The Loan Conversion To Equity Agreement is a crucial document in Nigerian corporate finance, typically used when a company seeks to improve its balance sheet by converting debt to equity, or when lenders wish to take an equity position in a promising business. This agreement is particularly relevant in scenarios involving startup financing, corporate restructuring, or strategic investments. The document must comply with Nigerian legislation, including CAMA 2020, Investment and Securities Act 2007, and relevant Central Bank of Nigeria regulations. It outlines the conversion mechanism, valuation methodology, resulting shareholding structure, and completion requirements. The agreement is especially important in the current Nigerian business environment where alternative financing structures are increasingly being utilized for business growth and debt restructuring.
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1. Parties: Identification of the Lender(s) and the Company (Borrower)
2. Background: Recitals describing the original loan agreement, current status, and parties' intention to convert the loan to equity
3. Definitions and Interpretation: Definitions of key terms and interpretation rules used throughout the agreement
4. Loan Status and Acknowledgment: Confirmation of the outstanding loan amount and accrued interest to be converted
5. Conversion Terms: Details of the conversion mechanism, including conversion price/ratio and timing
6. Conditions Precedent: Conditions that must be satisfied before the conversion can take place
7. Implementation of Conversion: Step-by-step process for executing the conversion
8. Resulting Share Structure: Description of the post-conversion shareholding and share rights
9. Representations and Warranties: Standard and specific warranties from both parties
10. Covenants: Ongoing obligations of the parties
11. Completion Mechanics: Specific actions required at completion of the conversion
12. Termination: Circumstances under which the agreement can be terminated
13. Notices: Communication procedures between parties
14. Governing Law and Jurisdiction: Specification of Nigerian law as governing law and jurisdiction for disputes
15. General Provisions: Standard boilerplate clauses including amendments, waivers, and severability
1. Shareholder Rights: Additional rights granted to the converting lender as a new shareholder, used when the lender will receive special rights
2. Board Representation: Rights of the converting lender to appoint directors, used when board seats are part of the conversion deal
3. Anti-dilution Protection: Provisions protecting the value of the converted shares, used in cases of sophisticated investors
4. Foreign Exchange Provisions: Specific provisions for handling foreign currency aspects, used when foreign currency loans are involved
5. Multiple Lender Provisions: Coordination mechanisms between multiple converting lenders, used when multiple loans are being converted
6. Regulatory Compliance: Specific provisions addressing regulatory requirements, used when specific regulatory approvals are needed
7. Tax Provisions: Specific tax-related provisions and allocations, used when complex tax implications exist
1. Original Loan Agreement: Copy or key terms of the original loan agreement(s)
2. Calculation of Conversion Amount: Detailed calculation of the loan amount including principal and interest to be converted
3. Valuation Report: Independent valuation report or agreed valuation methodology
4. New Share Certificate Format: Format of share certificates to be issued upon conversion
5. Required Corporate Resolutions: Form of board and shareholder resolutions required for the conversion
6. Completion Checklist: List of all documents and actions required for completion
7. Post-Conversion Cap Table: Detailed breakdown of the post-conversion shareholding structure
8. Required Regulatory Filings: Forms and documents required for regulatory compliance
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