CONVERTIBLE NOTE AGREEMENT

Seed/Series A Financing | US Series Seed / German GmbHG §5 Compliant

PREAMBLE & FRAMEWORK

This Convertible Note Agreement ("Note") is issued on [Date] by [Company Name], a [GmbH / Delaware C-Corp / Other] ("Company"), to [Investor Name / Fund] ("Investor").

Legal Basis: GmbHG §5 (German incorporation), Delaware General Corporation Law §151-158 (US convertible securities), EU Prospectus Regulation 2017/1129 (if public offer applicable).

ARTICLE 1: PRINCIPAL TERMS

1.1 Investment Amount. Investor shall invest: EUR [Amount in figures] (written: [Amount in words])

1.2 Interest Rate (Optional). This Note shall accrue interest at [X%] per annum compounded [annually / semi-annually / upon maturity], commencing [Date].

1.3 Maturity Date & Interest Accrual.

(a) If no Conversion Event occurs by [Maturity Date, typically 2-3 years], the Note shall be due for repayment;
(b) Interest accrued shall be repaid in full along with principal (per IRC §1272 - Original Issue Discount if US tax treatment applies);
(c) If Maturity occurs before Conversion, Investor shall receive either: (i) repayment of principal + accrued interest, OR (ii) automatic conversion at Maturity Valuation Cap (see Section 2.2).

ARTICLE 2: CONVERSION MECHANICS

2.1 Conversion Events. This Note shall convert into equity under the following scenarios:

(a) Equity Financing Event: Upon a Series A Round (or later) where Company raises minimum EUR [Amount] from institutional investors at a stated valuation;
(b) Change of Control: Upon acquisition of Company for minimum EUR [Amount];
(c) IPO: Upon Company public offering per Prospectus Regulation 2017/1129 (at offer price cap per Section 2.2);
(d) Maturity Conversion: Upon reaching Maturity Date if no Equity Financing.

2.2 Conversion Price Architecture. Conversion price shall be calculated using the lesser of:

Option A (Discount):
Conversion Price = Post-Money Valuation of Series A Round × [X%] discount
(Typical: 20-30% discount per Y Combinator Series Seed Documents)

Option B (Valuation Cap):
Conversion Price = Pre-Money Valuation Cap of EUR [Amount] / (Post-Money = Pre-Money + Series A Round)

Whichever is lower governs (pro-rata benefit to Note holder).

2.3 Conversion Share Class. Upon conversion, this Note shall convert into [Series A Preferred / Common Stock / Other share class] with rights identical to shares issued in the conversion round.

2.4 Anti-Dilution Protection (Optional).

☐ No Anti-Dilution: This Note is not protected against down-rounds
☐ Broad-Based Anti-Dilution: Conversion price adjusts per weighted-average formula if Company raises capital at lower post-money valuation
☐ Narrow-Based Anti-Dilution: Adjustment applies only to Series A/B sales (excludes employee options, strategic alliances)

ARTICLE 3: GOVERNANCE & INVESTOR RIGHTS

3.1 Information Rights (Pre-Conversion). Until conversion, Company shall provide Investor:

(a) Quarterly financial statements (unaudited) within 45 days of quarter-end;
(b) Annual financial statements (audited per German HGB §242 or Delaware §161) within 90 days of fiscal year-end;
(c) Notice of material business events (key hires, product launches, customer acquisitions) within 10 days;
(d) Updated cap table and investor list upon request.

3.2 Board Observation Rights (Optional).

Investor shall have the right to [attend / not attend] all Board meetings as non-voting observer, subject to customary confidentiality restrictions.

3.3 Pro-Rata Rights (Series A & Beyond). Upon any future equity financing, Investor shall have the right to invest pro-rata to maintain its then-current percentage ownership:

(a) Investor ownership % = (Shares held post-conversion) / (Total shares outstanding)
(b) If Investor does not exercise pro-rata right within 20 days, Company may offer shares to other investors;
(c) Pro-rata rights terminate upon IPO or if Investor's ownership falls below [1% / 0.5%].

3.4 Most Favored Nation (MFN) Clause (Optional).

If Company issues any other convertible note or SAFE with more favorable terms (higher discount, lower cap), this Note's terms shall automatically adjust to match the more favorable terms.

