This Royalty Financing Agreement is designed for use in Hong Kong when a company seeks alternative financing without diluting equity or taking on traditional debt. It is particularly suitable for companies with strong growth potential and predictable revenue streams but who may not qualify for conventional bank financing or prefer not to raise equity. The document structures a financing arrangement where the company receives upfront capital in exchange for agreeing to make ongoing royalty payments based on its financial performance, typically calculated as a percentage of revenue or profits. The agreement includes comprehensive provisions for payment calculations, reporting requirements, company obligations, and investor protections, all aligned with Hong Kong's legal and regulatory requirements. This financing structure is commonly used in sectors such as technology, healthcare, and consumer products, where traditional financing metrics may not adequately capture the company's potential.
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1. Parties: Identification of the financing party (Financier) and the company receiving the financing (Company)
2. Background: Context of the financing arrangement, including the Company's business and purpose of the financing
3. Definitions and Interpretation: Key terms used throughout the agreement, including financial metrics, calculation periods, and relevant business terms
4. The Financing: Details of the financing amount, disbursement conditions, and use of proceeds
5. Royalty Payments: Calculation methodology, payment frequency, currency, and basis of the royalty (e.g., percentage of revenue/profits)
6. Payment Terms: Mechanics of payment, payment dates, payment methods, and currency conversion provisions
7. Reporting and Information Rights: Financial reporting requirements, access to records, audit rights
8. Representations and Warranties: Standard and specific representations by the Company regarding its business, financial condition, and authority
9. Company Covenants: Ongoing obligations of the Company, including operational, financial, and compliance requirements
10. Events of Default: Circumstances constituting default and consequences thereof
11. Remedies: Rights and remedies of the Financier upon default or breach
12. Term and Termination: Duration of the agreement, termination events, and consequences of termination
13. General Provisions: Standard boilerplate clauses including notices, amendments, governing law, etc.
1. Security: Include when the financing is secured by specific assets or guarantees
2. Minimum Guaranteed Royalty: Include when there is a floor on royalty payments
3. Maximum Royalty Cap: Include when there is a ceiling on royalty payments or total return
4. IP Rights and Protection: Include when intellectual property is central to the revenue generation
5. Change of Control Provisions: Include when restrictions on ownership changes are required
6. Buy-out Rights: Include when early termination through buyout is permitted
7. Parent Company Guarantee: Include when parent company support is required
8. Foreign Exchange Provisions: Include when payments involve multiple currencies
9. Competition Restrictions: Include when non-compete or similar restrictions are required
1. Schedule 1 - Calculation of Royalty: Detailed methodology for calculating royalty payments, including examples
2. Schedule 2 - Form of Compliance Certificate: Template for periodic compliance certification by the Company
3. Schedule 3 - Reporting Requirements: Detailed specifications for financial and operational reporting
4. Schedule 4 - Conditions Precedent: List of conditions to be satisfied before financing is provided
5. Schedule 5 - Permitted Security: List of existing or permitted security interests
6. Schedule 6 - Form of Payment Notice: Template for royalty payment calculations and notices
7. Appendix A - Business Plan: Company's business plan and financial projections
8. Appendix B - Initial Financial Statements: Company's latest financial statements at time of execution
Authors
Relevant legal definitions
Clauses
Relevant Industries
Technology
Media & Entertainment
Life Sciences
Mining & Resources
Manufacturing
Healthcare
Consumer Products
Software
Renewable Energy
Biotechnology
Fashion & Retail
Food & Beverage
Relevant Teams
Legal
Finance
Treasury
Corporate Development
Compliance
Risk Management
Business Development
Tax
Accounting
Executive Management
Relevant Roles
Chief Financial Officer
General Counsel
Finance Director
Investment Manager
Corporate Lawyer
Treasury Manager
Financial Controller
Chief Executive Officer
Commercial Director
Risk Manager
Compliance Officer
Business Development Director
Company Secretary
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