The Convertible Loan Agreement under German law serves as a crucial financing instrument for companies seeking growth capital while offering investors the flexibility to convert their loan into equity shares. This document is particularly valuable for startups and growth companies that need immediate funding but want to defer equity valuation discussions. The agreement must comply with German legal requirements, including provisions of the German Civil Code (BGB), Corporate Law (AktG/GmbHG), and where applicable, securities regulations. It typically includes detailed terms about loan amount, interest, conversion rights, triggers, and price calculations, along with necessary shareholder approvals and corporate authorizations required under German law. The document is structured to protect both lender and borrower interests while ensuring enforceability under German jurisdiction.
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1. Parties: Identification of the Lender(s) and Borrower with full legal details as required under German law
2. Background: Context of the loan and intended purpose, including company's business and funding requirements
3. Definitions and Interpretation: Key terms used throughout the agreement, including financial definitions and technical conversion terms
4. Loan Amount and Drawdown: Specification of the loan amount, currency, 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 repayment date and early repayment provisions
7. Conversion Right: Terms of conversion, including conversion price, timing, and mechanics of the conversion process
8. Conversion Mechanics: Detailed process for executing the conversion, including notices and documentation requirements
9. Representations and Warranties: Standard and transaction-specific representations and warranties from the Borrower
10. Undertakings: General and specific covenants of the Borrower during the loan term
11. Events of Default: Circumstances constituting default and consequences thereof
12. Anti-dilution Protection: Provisions protecting the Lender's conversion rights from dilution through corporate actions
13. Notices: Format and method of delivering formal notices under the agreement
14. Governing Law and Jurisdiction: Confirmation of German law application and jurisdiction for disputes
1. Security: Details of any security or collateral for the loan - include if the loan is secured
2. Guarantee: Terms of any guarantee provided - include if there are guarantors
3. Information Rights: Additional information and inspection rights for the Lender - typically included for larger loans
4. Tag-Along Rights: Rights of the Lender to participate in sales of shares - include if negotiated
5. Board Observer Rights: Rights to appoint board observers - include for strategic investors
6. Most Favored Nation: Provisions ensuring the Lender gets best terms offered to other convertible loan holders - include if multiple rounds anticipated
7. Subordination: Terms of subordination to other debt - include if required by senior lenders
8. Transfer Provisions: Terms governing transfer of the loan or conversion rights - include if transferability is contemplated
1. Conversion Notice: Form of notice to be provided by Lender when exercising conversion rights
2. Drawdown Notice: Form of notice for requesting loan disbursement
3. Calculation of Conversion Price: Detailed methodology and examples of conversion price calculations
4. Corporate Structure: Current cap table and corporate structure of the Borrower
5. Form of Shareholders' Resolution: Template for shareholders' resolution approving the conditional capital increase
6. Conditions Precedent Documents: List and copies of required corporate approvals and other conditions precedent
7. Anti-dilution Calculations: Examples and methodology for anti-dilution adjustments
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