The Convertible Debt Agreement is a sophisticated financing instrument used in the UAE when companies seek flexible funding options that combine elements of debt and potential equity investment. This document is particularly relevant for growth-stage companies that may not want to establish a firm valuation immediately or prefer to defer equity dilution. The agreement must comply with UAE federal laws, including the Commercial Companies Law and relevant securities regulations, while potentially incorporating Sharia-compliant elements depending on the parties' requirements. It typically includes detailed provisions on conversion mechanics, price adjustments, investor rights, and corporate governance matters, all structured within the UAE's legal framework. The document is especially crucial for UAE companies seeking bridge financing or strategic investment while maintaining compliance with local regulatory requirements.
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1. Parties: Identification of the Lender(s), Company (Borrower), and any guarantors or other relevant parties
2. Background: Context of the agreement, including company status and purpose of the convertible debt financing
3. Definitions: Key terms used throughout the agreement, including financial, technical and legal definitions
4. Loan Amount and Terms: Principal amount, interest rate, maturity date, and payment terms
5. Conversion Rights: Terms and conditions for converting debt to equity, including conversion price, timing, and mechanics
6. Conversion Price Adjustments: Mechanisms for adjusting conversion price based on corporate actions or anti-dilution provisions
7. Representations and Warranties: Statements of fact by the company regarding its legal status, authority, and financial condition
8. Company Covenants: Ongoing obligations of the company during the term of the debt
9. Events of Default: Circumstances constituting default and consequences thereof
10. Conversion Procedures: Detailed process for executing conversion, including notice requirements and documentation
11. Rights of Lender: Specific rights granted to the lender, including information rights and board observer rights
12. Assignment and Transfer: Terms governing the transfer of the convertible debt instrument
13. Amendments and Waivers: Process for modifying the agreement terms
14. Governing Law and Jurisdiction: Specification of UAE law application and jurisdiction for disputes
15. Notices: Communication procedures between parties
16. General Provisions: Miscellaneous legal provisions including severability, entire agreement, and counterparts
1. Sharia Compliance: Additional provisions ensuring compliance with Islamic finance principles, used when the agreement needs to be Sharia-compliant
2. Security: Provisions for any collateral or security arrangements, used when the debt is secured
3. Subordination: Terms regarding the ranking of the debt, used when there are multiple creditors
4. Tag-Along Rights: Rights of lender to participate in sale of company shares, used in specific investment scenarios
5. Pre-emptive Rights: Rights of lender to participate in future financing rounds, used for sophisticated investors
6. Corporate Governance Rights: Special voting or board representation rights upon conversion, used for strategic investors
7. Intellectual Property Protection: Special provisions protecting company IP, used for technology companies
8. Foreign Investment Provisions: Additional terms for compliance with UAE foreign investment laws, used with foreign lenders
1. Schedule 1 - Conversion Notice Form: Template form for exercising conversion rights
2. Schedule 2 - Cap Table: Current and post-conversion capitalization table of the company
3. Schedule 3 - Financial Statements: Latest financial statements of the company
4. Schedule 4 - Corporate Information: Key corporate documents and information about the company
5. Schedule 5 - Calculation of Conversion Price: Detailed methodology for calculating conversion price
6. Schedule 6 - Warranties: Detailed list of company warranties
7. Schedule 7 - Existing Indebtedness: List of company's existing debt obligations
8. Appendix A - Board Resolution: Company board resolution approving the convertible debt issuance
9. Appendix B - Shareholders' Resolution: Shareholders' approval of the convertible debt issuance if required
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