The Loan Conversion To Equity Agreement is a sophisticated financial instrument used when a company and its lender agree to transform outstanding debt into equity ownership. This document is particularly relevant in growth scenarios, restructuring situations, or when companies seek to strengthen their balance sheet by reducing debt. Under Belgian law, the agreement must comply with specific corporate law requirements regarding share capital increases and financial regulations. It typically follows an existing loan arrangement and requires careful consideration of tax implications, securities laws, and corporate governance issues. The document becomes crucial in startup funding rounds, corporate restructuring, and strategic investments, providing a framework for both parties to execute the conversion while ensuring compliance with Belgian regulatory requirements and protecting their respective interests.
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1. Parties: Identification of the Lender and Borrower, including full legal names, registration details, and addresses
2. Background: Details of the existing loan agreement, current outstanding amount, and rationale for conversion
3. Definitions and Interpretation: Key terms used throughout the agreement, including financial terms, corporate terminology, and conversion-specific definitions
4. Loan Status and Acknowledgment: Confirmation of current loan amount, interest accrued, and any other outstanding amounts
5. Conversion Terms: Detailed mechanics of how and when the loan will convert to equity, including conversion price/ratio calculation
6. Conversion Procedure: Step-by-step process for executing the conversion, including timing, notices, and required documentation
7. Representations and Warranties: Standard and specific representations from both parties regarding authority, share issuance, and compliance
8. Corporate Actions: Requirements for corporate approvals, shareholder resolutions, and capital increase procedures
9. Share Rights: Description of the rights attached to the shares to be issued upon conversion
10. Conditions Precedent: Prerequisites that must be satisfied before conversion can occur
11. Tax Provisions: Treatment of tax implications and responsibilities related to the conversion
12. Governing Law and Jurisdiction: Confirmation of Belgian law application and jurisdiction for disputes
1. Anti-dilution Provisions: Include when protecting the conversion rights against future share issuances or corporate actions
2. Board Representation: Include when the lender is to receive board representation rights post-conversion
3. Tag-Along Rights: Include when the lender should have the right to participate in future sales of shares
4. Information Rights: Include when the lender requires specific information rights pre- or post-conversion
5. Security Release: Include when the original loan was secured and security arrangements need to be terminated
6. Interim Period Provisions: Include when specific obligations need to be imposed between signing and conversion
7. Registration Rights: Include for larger transactions where future public offering rights are relevant
1. Existing Loan Agreement: Copy or summary of the original loan agreement being converted
2. Conversion Notice Form: Template form for exercising conversion rights
3. Calculation Method: Detailed methodology for calculating conversion price/ratio
4. Required Corporate Resolutions: Forms of corporate resolutions required to implement the conversion
5. New Shareholders' Agreement: If applicable, terms governing relationship between shareholders post-conversion
6. Updated Articles of Association: Draft amendments to the company's articles reflecting the conversion rights
7. Deed of Release: If applicable, release of existing security interests
8. Tax Ruling: If obtained, binding tax ruling regarding the conversion treatment
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