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Loan To Equity Conversion Agreement for the United States

Loan To Equity Conversion Agreement Template for United States

A legal agreement governed by U.S. federal and state securities laws that facilitates the conversion of an existing loan into equity shares in the borrower company. The agreement specifies the conversion terms, including the valuation basis, number of shares to be issued, and timing of the conversion. It includes necessary securities law compliance provisions and protections for both the converting lender and the issuing company.

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Loan To Equity Conversion Agreement

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What is a Loan To Equity Conversion Agreement?

The Loan To Equity Conversion Agreement is primarily used when a company and its lender agree to convert outstanding debt into equity shares. This typically occurs during fundraising rounds, company restructuring, or when the borrower faces challenges with cash repayment. The agreement, governed by U.S. securities laws, must comply with both federal and state regulations regarding share issuance. It includes crucial elements such as conversion ratios, valuation methods, and timing of the conversion, while ensuring compliance with SEC requirements and state-specific securities regulations.

What sections should be included in a Loan To Equity Conversion Agreement?

1. Parties: Identification of the lender and borrower/company

2. Background: Details of existing loan agreement and reason for conversion

3. Definitions: Key terms used throughout the agreement

4. Conversion Terms: Specific terms of converting debt to equity, including conversion price and ratio

5. Conversion Mechanics: Process and procedure for executing the conversion

6. Representations and Warranties: Statements of fact from both parties regarding their authority, compliance with laws, and other material facts

7. Governing Law: Jurisdiction and applicable law governing the agreement

What sections are optional to include in a Loan To Equity Conversion Agreement?

1. Anti-dilution Provisions: Protective provisions to maintain the converting lender's ownership percentage in case of future share issuances

2. Registration Rights: Rights of the converting lender to require the company to register shares for public trading

3. Board Rights: Rights of the converting lender to appoint directors or observers to the company's board

What schedules should be included in a Loan To Equity Conversion Agreement?

1. Original Loan Agreement: Copy of the original loan agreement being converted

2. Capitalization Table: Pre and post-conversion ownership structure of the company

3. Conversion Calculations: Detailed calculations showing conversion metrics and resulting share numbers

4. Form of Share Certificate: Template for new share certificates to be issued upon conversion

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

United States

Publisher

Ƶ

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use
Clauses






























Industries

Federal Securities Laws: Primary federal regulations including Securities Act of 1933, Securities Exchange Act of 1934, Regulation D (private placement rules), and Rule 144 (restricted securities). These govern securities issuance, registration requirements and exemptions.

Blue Sky Laws: State-specific securities laws governing registration requirements, disclosure obligations, and individual state securities regulations that vary by jurisdiction.

Corporate Law: State-specific corporation laws (such as Delaware General Corporation Law) governing corporate structure, authorized shares, and share issuance procedures.

Tax Laws: Internal Revenue Code provisions and IRS regulations regarding debt-to-equity conversions, cancellation of debt income, and tax implications of conversion features.

Uniform Commercial Code: Particularly Article 8 (Investment Securities) and Article 9 (Secured Transactions) governing commercial transactions and security interests.

Corporate Governance Requirements: Internal corporate documents including Articles of Incorporation, Bylaws, and existing shareholder agreements that may affect conversion terms.

Regulatory Compliance Framework: Includes Sarbanes-Oxley Act (for public companies), Dodd-Frank Act provisions, and relevant SEC regulations governing corporate compliance.

Contract Law: State-specific contract laws and Statute of Frauds requirements governing the formation and enforcement of legal agreements.

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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