: Duration, maturity date, and repayment terms
13. Notices: Communication procedures between parties
14. Governing Law and Jurisdiction: UAE law governance and dispute resolution procedures
1. Security: Terms of any security or collateral - used when debentures are secured
2. Debenture Holders' Representative: Appointment and powers of holders' representative - used with multiple holders
3. Tag-Along Rights: Rights of holders in case of company sale - used in specific investment scenarios
4. Anti-dilution Provisions: Protection against share dilution - used when specifically negotiated
5. Subordination: Ranking of debentures - used when there are multiple debt instruments
6. Registration Rights: Rights to register converted shares - used if public listing is contemplated
7. Share Qualification: Special provisions for Emirati ownership requirements - used with foreign holders
1. Schedule 1 - Debenture Certificate Form: Template of the debenture certificate compliant with UAE requirements
2. Schedule 2 - Conversion Notice: Form of notice to be given when exercising conversion rights
3. Schedule 3 - Calculation Methods: Detailed procedures for calculating interest, conversion price adjustments
4. Schedule 4 - Company Information: Key company details, capitalization table, and shareholding structure
5. Schedule 5 - Financial Covenants: Specific financial ratios and thresholds to be maintained
6. Appendix A - Board and Shareholder Resolutions: Corporate approvals authorizing the debenture issuance
7. Appendix B - Regulatory Approvals: Copies of required UAE regulatory approvals and licenses
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