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A convertible loan note for a DIFC private company: an unsecured loan from one Investor that converts into shares on a qualified financing at a discount and/or under a valuation cap, with repayment or conversion on an exit, at maturity or on default, governed by DIFC law with the DIFC Courts.
Dubai International Financial Centre (DIFC)
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This agreement is dated the date on which it is signed by the last of the parties.
This agreement is made between [TO BE CONFIRMED — Company legal name and details] (the "Company") and [TO BE CONFIRMED — Investor legal name and details] (the "Investor").
"Principal Amount" means [TO BE CONFIRMED — Principal amount (with currency)].
"Funding Date" means [TO BE CONFIRMED — Funding date].
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A convertible loan note for an ADGM private company: an unsecured loan from one Investor that converts into shares on a qualified financing at a discount and/or under a valuation cap, with repayment or conversion on an exit, at maturity or on default, governed by ADGM law with the ADGM Courts.
"Interest Rate" means [TO BE CONFIRMED — Annual interest rate] per annum.
"Maturity Date" means [TO BE CONFIRMED — Maturity date].
"Qualified Financing Amount" means [TO BE CONFIRMED — Minimum new money for a Qualified Financing].
"Valuation Cap" means [TO BE CONFIRMED — Valuation cap].
"Discount" means [TO BE CONFIRMED — Conversion discount].
"Fallback Valuation" means [TO BE CONFIRMED — Valuation for conversion at maturity, on an exit or on default].
"Exit Multiple" means [TO BE CONFIRMED — Exit return multiple].
"Default Rate" means [TO BE CONFIRMED — Default interest rate] per annum.
"Senior Debt" means [TO BE CONFIRMED — Senior debt (lender and facility)].
"Arbitration Institution" means [TO BE CONFIRMED — Arbitration institution].
"Business Day" means a day other than a Saturday, Sunday or public holiday in Dubai.
"Conversion Amount" means the Principal Amount outstanding at the relevant time together with all interest accrued on it and not paid.
"Conversion Shares" means the shares issued to the Investor on conversion of the Note.
"Qualified Financing" means the first issue of new shares by the Company for cash after the date of this agreement, in one transaction or a series of related transactions, in which the total subscription price received in cash (not counting the conversion of the Note or of any other loan or convertible instrument) is at least the Qualified Financing Amount.
"Qualified Financing Shares" means the class of shares issued for cash to new investors in the Qualified Financing.
"Financing Price" means the lowest price per share paid in cash for Qualified Financing Shares in the Qualified Financing.
"Fully Diluted Share Capital" means the total number of shares of the Company in issue immediately before the relevant conversion, plus all shares that would be issued if every outstanding option, warrant and other right to acquire shares were exercised in full, plus all shares reserved for any employee share incentive plan (whether or not granted), but excluding shares to be issued on conversion of the Note or of any other convertible instrument converting at the same time.
"Fallback Price" means the Fallback Valuation divided by the Fully Diluted Share Capital.
"Exit Event" means a sale of shares in the Company as a result of which any person, alone or with persons acting in concert with it, holds more than 50 per cent of the voting rights in the Company; a sale of all or substantially all of the Company's business and assets; or a Listing.
"Listing" means the admission of any of the Company's shares to trading on a regulated or recognised securities exchange.
"Insolvency Event" means the Company being unable to pay its debts as they fall due; the appointment of a liquidator, provisional liquidator, administrator or receiver over the Company or any material part of its assets; the Company proposing or entering into a rehabilitation plan, voluntary arrangement or compromise with its creditors generally under the DIFC Insolvency Law; the passing of a resolution or the making of an order for its winding up; or any similar event in any jurisdiction.
"Ordinary Shares" means the ordinary shares in the capital of the Company or, if there is more than one class of ordinary shares, the class most recently issued for cash.
In this agreement, a reference to a clause by its heading is to the clause of this agreement with that heading; the words "including" and "include" do not limit the words before them; the singular includes the plural; and, where the Investor is an individual, "it" and "its" include him or her, and "his" and "her", and a reference to the Investor's power and authority includes his or her legal capacity.
This agreement constitutes an unsecured convertible loan note of the Company in the Principal Amount (the "Note"), held by the Investor.
The Investor shall pay the Principal Amount to the Company on the Funding Date in cleared funds, to the bank account the Company notifies to the Investor in writing at least 3 Business Days before the Funding Date.
