The Convertible Loan Agreement is commonly used in Saudi Arabia for growth-stage companies seeking alternative financing options that comply with Islamic finance principles. This document is particularly relevant when traditional equity investment may be premature, but there's potential for future equity participation. It provides a Shariah-compliant structure for investors to provide financing while maintaining the option to convert their investment into equity shares. The agreement must comply with Saudi Arabian Companies Law, Capital Market Authority regulations, and Shariah principles, making it suitable for both local and international investors familiar with the Saudi market. It typically includes detailed provisions for profit-sharing instead of interest, conversion triggers, valuation mechanics, and regulatory compliance requirements.
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1. Parties: Identification of the Lender and Borrower, including full legal names and registration details
2. Background: Context of the agreement, including purpose of the loan and basis for future conversion
3. Definitions and Interpretation: Key terms used throughout the agreement, including financial, technical, and legal definitions
4. Loan Amount and Disbursement: Details of the loan amount, disbursement conditions and mechanics
5. Profit Rate and Payment: Shariah-compliant profit-sharing structure and payment terms
6. Conversion Rights: Terms and conditions for converting the loan into equity, including trigger events and conversion price mechanics
7. Conversion Procedure: Detailed process for executing the conversion, including notices and documentation requirements
8. Representations and Warranties: Statements of fact and assurances from both parties
9. Covenants: Ongoing obligations of the Borrower during the loan period
10. Events of Default: Circumstances constituting default and consequences
11. Termination: Circumstances and process for early termination
12. Governing Law and Jurisdiction: Confirmation of Saudi Arabian law and relevant courts
1. Security: Details of any security or collateral provided - include if the loan is secured
2. Guarantees: Terms of any personal or corporate guarantees - include if guarantees are provided
3. Board Observer Rights: Rights of the lender to appoint board observers - include for larger investments
4. Information Rights: Additional reporting requirements - include for sophisticated investors
5. Anti-dilution Protection: Provisions protecting the conversion rights from dilution - include for professional investors
6. Shariah Compliance Declaration: Explicit confirmation of Shariah compliance - include if required by lender or regulatory requirements
1. Schedule 1 - Loan Details: Detailed terms of the loan including amount, profit rate, and payment schedule
2. Schedule 2 - Conversion Mechanics: Detailed formula and procedures for calculating conversion price and share allocation
3. Schedule 3 - Conditions Precedent: List of conditions to be satisfied before loan disbursement
4. Schedule 4 - Form of Conversion Notice: Template notice for exercising conversion rights
5. Schedule 5 - Corporate Information: Details of the Borrower's corporate structure and share capital
6. Appendix A - Shariah Structure: Detailed explanation of the Shariah-compliant structure used
7. Appendix B - Required Corporate Approvals: List of required approvals and resolutions for conversion
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