The Loan Conversion To Equity Agreement is commonly used when a company and its lender agree to transform debt obligations into ownership stakes. This transformation can occur at predetermined triggers or by mutual agreement. The document typically appears in startup financing, restructuring scenarios, or when companies seek to improve their balance sheet by reducing debt. It must conform to U.S. securities laws, including SEC regulations and state-specific requirements. The agreement specifies conversion rates, timing, resulting ownership percentages, and any special rights attached to the new equity position.
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1. Parties: Identifies the lender, borrower, and any other relevant parties to the agreement
2. Background/Recitals: Sets forth the context of the original loan and the parties' intention to convert it to equity
3. Definitions: Defines key terms used throughout the agreement
4. Conversion Terms: Details of the conversion including conversion price, timing, and mechanics
5. Representations and Warranties: Statements of fact from both parties regarding their authority and capacity to enter into the agreement
6. Conditions Precedent: Prerequisites that must be satisfied before conversion can occur
7. Governing Law: Specifies the jurisdiction whose laws govern the agreement
1. Anti-dilution Provisions: Protects the conversion rights from dilution in case of future equity issuances
2. Registration Rights: Rights related to registration of converted shares with securities authorities
3. Tag-Along Rights: Right to join in sale of shares by major shareholders to protect minority interests
4. Board Observation Rights: Rights to observe board meetings post-conversion for ongoing company visibility
1. Schedule A - Original Loan Agreement: Copy of the original loan agreement being converted
2. Schedule B - Capitalization Table: Current and post-conversion cap table showing ownership structure
3. Schedule C - Conversion Calculations: Detailed calculations showing conversion methodology and resulting equity
4. Schedule D - Form of Stock Certificate: Template for stock certificates to be issued upon conversion
5. Schedule E - Corporate Resolutions: Board and/or shareholder resolutions approving the conversion
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