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The Performance Guarantee Agreement is a crucial document in German commercial practice, particularly used in large-scale projects and significant commercial transactions. It serves as a risk mitigation tool where one party (typically a bank) guarantees the performance obligations of another party under a separate underlying contract. The document is structured according to German legal requirements, particularly the German Civil Code (BGB) provisions on guarantees (§§ 765-778) and banking regulations. It specifies the guarantee amount, conditions for demands, payment terms, and validity period. This type of agreement is especially important in construction projects, international trade, and major commercial contracts where parties seek security for performance obligations. The guarantee can be either conditional or unconditional, depending on the agreed terms, and typically includes specific procedures for making demands and obtaining payment.

1. Parties: Identification of the Guarantor (typically a bank or financial institution), the Beneficiary, and the Principal Debtor

2. Background: Context of the underlying obligation being guaranteed, reference to the main contract, and purpose of the guarantee

3. Definitions: Definitions of key terms used throughout the agreement, including 'Guaranteed Obligations', 'Guarantee Amount', and 'Expiry Date'

4. Guarantee: Core section detailing the scope of the guarantee, maximum amount, and nature of the guarantee (unconditional/conditional)

5. Duration and Validity: Term of the guarantee, including effective date, expiry conditions, and any extension provisions

6. Demands Under the Guarantee: Process and requirements for making valid demands under the guarantee, including form and timing requirements

7. Payment Obligations: Terms of payment, currency, timing, and method of payment upon valid demand

8. Representations and Warranties: Basic representations by the Guarantor regarding capacity and authority to issue the guarantee

9. Reduction and Release: Conditions under which the guarantee amount may be reduced and when the guarantee will be released

10. Governing Law and Jurisdiction: Specification of German law as governing law and jurisdiction for disputes

11. Notices: Communication requirements and contact details for all parties

12. Miscellaneous: Standard boilerplate provisions including severability, amendments, and entire agreement clauses