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The Loan Conversion To Equity Agreement is a crucial document in South African corporate finance, commonly used in situations where debt financing is intended to convert to equity ownership, either as part of the original investment strategy or as a restructuring solution. This agreement is particularly relevant for growth companies, startups, and businesses undergoing financial restructuring. It must comply with South African corporate law, particularly the Companies Act 71 of 2008, and address various regulatory requirements including those related to financial services, tax implications, and, where applicable, exchange control regulations. The document typically details the existing loan arrangement, conversion triggers, share valuation methodology, and the mechanics of the conversion process. It's essential for establishing clear rights and obligations of all parties during and after the conversion, including any special rights attached to the new shares and ongoing shareholder arrangements.

1. Parties: Identification of the contracting parties - typically the lender (to become shareholder), borrower (company), and any guarantors or other relevant parties

2. Background: Recitals explaining the existing loan arrangement and the parties' intention to convert the loan to equity

3. Definitions and Interpretation: Definitions of key terms used in the agreement and rules of interpretation

4. Loan Status and Acknowledgment: Confirmation of the current loan amount, interest accrued, and acknowledgment of the debt

5. Conversion Terms: Core terms of the conversion including conversion price, number of shares to be issued, and type of shares

6. Conversion Mechanics: Detailed process and procedure for implementing the conversion

7. Conditions Precedent: Conditions that must be satisfied before the conversion can take place

8. Representations and Warranties: Statements of fact and assurances from both parties regarding their capacity, authority, and other relevant matters

9. Company Undertakings: Commitments by the company regarding share issuance, corporate approvals, and post-conversion obligations

10. Lender Undertakings: Commitments by the lender regarding the release of loan obligations and compliance with shareholder requirements

11. Completion: Actions to be taken at completion of the conversion

12. Default: Consequences of failing to comply with agreement terms

13. Notices: Process for formal communications between parties

14. General Provisions: Standard boilerplate clauses including governing law, jurisdiction, entire agreement, etc.