The Investor's obligation to pay the Principal Amount is conditional on the Company having delivered to the Investor, before the Funding Date, a copy of the resolutions of its board, and of its shareholders where required, approving this agreement and the issue of the Conversion Shares and disapplying any pre-emption rights over them, together with any consent or waiver of existing shareholders or investors that its articles of association or any shareholders' agreement requires.
The Company shall use the Principal Amount only for the Use of Proceeds.
The Note is an unsecured obligation of the Company. Until it is converted or repaid, it ranks at least equally with all other unsecured and unsubordinated obligations of the Company, except obligations preferred by law and subject to the Subordination clause where it is included.
The Company shall keep a register of noteholders showing the Investor as the holder of the Note and, on request, issue the Investor with a certificate for the Note.
Interest accrues on the outstanding Principal Amount at the Interest Rate from the Funding Date until the Note is converted or repaid. Interest accrues daily, is calculated on the basis of a 365-day year, and does not compound.
Accrued interest is not payable in cash before the Note is repaid. On conversion, accrued interest forms part of the Conversion Amount and converts with the Principal Amount; on repayment, it is paid together with the Principal Amount.
If a Qualified Financing completes before the Note is repaid, the Conversion Amount automatically converts, on completion of the Qualified Financing, into Qualified Financing Shares at the Conversion Price.
The "Conversion Price" is the lower of the Financing Price reduced by the Discount, and the Valuation Cap divided by the Fully Diluted Share Capital.
If the Conversion Price, or any other price per share at which the Note converts under this agreement, would be less than the nominal value of the share to be issued, or any higher minimum issue price the law requires, it is increased to that amount.
On any conversion under this agreement, the number of Conversion Shares is the Conversion Amount divided by the price per share at which that conversion takes place under this agreement, rounded down to the nearest whole share. The Investor waives any fraction of a share.
If the Financing Price is stated in a currency other than that of the Principal Amount, the Conversion Amount is converted into that currency at the spot rate quoted by the Company's principal bank on the Business Day before completion of the Qualified Financing.
If an Exit Event occurs before the Note is converted or repaid, the Investor may, by written notice given before completion of the Exit Event, elect either to be repaid the Conversion Amount on completion or to convert the Conversion Amount, immediately before completion, into Ordinary Shares at the Fallback Price. If the Investor makes no election, the Company shall repay the Conversion Amount on completion.
If the Note has not been converted or repaid by the Maturity Date, the Investor may, by written notice given within 20 Business Days after the Maturity Date, elect either to be repaid the Conversion Amount or to convert it into Ordinary Shares at the Fallback Price. The Company shall complete the repayment or conversion within 10 Business Days after receiving the election. If the Investor makes no election in time, the Company shall repay the Conversion Amount within 10 Business Days after the end of the election period.
The Company may not repay or prepay the Note in whole or in part before the Maturity Date without the Investor's prior written consent, except as this agreement requires.
The Company shall give the Investor written notice of a proposed Qualified Financing or Exit Event, with its principal terms, at least 10 Business Days before its expected completion.
On conversion, the Conversion Amount is applied in paying up the Conversion Shares in full, and the Note is discharged to the extent of the amount converted.
On a conversion in a Qualified Financing, the Investor shall sign the shareholders' agreement and other investment documents signed by the new investors in that financing, on substantially the same terms, but is not required to give any warranty or undertaking other than as to its own title, capacity, authority and investor status.
The Company shall issue the Conversion Shares credited as fully paid, enter the Investor in its register of members, deliver evidence of the Investor's shareholding within 10 Business Days after conversion, and make the filings required with the DIFC Registrar of Companies within the time the DIFC Companies Law allows.
The Conversion Shares rank equally in all respects with the other shares of the same class then in issue.
While the Note is outstanding, the Company shall ensure that its directors are authorised under its articles of association and the applicable companies law to issue the Conversion Shares, and that all statutory and contractual pre-emption rights over the Conversion Shares are disapplied or waived.
While the Note is outstanding, the Company shall deliver to the Investor a copy of its annual accounts promptly after they are approved, and shall notify the Investor promptly after becoming aware of any Event of Default.
While the Note is outstanding, the Company shall not, without the Investor's prior written consent, create any security over its assets other than in the ordinary course of business; incur any borrowing that ranks ahead of the Note, other than the Senior Debt; pay any dividend or make any other distribution to its shareholders; or redeem or buy back any of its shares, other than from a departing founder or employee at no more than the price they paid.
