The Parent Guarantee Agreement is a fundamental instrument in corporate finance and commercial transactions under German law, typically used when a subsidiary requires additional financial backing to secure contracts, loans, or other commercial arrangements. This document is essential when a beneficiary requires additional security beyond the subsidiary's own creditworthiness, particularly in significant financial transactions or long-term commercial contracts. The agreement must comply with German legal requirements, specifically the provisions of the German Civil Code (BGB) regarding guarantees, and includes detailed terms about the scope of the guarantee, enforcement mechanisms, and the guarantor's obligations. The document becomes particularly relevant in project finance, large supply contracts, or when subsidiaries enter into significant financial commitments that exceed their standalone credit capacity.
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1. Parties: Identification of the Guarantor (Parent Company) and the Beneficiary, including full legal names and registration details
2. Background: Context of the guarantee, identifying the underlying obligation and the relationship between the Parent Company, the Principal Debtor (subsidiary), and the Beneficiary
3. Definitions: Definitions of key terms used throughout the agreement, including 'Guaranteed Obligations', 'Principal Debtor', and 'Enforcement Event'
4. Guarantee and Indemnity: Core guarantee provisions, including scope of the guarantee, nature (whether conditional or unconditional), and indemnification obligations
5. Representations and Warranties: Guarantor's confirmations regarding capacity, authority, and validity of obligations
6. Preservation of Rights: Provisions ensuring the guarantee remains valid despite changes to the underlying obligation or Principal Debtor's circumstances
7. Payments: Payment mechanics, including currency, timing, and method of payment
8. Tax Gross-Up: Provisions dealing with tax deductions and requirements for gross-up payments
9. Costs and Expenses: Allocation of costs related to preparation, enforcement, and maintenance of the guarantee
10. Notices: Communication requirements and contact details for formal notices
11. Governing Law and Jurisdiction: Confirmation of German law as governing law and jurisdiction for disputes
1. Multiple Currencies: Required when guaranteed obligations are in multiple currencies, specifying conversion mechanisms and rates
2. Parallel Debt: Needed when the guarantee is part of a syndicated facility or involves multiple beneficiaries
3. Change of Control: Relevant when the guarantee needs to address consequences of ownership changes in the Guarantor or Principal Debtor
4. Limitation Language: Required when specific corporate benefit or thin capitalization rules apply to the Guarantor
5. Assignment and Transfer: Needed when either party requires rights to transfer the guarantee obligations
6. Multiple Guarantors: Required when multiple parent entities are providing guarantees, addressing contribution rights
1. Form of Demand: Template for making a demand under the guarantee
2. Guaranteed Obligations: Detailed description or list of the obligations being guaranteed
3. Corporate Authorizations: Copies of relevant board resolutions and powers of attorney
4. Principal Debtor Information: Details of the subsidiary whose obligations are being guaranteed
5. Underlying Agreement References: List or copies of the agreements containing the guaranteed obligations
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