The Convertible Loan Agreement serves as a critical financing instrument in the Maltese business landscape, particularly for companies seeking growth capital while maintaining flexibility in their capital structure. This document is typically used when a company needs immediate funding but either cannot or prefers not to establish a firm valuation, or when parties want to defer the equity investment decision. The agreement must comply with Maltese law, particularly the Companies Act (Chapter 386) and financial services regulations, while also considering EU regulatory requirements. It details loan terms, conversion mechanisms, trigger events, and provides investor protections while maintaining the company's operational flexibility. The document is especially relevant for startups and scale-ups in Malta's growing technology and financial services sectors, offering a bridge between debt and equity financing.
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1. Parties: Identification of the Lender and Borrower (Company), including registration details and registered addresses
2. Background: Recitals explaining the context of the loan and the parties' intention regarding potential conversion
3. Definitions and Interpretation: Definitions of key terms used throughout the agreement and interpretation rules
4. The Loan: Key terms of the loan including amount, purpose, and drawdown conditions
5. Interest: Interest rate, calculation method, payment dates, and default interest provisions
6. Repayment: Terms for repayment of the loan, including scheduled payments if any
7. Conversion Rights: Terms and conditions under which the loan can be converted into shares, including conversion price and mechanism
8. Conversion Procedure: Detailed process for executing the conversion, including notices and timing
9. Company's Representations and Warranties: Standard and specific warranties about the company's status, capacity, and shares
10. Lender's Representations and Warranties: Warranties about the lender's capacity and authority
11. Company's Undertakings: Ongoing obligations of the company during the loan period
12. Events of Default: Circumstances constituting default and consequences
13. Taxes and Expenses: Responsibility for taxes, stamp duty, and other costs
14. Notices: Process and requirements for formal communications between parties
15. Assignment and Transfer: Rights and restrictions regarding transfer of the loan or conversion rights
16. Confidentiality: Obligations regarding confidential information
17. Governing Law and Jurisdiction: Specification of Maltese law and jurisdiction
18. Execution: Signature blocks and execution formalities
1. Security: Include when the loan is secured against company assets
2. Subordination: Include when the loan needs to be subordinated to other company debt
3. Information Rights: Include when lender requires specific information access beyond statutory rights
4. Anti-dilution Protection: Include when lender requires protection against share dilution before conversion
5. Tag-Along Rights: Include when lender requires right to participate in sale of company shares
6. Board Observer Rights: Include when lender requires right to appoint board observer
7. Most Favored Nation: Include when lender requires protection against better terms being offered to future lenders
8. Pre-emptive Rights: Include when lender requires rights to participate in future funding rounds
1. Loan Details: Detailed terms of the loan including amount, interest rate, and key dates
2. Conversion Terms: Detailed mechanics of conversion, including formulae and worked examples
3. Form of Conversion Notice: Template notice for exercising conversion rights
4. Cap Table: Current and post-conversion shareholding structure
5. Company Information: Key company details including registration, directors, and share capital
6. Deed of Adherence: Form of deed for lender to sign upon conversion to become shareholder
7. Shareholders' Agreement: Key terms of existing shareholders' agreement that will apply post-conversion
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