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The Convertible Note Agreement is a crucial financing instrument in the UAE startup and growth company ecosystem, particularly used by companies seeking early-stage or bridge financing. This document is typically employed when a company needs immediate funding but either cannot or prefers not to establish a firm valuation. Under UAE law, specific considerations must be addressed, including compliance with Federal Law No. 32 of 2021, foreign ownership restrictions, and free zone regulations where applicable. The agreement provides detailed terms for the initial debt investment, including interest rates and maturity dates, along with specific triggers and mechanisms for converting the debt into equity shares. It may also need to account for Sharia compliance depending on the parties involved and can be adapted for use in UAE mainland, DIFC, or ADGM jurisdictions.

1. Parties: Identification of the Issuer (Company) and the Noteholder(s), including full legal names and registration details as required under UAE law

2. Background: Context of the investment, company status, and purpose of the convertible note

3. Definitions: Key terms used throughout the agreement, including specific UAE legal and regulatory terminology

4. Subscription and Issue: Terms of note issuance, subscription amount, and payment mechanics

5. Interest: Interest rate, calculation method, and payment terms (ensuring Sharia compliance if required)

6. Maturity and Repayment: Maturity date and repayment terms, including any early repayment provisions

7. Conversion Rights: Terms and mechanics of conversion into equity, including timing and procedures

8. Conversion Price: Formula for determining conversion price, including any discounts or caps

9. Qualifying Financing: Definition and terms of qualifying financing triggering automatic conversion

10. Company Representations and Warranties: Standard and UAE-specific warranties regarding company status, authority, and compliance

11. Noteholder Representations: Noteholder's warranties and acknowledgments

12. Information Rights: Noteholder's rights to company information and financial statements

13. Events of Default: Circumstances constituting default and consequences

14. Transferability: Restrictions on transfer of the note, considering UAE foreign ownership restrictions

15. Confidentiality: Confidentiality obligations and permitted disclosures

16. Notices: Communication procedures and addresses for notices

17. Governing Law and Jurisdiction: UAE law as governing law and jurisdiction provisions