Convertible Promissory Note Purchase Agreement for Germany

Convertible Promissory Note Purchase Agreement Template for Germany

A German law-governed Convertible Promissory Note Purchase Agreement is a sophisticated financing instrument that combines elements of debt and potential future equity investment. This agreement documents the terms under which investors provide funding to a company in the form of convertible notes, which initially represent debt but can convert into equity under specified conditions. The document incorporates specific German legal requirements, including notarization where required, and addresses both civil law (BGB) and corporate law (GmbH-Gesetz or AktG) considerations. It details conversion mechanisms, interest calculations, maturity dates, and investor rights while ensuring compliance with German securities and financial regulations.

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What is a Convertible Promissory Note Purchase Agreement?

The Convertible Promissory Note Purchase Agreement is a critical financing document used primarily by growth-stage companies seeking to raise capital while deferring company valuation discussions. Under German law, this agreement requires careful structuring to comply with both debt instrument regulations and corporate law requirements regarding future share issuance. The document typically comes into play during bridge financing rounds or when companies need quick access to capital before a larger equity financing round. It outlines the terms of the investment, including the principal amount, interest rate, maturity date, conversion triggers, and conversion price or discount rate. The agreement must specifically address German legal requirements such as notarization for certain corporate actions, form requirements under the Civil Code (BGB), and specific corporate law provisions depending on whether the issuer is a GmbH or AG. This document is particularly valuable for companies that anticipate a significant upside in valuation in the near term but need immediate funding.

What sections should be included in a Convertible Promissory Note Purchase Agreement?

1. Parties: Identification of the issuing company and the investor(s)

2. Background: Context of the agreement and purpose of the investment

3. Definitions: Key terms used throughout the agreement, including financial and conversion-related definitions

4. Purchase and Sale of Notes: Core transaction terms including purchase price, closing conditions, and mechanics

5. The Notes: Fundamental terms of the notes including principal amount, interest rate, and maturity date

6. Conversion Rights: Terms governing conversion, including conversion price, mechanisms, and timing

7. Automatic Conversion: Circumstances triggering automatic conversion, typically including qualified financing

8. Company Representations and Warranties: Company's statements about its legal status, authority, and business condition

9. Investor Representations and Warranties: Investor's statements about investment capacity and sophistication

10. Information Rights: Investor's rights to receive company information and financial statements

11. Events of Default: Circumstances constituting default and corresponding remedies

12. Miscellaneous: Standard legal provisions including notices, amendments, and governing law

What sections are optional to include in a Convertible Promissory Note Purchase Agreement?

1. Most Favored Nation: Optional provision ensuring investors receive the benefit of better terms offered to future investors

2. Pre-emptive Rights: Optional rights for investors to participate in future financing rounds

3. Board Observer Rights: Optional rights for investors to attend board meetings as observers

4. Registration Rights: Optional rights related to future public offering registration, relevant for larger investments

5. Subordination: Optional provisions regarding ranking of the notes relative to other debt

6. Co-Sale Rights: Optional rights to participate in sales of company shares by other shareholders

What schedules should be included in a Convertible Promissory Note Purchase Agreement?

1. Form of Note: The formal promissory note document template

2. Capitalization Table: Current and post-conversion capital structure of the company

3. Investment Amounts: Details of investment amounts and payment schedules if multiple investors

4. Conversion Calculations: Detailed methodology and examples of conversion calculations

5. Corporate Documents: Relevant corporate resolutions and authorizations

6. Disclosure Schedule: Exceptions to company representations and warranties

7. Form of Accession Agreement: Template for additional investors to join the agreement if applicable

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

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Negotiable Instrument Promissory Note

A German law-governed financial instrument containing an unconditional promise to pay a specified sum, which can be transferred between parties and is regulated under the Wechselgesetz.

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What is a Convertible Promissory Note Purchase Agreement?

What sections should be included in a Convertible Promissory Note Purchase Agreement?

What sections are optional to include in a Convertible Promissory Note Purchase Agreement?

What schedules should be included in a Convertible Promissory Note Purchase Agreement?

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Alex Denne

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