The Company warrants to the Investor, on the date of this agreement and on the Funding Date, that it is duly incorporated and validly existing under the laws of its place of incorporation; that it has the power to enter into and perform this agreement and to issue the Conversion Shares, and has taken all corporate action needed to do so; and that entering into and performing this agreement does not breach its constitutional documents, any law binding on it or any agreement to which it is a party.
The Company warrants to the Investor that the information it has given the Investor in writing about its issued share capital, options and other rights to acquire its shares is complete and accurate at the date of this agreement.
The Investor warrants to the Company that it has full power and authority to enter into and perform this agreement and that it is a person to whom the Note may lawfully be offered without a prospectus, including because it is a Professional Client or otherwise within an exemption under the rules of the Dubai Financial Services Authority.
The Investor acknowledges that an investment in the Note is speculative, that it may lose the whole of the Principal Amount, and that it has made its own assessment of the Company and the investment.
Each of the following is an "Event of Default": the Company fails to pay any amount due under this agreement within 5 Business Days after its due date; the Company materially breaches any other obligation under this agreement and, if the breach can be remedied, does not remedy it within 20 Business Days after written notice from the Investor; any warranty given by the Company is materially untrue when given; an Insolvency Event occurs; or the Company ceases, or threatens to cease, to carry on all or substantially all of its business.
At any time after an Event of Default occurs and while it is continuing, the Investor may by written notice to the Company declare the Conversion Amount immediately due and payable, and the Company shall pay it immediately.
If the Company fails to pay any amount under this agreement when due, interest accrues on the overdue amount at the Default Rate from the due date until the date of actual payment, both before and after any judgment, in addition to any interest accruing under the Interest clause.
The Investor's right to payment under this agreement is subordinated to the Senior Debt. The Company shall not pay any amount under this agreement, other than by conversion, while any Senior Debt is due and unpaid or an event of default under the Senior Debt is continuing.
The Investor shall, at the Company's request, enter into a subordination or intercreditor agreement with the holders of the Senior Debt on customary terms, provided that it does not affect the Investor's conversion rights under this agreement.
The Investor may not transfer the Note, or any interest in it, without the Company's prior written consent, which shall not be unreasonably withheld or delayed, except to an affiliate of the Investor that first agrees in writing to be bound by this agreement.
The Company may not assign or transfer any of its rights or obligations under this agreement.
A transfer of the Note takes effect only when the Company has entered the transferee in its register of noteholders.
All payments under this agreement shall be made in the currency of the Principal Amount, in cleared funds, to the account the recipient notifies in writing.
The Company shall make all payments under this agreement without set-off or counterclaim.
The Company shall make all payments without deduction for tax unless the law requires a deduction. If it does, the Company shall make the deduction, pay the amount deducted to the relevant tax authority when due, and give the Investor evidence of payment, and the net payment discharges the Company's obligation.
A notice under this agreement must be in writing and delivered by hand, by courier or by email, to the Company at [TO BE CONFIRMED — Company notice address and email] and to the Investor at [TO BE CONFIRMED — Investor notice address and email], or to any other address a party notifies to the other for this purpose.
A notice is treated as received on delivery if delivered by hand or courier, and at the time of transmission if sent by email unless the sender receives a message that it was not delivered. A notice received outside 9.00 am to 5.00 pm on a Business Day at the place of receipt is treated as received at 9.00 am on the next Business Day.
This agreement is the entire agreement between the parties about its subject matter and supersedes any earlier understanding between them about it. Each party confirms that it has not relied on any statement not set out in this agreement, but nothing in this clause limits liability for fraud.
A variation of this agreement is effective only if it is in writing and signed by both parties.
A failure or delay in exercising a right is not a waiver of it, and a waiver is effective only if given in writing.
If any provision of this agreement is or becomes invalid or unenforceable, it is treated as modified to the minimum extent necessary to make it valid and enforceable or, if that is not possible, as deleted, and the rest of this agreement is unaffected.
Nothing in this agreement makes the Investor a shareholder of the Company before conversion, or creates a partnership or agency between the parties.
Each party bears its own costs of negotiating and entering into this agreement.
Each party shall sign all documents and do all things reasonably required to give full effect to this agreement.
Nothing in this agreement gives any person other than the parties any right to enforce it.
This agreement may be signed in counterparts and by electronic signature, each of which is an original and all of which together form one agreement.
This agreement and any non-contractual obligation arising out of or in connection with it are governed by the laws of the Dubai International Financial Centre.
The courts of the Dubai International Financial Centre have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement, and each party submits to their jurisdiction.
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