Convertible Loan Note Agreement for United Arab Emirates

Convertible Loan Note Agreement Template for United Arab Emirates

A Convertible Loan Note Agreement under UAE law is a sophisticated financing instrument that combines elements of debt and potential future equity investment. This document establishes the terms under which an investor provides funding to a company as a loan that can later be converted into equity shares under specified conditions. The agreement must comply with UAE federal laws, including the Commercial Companies Law and relevant Central Bank regulations, particularly regarding interest rates and securities regulations. It includes detailed provisions for conversion mechanics, interest calculations, repayment terms, and various investor protections, all structured within the UAE's civil law framework.

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What is a Convertible Loan Note Agreement?

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.

What sections should be included in a Convertible Loan Note Agreement?

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

What sections are optional to include in a Convertible Loan Note Agreement?

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

What schedules should be included in a Convertible Loan Note Agreement?

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

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Publisher

Genie AI

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant legal definitions
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

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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