The Debt To Equity Conversion Agreement is typically employed when companies seek to improve their balance sheet structure or when creditors prefer to become shareholders rather than maintain their debt position. This document is particularly relevant in the United States where it must comply with SEC regulations, state corporate laws, and federal tax requirements. It includes essential provisions such as conversion ratios, timing, representations and warranties, and often contains anti-dilution protections. The agreement is commonly used in restructuring scenarios, startup financing, and corporate reorganizations.
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1. Parties: Identification of the debtor and creditor(s)
2. Background: Details of existing debt and reasons for conversion
3. Definitions: Key terms used throughout the agreement
4. Debt Acknowledgment: Recognition of existing debt amount and terms
5. Conversion Terms: Specific terms of conversion including share price, number of shares, and timing
6. Representations and Warranties: Statements of fact by both parties regarding their capacity and authority
7. Closing Conditions: Requirements to be met before conversion can be completed
1. Anti-dilution Provisions: Protection mechanisms against future dilution of converted shares
2. Registration Rights: Rights and procedures for registering converted shares with securities authorities
3. Tag-Along Rights: Rights of converting creditor to participate in future share sales
1. Schedule of Existing Debt: Detailed breakdown of all debt being converted including principal, interest, and other charges
2. Share Calculation Schedule: Detailed methodology and calculations for determining number of shares to be issued
3. Corporate Resolutions: Copies of board and/or shareholder resolutions approving the conversion
4. Existing Security Agreements: Copies of security agreements relating to the debt being converted
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