The Loan To Equity Conversion Agreement is commonly used in corporate refinancing, startup funding, and financial restructuring scenarios in Australia. It's particularly relevant when companies seek to strengthen their balance sheet by reducing debt obligations or when lenders wish to take an equity position in the business. This document is crucial for compliance with Australian corporate law, particularly the Corporations Act 2001 (Cth), and addresses various aspects including share issuance, security releases, and corporate governance changes. It's typically used in situations where there's an existing loan facility that parties agree to convert into equity, whether partially or fully, and requires careful consideration of valuation methods, conversion triggers, and resulting shareholding structures.
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1. Parties: Identification of the lender (converting to shareholder) and borrower (company issuing shares)
2. Background: Details of the existing loan arrangement and rationale for conversion
3. Definitions: Key terms used throughout the agreement, including financial and technical definitions
4. Conversion Terms: Core mechanics of how the loan will convert to equity, including conversion ratio/price
5. Conditions Precedent: Prerequisites that must be satisfied before conversion can occur
6. Conversion Process: Step-by-step procedure for implementing the conversion
7. Representations and Warranties: Statements of fact by both parties about their capacity and authority
8. Company's Obligations: Actions the company must take to effect the conversion and issue shares
9. Lender's Obligations: Actions the lender must take, including releasing security and providing documentation
10. Completion Requirements: Actions to be taken at completion of the conversion
11. Costs and Expenses: Allocation of transaction costs and expenses
12. Confidentiality: Obligations regarding confidential information
13. Notices: Process for formal communications between parties
14. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, etc.
1. Security Release: Required if the original loan was secured - details process for releasing security
2. Shareholder Rights: Include if new special rights attach to the shares being issued
3. Board Appointment Rights: Include if the conversion gives the lender right to board representation
4. Tag-Along Rights: Include if the lender is to receive co-sale rights post-conversion
5. Pre-emptive Rights: Include if the lender is to receive rights to participate in future share issues
6. Post-Conversion Covenants: Include if there are ongoing obligations after conversion
7. Foreign Investment Conditions: Required if the lender is a foreign entity subject to FIRB approval
1. Existing Loan Details: Summary of the loan being converted, including amount and key terms
2. Conversion Calculations: Detailed methodology for calculating the number of shares to be issued
3. Form of Share Certificate: Template for the share certificate to be issued
4. Completion Checklist: List of documents and actions required at completion
5. New Shareholding Structure: Table showing pre and post-conversion shareholding
6. Board Resolution: Pro-forma board resolution approving the conversion
7. Deed of Release: Pro-forma deed releasing the original loan security (if applicable)
Relevant legal definitions
Clauses
Relevant Industries
Financial Services
Technology Startups
Private Equity
Venture Capital
Professional Services
Manufacturing
Real Estate
Healthcare
Mining and Resources
Retail
Telecommunications
Relevant Teams
Legal
Finance
Corporate Development
Treasury
Compliance
Risk Management
Company Secretariat
Board of Directors
Executive Management
Relevant Roles
Chief Financial Officer
Chief Executive Officer
Corporate Lawyer
Financial Controller
Company Secretary
Investment Manager
Corporate Finance Manager
Treasury Manager
Legal Counsel
Finance Director
Corporate Development Manager
Risk Manager
Compliance Officer
Board Director
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