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Royalty Loan Agreement Template for Canada

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Key Requirements PROMPT example:

Royalty Loan Agreement

"I need a Royalty Loan Agreement for a Canadian software company seeking $2 million in growth capital, with royalty payments of 3% of monthly recurring revenue and additional provisions for early repayment if we achieve an IPO by March 2025."

Document background
The Royalty Loan Agreement serves as a flexible financing solution for companies seeking growth capital without traditional equity dilution or fixed debt payments. This document is particularly useful for businesses with steady revenue streams but potentially variable profits, offering a more flexible repayment structure than conventional loans. The agreement, governed by Canadian law, typically includes detailed provisions for loan disbursement, royalty calculations based on defined revenue metrics, reporting obligations, and protective covenants. It's commonly used in growth-stage companies, especially in technology and natural resources sectors, where traditional debt financing might not be suitable. The Royalty Loan Agreement balances the lender's need for return on investment with the borrower's cash flow capabilities, while ensuring compliance with Canadian federal and provincial regulations regarding interest rates, securities, and financial disclosure requirements.
Suggested Sections

1. Parties: Identification of the lender and borrower with full legal names and addresses

2. Background: Context of the agreement, including the purpose of the loan and basis for royalty calculations

3. Definitions: Key terms used throughout the agreement, including financial terms, calculation periods, and relevant business metrics

4. Loan Amount and Disbursement: Details of the principal amount and how/when it will be advanced to the borrower

5. Royalty Calculations: Formula and methodology for calculating royalty payments, including the base metrics and percentages

6. Payment Terms: Timing and method of royalty payments, including minimum payments if applicable

7. Representations and Warranties: Standard and specific assertions about the business, financial condition, and authority to enter the agreement

8. Covenants: Ongoing obligations of the borrower, including financial reporting and business operation requirements

9. Events of Default: Circumstances that constitute default and consequences thereof

10. Information Rights: Lender's rights to receive financial and operational information to verify royalty calculations

11. Term and Termination: Duration of the agreement and circumstances for early termination

12. Governing Law and Jurisdiction: Specification of Canadian law as governing law and jurisdiction for disputes

Optional Sections

1. Security Interest: Include when the loan is secured by specific assets or intellectual property

2. Intellectual Property Rights: Required when royalties are calculated based on IP-derived revenue

3. Change of Control: Include when restrictions on ownership changes are needed

4. Minimum Guarantee: When there's a minimum royalty payment requirement regardless of actual revenues

5. Exit Events: Include provisions for early repayment or adjustment of terms upon sale or IPO

6. Parent Company Guarantee: When additional security through parent company backing is required

7. Environmental Compliance: For businesses where environmental regulations are significant

8. Insurance Requirements: When specific insurance coverage is required to protect the revenue stream

Suggested Schedules

1. Schedule A - Royalty Calculation Methodology: Detailed explanation of how royalties are calculated, including examples

2. Schedule B - Financial Reporting Requirements: Templates and specifications for required financial reports

3. Schedule C - Permitted Liens: List of pre-existing or permitted encumbrances on assets

4. Schedule D - Revenue Definitions: Detailed breakdown of what constitutes revenue for royalty calculations

5. Schedule E - Key Performance Indicators: Specific metrics to be tracked and reported

6. Appendix 1 - Form of Compliance Certificate: Template for periodic compliance certification

7. Appendix 2 - Payment Schedule: Template for tracking and recording royalty payments

8. Appendix 3 - Security Documentation: Forms and details of any security arrangements

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶Òõ¶ÌÊÓÆµ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Relevant legal definitions




































Clauses






























Relevant Industries

Technology

Manufacturing

Media and Entertainment

Healthcare

Biotechnology

Mining and Resources

Renewable Energy

Software and SaaS

Consumer Products

Food and Beverage

Real Estate

Agricultural Technology

Pharmaceuticals

Digital Media

Gaming

Relevant Teams

Legal

Finance

Treasury

Compliance

Risk Management

Corporate Development

Business Development

Executive Leadership

Accounting

Investment

Corporate Governance

Operations

Relevant Roles

Chief Financial Officer

Finance Director

Corporate Lawyer

Investment Manager

Treasury Manager

Financial Controller

Business Development Director

Chief Executive Officer

Commercial Director

Risk Manager

Corporate Secretary

Legal Counsel

Compliance Officer

Account Manager

Investment Analyst

Industries










Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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