ARTICLE 4: SPECIAL CONVERSION SCENARIOS

4.1 Change of Control - Conversion or Cash-Out. Upon Company acquisition at valuation < EUR [Acquisition Threshold]:

(a) If Acquisition > Cap Valuation: Note converts at cap price; Investor receives converted share value in acquisition proceeds
(b) If Acquisition < Cap Valuation: Investor receives maximum of:
(i) 1X investment amount + accrued interest (safe minimum), OR
(ii) Pro-rata share of acquisition proceeds based on post-conversion ownership
(whichever is greater - "most favored" treatment)

4.2 Secondary Sale (Share Liquidity Event). If shareholders sell >50% of Company equity but Company remains independent:

(a) Note shall NOT automatically convert (remains outstanding debt);
(b) Investor may elect to convert at strike price or receive 1X liquidation preference.

4.3 Bankruptcy / Insolvency. Upon Company bankruptcy or insolvency proceedings per German Insolvency Statute (InsO) or US Bankruptcy Code Chapter 11:

(a) Note is treated as debt claim (senior to common equity, subordinate to secured lenders);
(b) Investor may elect to convert at Maturity Cap price or receive pro-rata dividend from liquidation proceeds.

ARTICLE 5: COMPANY OBLIGATIONS & RESTRICTIONS

5.1 Representations & Warranties (Company). Company represents:

(a) Company is duly organized and validly existing under German GmbHG / Delaware Code Title 8;
(b) This Note is the legal, valid, and binding obligation of Company, enforceable per its terms;
(c) No defaults exist under Company's other debt or financing agreements that would prohibit issuance of this Note;
(d) No encumbrances on Company assets prevent Note satisfaction.

5.2 Negative Covenants (Restrictions on Company). Until conversion or repayment, Company shall NOT:

(a) Incur additional debt > EUR [Amount] without Investor consent (except trade payables, equipment financing);
(b) Declare or pay dividends to equity holders (if conversion cap > EUR [Amount], waivable);
(c) Liquidate, dissolve, or materially alter business without Investor consent;
(d) Grant new convertible securities with more favorable terms than this Note (see MFN clause).

5.3 Notice of Conversion Events. Company shall notify Investor within 10 days of:

(a) Any Equity Financing round ≥ EUR [Materiality Threshold];
(b) Any acquisition offer or Change of Control event;
(c) Any change in Board composition;
(d) Any financing arrangements that might trigger conversion.

ARTICLE 6: TAXES & ACCOUNTING TREATMENT

6.1 Tax Characterization (US). For US tax purposes, per IRC §1272 (Original Issue Discount):

(a) If Note is issued at discount (below stated redemption price), OID accrues annually as taxable income to Investor;
(b) Company may be entitled to deduction equal to accrued OID per IRC §163 (Interest Deduction) (b) OID = (Stated Redemption Price - Issue Price) / years to maturity
(c) Investor should consult tax advisor on 83(b) election implications upon conversion (per IRC §83).

6.2 German Tax Treatment. Per German EStG §8 and Corporate Income Tax Act (KStG):

(a) Note interest is ordinary income to investor (if German tax resident);
(b) Upon conversion: investor's basis = investment amount + accrued interest + any additional consideration;
(c) Capital gains upon later sale subject to EStG §3 (German capital gains) (26-28% Abgeltungssteuer if not business activity).

ARTICLE 7: MISCELLANEOUS & GOVERNING LAW

7.1 Governing Law. This Note shall be governed by:

☐ German law (BGB) if Company is GmbH
☐ Delaware law (Delaware General Corporation Law) if Company is US C-Corp
☐ New York law (UCC §3 for promissory notes) as secondary law

7.2 Dispute Resolution. Any dispute shall be resolved by:

☐ Arbitration: German Arbitration Institute (DIS) under DIS Rules, Munich (if German company)
☐ Litigation: Delaware Court of Chancery (if Delaware C-Corp)
☐ Mediation First: 30-day good faith mediation before arbitration/litigation.

7.3 Amendment & Waiver. No modification of this Note except in writing signed by both parties. Waiver of any provision does not waive other provisions or future defaults.

CRITICAL LEGAL NOTICE: This Convertible Note is a debt instrument that converts to equity under specified events. Terms include OID tax implications, anti-dilution mechanisms, and subordination to senior debt. Company must ensure cap table accuracy and future financings honor pro-rata rights. Both parties should consult legal counsel before execution. Conversion price mechanics directly affect investor returns and company dilution.

SIGNATURE BLOCK

Date: ________________________ Location: ________________________

COMPANY: [Company Name]

By: ________________________ Signature

Name/Title: ________________________

Company Registration: [HRB / CIK Number]

INVESTOR: [Investor Name / Fund]

By: ________________________ Signature

Name/Title: ________________________

Investor Address: [Full Address]

Acknowledgment: Both parties confirm receipt of fully executed Note and understanding of all terms including conversion mechanics, tax implications, and governance rights.