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Convertible Loan Agreement for Philippines

Convertible Loan Agreement Template for Philippines

A comprehensive legal agreement governed by Philippine law that establishes the terms and conditions under which a lender provides a loan to a borrower, with the distinctive feature that the loan can be converted into equity shares of the borrowing company under specified conditions. The document incorporates provisions compliant with Philippine banking, securities, and corporate laws, including the Securities Regulation Code and the Revised Corporation Code. It details the loan amount, interest rates, conversion mechanisms, triggers for conversion, valuation methodologies, and protections for both lender and borrower, while ensuring adherence to local regulatory requirements for both debt and equity instruments.

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What is a Convertible Loan Agreement?

The Convertible Loan Agreement serves as a crucial financing instrument in the Philippine business landscape, particularly for emerging companies seeking growth capital. This document is typically used when investors want to provide funding with the flexibility to convert their loan into equity shares at a later date, usually upon specific trigger events such as future funding rounds or exits. It offers advantages for both parties: the company secures immediate funding while deferring valuation discussions, and investors gain downside protection of a loan with potential equity upside. The agreement must comply with Philippine regulations, including the Securities Regulation Code, General Banking Law, and Revised Corporation Code, particularly regarding interest rates, securities regulations, and corporate governance requirements. It's especially relevant for startup funding, bridge financing, and strategic investments where immediate equity valuation may be challenging or premature.

What sections should be included in a Convertible Loan Agreement?

1. Parties: Identification of the Lender and Borrower, including complete legal names and addresses

2. Background: Context of the agreement, including the Borrower's business and purpose of the loan

3. Definitions: Definitions of key terms used throughout the agreement

4. Loan Amount and Disbursement: Details of the loan amount, disbursement conditions and procedure

5. Interest: Interest rate, calculation method, and payment terms

6. Repayment Terms: Schedule and methods of repayment, prepayment provisions

7. Conversion Rights: Terms and conditions for converting the loan into equity, including conversion price and timing

8. Conversion Procedure: Detailed process for executing the conversion, including notices and documentation

9. Representations and Warranties: Standard declarations by both parties about their capacity and authority

10. Covenants: Ongoing obligations of the Borrower during the loan term

11. Events of Default: Circumstances constituting default and consequences

12. Security: Any security or guarantees provided for the loan

13. Termination: Circumstances and process for terminating the agreement

14. Governing Law and Jurisdiction: Specification of Philippine law as governing law and jurisdiction for disputes

15. General Provisions: Standard boilerplate clauses including notices, amendments, and assignment

What sections are optional to include in a Convertible Loan Agreement?

1. Information Rights: Additional reporting requirements for the Lender, used when the Lender requires specific company information

2. Board Observer Rights: Rights of the Lender to appoint a board observer, used in larger financing arrangements

3. Anti-dilution Protection: Protection against dilution of conversion rights, used in cases with multiple financing rounds anticipated

4. Tag-Along Rights: Rights to participate in future sales of shares, used for larger investments

5. Foreign Investment Provisions: Special provisions for foreign lenders, used when the Lender is not a Philippine entity

6. Multiple Lender Provisions: Provisions for coordinating multiple lenders, used when there are several lenders party to the agreement

7. Intellectual Property Rights: Special provisions protecting IP rights, used when the Borrower has significant IP assets

8. Employee Matters: Provisions regarding key employees, used when retention of specific employees is crucial

What schedules should be included in a Convertible Loan Agreement?

1. Schedule 1 - Conversion Notice Form: Template form for exercising conversion rights

2. Schedule 2 - Capitalization Table: Current and post-conversion shareholding structure

3. Schedule 3 - Calculation of Conversion Price: Detailed methodology for calculating the conversion price

4. Schedule 4 - Conditions Precedent: List of conditions to be satisfied before loan disbursement

5. Schedule 5 - Financial Covenants: Specific financial metrics and ratios to be maintained

6. Schedule 6 - Disclosure Schedule: Disclosures against representations and warranties

7. Appendix A - Draw Down Notice: Form for requesting loan disbursement

8. Appendix B - Corporate Authorizations: Required corporate approvals and resolutions

9. Appendix C - Security Documentation: Forms and details of any security arrangements

Authors

Alex Denne

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

Jurisdiction

Philippines

Publisher

Ƶ

Document Type

Agreement Contract

Cost

Free to use
Relevant legal definitions




























































Clauses



































Relevant Industries

Technology

E-commerce

Financial Services

Healthcare

Manufacturing

Real Estate

Renewable Energy

Agriculture Technology

Education Technology

Retail

Telecommunications

Transportation

Food and Beverage

Business Services

Relevant Teams

Legal

Finance

Corporate Secretarial

Treasury

Compliance

Risk Management

Corporate Development

Investment

Board of Directors

Executive Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Legal Officer

Investment Manager

Corporate Lawyer

Finance Director

Venture Capital Associate

Investment Banker

Corporate Secretary

Compliance Officer

Treasury Manager

Business Development Director

Fund Manager

Company Director

Financial Controller

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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