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The Convertible Notes Agreement is commonly used in Saudi Arabia by companies seeking flexible financing options that comply with Islamic finance principles. This document is particularly relevant for growth-stage companies and startups looking to raise capital without immediately setting a valuation or diluting equity. The agreement details the investment terms, including the principal amount, profit rate (structured in a Shariah-compliant manner), conversion mechanics, and investor rights. It must comply with Saudi Arabian legal requirements, including the Companies Law, Capital Market regulations, and Shariah principles. The document typically becomes relevant during bridge financing rounds, pre-Series A investments, or when companies need interim financing before a larger equity round. It includes comprehensive provisions for conversion events, investor protections, and company obligations, while maintaining flexibility for both parties.

1. Parties: Identification of the Company and the Noteholder(s)

2. Background: Context of the agreement and purpose of the convertible note issuance

3. Definitions and Interpretation: Key terms used throughout the agreement, including financial terms, conversion-related definitions, and Shariah-compliant terminology

4. Subscription and Issuance: Terms of note subscription, payment obligations, and issuance details

5. Principal Amount and Profit Rate: Specification of the investment amount and Shariah-compliant profit structure

6. Conversion Rights: Detailed terms governing the conversion of the note into equity, including triggers and mechanics

7. Conversion Price and Adjustments: Formula for determining conversion price and circumstances requiring adjustments

8. Maturity and Repayment: Terms regarding maturity date, repayment obligations, and early repayment provisions

9. Company Representations and Warranties: Standard and specific representations regarding the company's status, authority, and compliance

10. Noteholder Representations and Warranties: Representations regarding investment capacity and compliance with relevant laws

11. Covenants: Ongoing obligations of the company and restrictions on certain activities

12. Events of Default: Circumstances constituting default and consequences thereof

13. Transferability: Restrictions and conditions for transfer of the notes

14. Shariah Compliance: Specific provisions ensuring compliance with Islamic finance principles

15. Notices: Communication procedures between parties

16. Governing Law and Jurisdiction: Specification of Saudi Arabian law as governing law and jurisdiction for disputes

17. General Provisions: Standard boilerplate clauses including amendments, waivers, and severability