LAUREN ONG.

1:36:00-1:45:25

JSP: This is significant, because I will ask this in the exam. What is a negative pledge contract? There
must be science in note taking, and I dunno how to take notes. If it’s an important provision there will
just be a check or a small line that’s important. So that’s how. So. That’s why it’s not me. Watch out for
this. So these are the negative covenants. This one is the negative pledge. There is an undertaking not to
materially change the nature of the business. Take note. There can be change but w the consent of the
lenders. But there can be no unilateral change of the business. But why? Why these negative
undertakings? Cause the lenders wanna be assured that there is no risk increase in these acts.
Ownership or management shall not cause or allow substantial change in its present management or in
the ownership or control of its capital. Let’s make sense of watch out for this. Let’s say you’re borrowing
and there is this loss. If you think there will be a sale of lets say a substantial portion of the shares in the
corporation you have to disclose and then you agree beforehand that that should be excluded otherwise
and you don’t want to be at the mercy at the lenders in doing the transactions covered by the negative
pledge. Because you need the consent of the lenders. What may that entail? How can the lenders make
money? Pay me x otherwise I will not consent? Let’s say there will be a new investor who’s gonna buy in
and get a substantial shareholding and control of the company. You’re the lender what do you do. You
think you’ll still be paid if the investor comes in? So with respect to risk assessment no problem. But you
have this right to withhold consent. Ofcourse there’s a standard, that it must not be unreasonable. But
you still have the right to withhold consent and the court has the right to decide if it’s unreasonable.
How do you make money? You’re a financial institution. You’re a lawyer of the bank, you wanna make
money out of this. And somehow you can get the consent. You’re not gonna do something illegal like
paying me off. What. What can you do? You’re a bank, someone will invest in the borrower. You may
wanna be part of the deal. Ok you need this financial service we will be part of this because this part of
the transaction we will consent. There is a value to this consent later on that’s why if you have concerns
you’re the borrower, you disclose from the get go then you ask, can we exclude this prospective
transaction?

JSP: Merger and consolidation. Ofcourse there’s an exclusion there except where the borrower is the
surviving corporation. Sale or lease of assets. The borrowers must not sell or encumber a substantial
part of the assets except in the ordinary course of business. Prohibition of a management contract
wherein another entity will manage the borrower guaranteed by the borrower of other obligations
except there are exclusions here. So if you look at the negative covenants they are prohibitions of
ccertain transaactions that will increase the risk of default. Conditions of borrowings. Process. This is
what we explained earlier. It’s like a ritual. You have to know! Hahaha. This is not mine. I rarely use
exclamation marks. YOU HAVE TO KNOW! Hahahahahaha. *Talks about you have to know!*

JSP: Events of default. Remember in oblicon you learned that a term is for the benefit of both parties. Or
the debtor has the benefit of the term like here. The lenders cannot collect the loan prior to arrival of
the term. However. You have instances when the debtor loses benefit of the period. You remember
that?

Lauren: slight. When incurs in delay..

JSP: Delays, insolvent, absconds.. basically default. This is similar to that one the event of default. So
when you get to default… It will trigger an acceleration of the obligation this is why you have the
acceleration clause. So okay in the event of default, the borrower will lose the ebenfit of the period and
the entire loan obligation will be come due and demandable and will be subject to penalty in the proper
case. So if you’re asked what’s in an acceleration clause, it’s a clause in the loan contract where upon
the occurrence of a certain event the entire debt will be due and demandable. So what’s the trigger of
the acceleration clause? The trigger will be the events of default.