California Debt Conversion Agreement with exhibit A only
Description
Form popularity
FAQ
A conversion clause typically provides that the borrower has the right to convert the loan into equity at a certain price per share, after a certain period of time has elapsed. The clause should also specify whether the conversion is mandatory or optional.
With convertible debt, a business borrows money from a lender or investor where both parties enter the agreement with the intent (from the outset) to repay all (or part) of the loan by converting it into a certain number of its preferred or common shares at some point in the future.
Debt-to-equity swaps are common transactions that enable a borrower to transform loans into shares of stock or equity. Mostly, a financial institution such as an insurer or a bank will hold the new shares after the original debt is transformed into equity shares.
Debt-to-equity swaps are common transactions that enable a borrower to transform loans into shares of stock or equity. Mostly, a financial institution such as an insurer or a bank will hold the new shares after the original debt is transformed into equity shares.
Typically, the loan converts into equity with a conversion discount in valuation that is lower than the price paid by the investors purchasing shares in the financing to compensate the note holder for bearing the risk of investment prior to the financing. A typical discount is often between 10-30%.
A debt/equity swap is a refinancing deal in which a debt holder gets an equity position in exchange for the cancellation of the debt. The swap is generally done to help a struggling company continue to operate. The logic behind this is an insolvent company cannot pay its debts or improve its equity standing.
Such conversion increases solvency and liquidity position of a company and improves the potential to raise further funding should it be required.
In order for a loan to be converted into equity, the company must have passed a special resolution at the time of accepting the loan, which specifies that the loan may be converted into equity in the future.
