Loan Conversion To Equity Agreement for Pakistan

Loan Conversion To Equity Agreement Template for Pakistan

A comprehensive legal agreement governed by Pakistani law that facilitates the conversion of an existing loan obligation into equity shares of the borrowing company. The document outlines the conversion mechanism, including the valuation methodology, conversion ratio, and resulting shareholding structure, while ensuring compliance with the Companies Act 2017 and relevant SECP regulations. It addresses key aspects such as corporate approvals, regulatory clearances, and post-conversion rights, providing a clear framework for transforming debt into equity ownership.

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What is a Loan Conversion To Equity Agreement?

The Loan Conversion To Equity Agreement is a crucial document in Pakistani corporate restructuring and financing arrangements, typically used when companies seek to improve their balance sheet structure or when lenders prefer to take an equity position rather than maintain a debt relationship. This agreement becomes particularly relevant in scenarios such as startup funding rounds, debt restructuring of distressed companies, or strategic investments. The document must comply with Pakistani corporate law, particularly the Companies Act 2017, Securities Act 2015, and relevant SECP regulations. It details the entire conversion process, from initial valuation to final share issuance, including necessary corporate and regulatory approvals. The agreement is designed to protect both the converting lender's interests and the company's stability while ensuring transparency and regulatory compliance throughout the conversion process.

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

1. Parties: Identification of the Lender and Borrower, including their legal status and registration details

2. Background: Details of the original loan agreement, current outstanding amount, and rationale for conversion

3. Definitions: Key terms used throughout the agreement, including financial and technical terms

4. Original Loan Details: Summary of the existing loan terms, including principal amount, interest rate, and maturity date

5. Conversion Terms: Specific mechanisms and conditions for converting the loan to equity, including conversion price/ratio

6. Conversion Process: Step-by-step procedure for implementing the conversion, including timing and notices

7. Representations and Warranties: Statements of fact and assurances from both parties regarding their capacity and authority

8. Corporate Approvals: Required board resolutions, shareholder approvals, and regulatory clearances

9. Post-Conversion Rights: Rights attached to the new shares and any special privileges granted to the converting lender

10. Regulatory Compliance: Compliance requirements with SECP, State Bank of Pakistan, and other relevant authorities

11. Governing Law and Jurisdiction: Specification of Pakistani law as governing law and jurisdiction for disputes

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

1. Anti-dilution Protection: Provisions protecting the converting lender from future share dilution, used when requested by the lender

2. Tag-Along Rights: Rights allowing the new shareholder to join in any future sale of shares, included for minority shareholder protection

3. Board Representation: Rights of the converting lender to appoint board members, included for significant equity conversions

4. Foreign Exchange Provisions: Special provisions for foreign lenders regarding currency conversion and repatriation

5. Put Option: Right of the converting lender to sell shares back under specific circumstances

6. Partial Conversion Rights: Provisions allowing for gradual or partial conversion of the loan, used in phased conversions

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

1. Schedule 1 - Original Loan Agreement: Copy or summary of the original loan agreement being converted

2. Schedule 2 - Conversion Calculations: Detailed methodology and calculations for the conversion ratio/price

3. Schedule 3 - New Shareholding Structure: Pre and post-conversion shareholding pattern of the company

4. Schedule 4 - Corporate Authorizations: Copies of board resolutions, shareholder approvals, and other corporate authorizations

5. Schedule 5 - Regulatory Approvals: Copies of required regulatory approvals and compliance certificates

6. Appendix A - Share Certificate Template: Format of the share certificates to be issued post-conversion

7. Appendix B - Conversion Notice Format: Template for the formal conversion notice to be issued

Authors

Alex Denne

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

Jurisdiction

Pakistan

Publisher

Genie AI

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Banking & Financial Services

Technology & Startups

Manufacturing

Real Estate & Construction

Healthcare

Energy & Resources

Telecommunications

Retail & Consumer Goods

Agriculture & Food Processing

Infrastructure Development

Relevant Teams

Legal

Finance

Corporate Finance

Treasury

Compliance

Risk Management

Corporate Secretariat

Investment

Board of Directors

Executive Management

Relevant Roles

Chief Financial Officer

Corporate Lawyer

Investment Banker

Company Secretary

Finance Director

Legal Counsel

Corporate Finance Manager

Restructuring Officer

Compliance Officer

Investment Manager

Private Equity Manager

Risk Manager

Treasury Manager

Board Director

Managing Director

Industries
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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