The Profit Participating Loan Agreement is utilized when parties seek to establish a hybrid financing arrangement that combines debt and equity characteristics. This document, governed by English and Welsh law, is particularly valuable for growth companies seeking flexible financing options or for investors looking to participate in a company's success while maintaining creditor protections. The agreement covers crucial elements including profit calculation methodologies, payment hierarchies, and risk allocation, while ensuring compliance with relevant financial services regulations and corporate law requirements.
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1. Parties: Identification and details of the lender and borrower
2. Background: Context and purpose of the loan arrangement
3. Definitions: Key terms used throughout the agreement including financial, technical and legal definitions
4. Loan Amount and Purpose: Principal amount of the loan and permitted use of funds
5. Profit Participation Mechanism: Formula and calculation methodology for profit share component
6. Interest and Payments: Base interest rate, payment terms, and calculation periods
7. Repayment Terms: Principal repayment schedule, prepayment provisions, and conditions
8. Representations and Warranties: Standard assurances from borrower regarding legal, financial and operational status
9. Events of Default: Circumstances triggering default and consequences thereof
10. Covenants: Ongoing obligations of the borrower including financial and operational requirements
1. Security: Details of any collateral or security arrangements when loan is secured
2. Guarantees: Third-party guarantee provisions when guaranteed by parent company or third party
3. Information Rights: Enhanced reporting requirements when lender requires detailed financial monitoring
4. Conversion Rights: Terms for converting loan to equity if convertible feature included
5. Change of Control: Provisions dealing with change in ownership or control of borrower
1. Profit Calculation Schedule: Detailed methodology and examples for calculating profit share component
2. Repayment Schedule: Detailed payment dates, amounts and allocation between principal and interest
3. Form of Drawdown Notice: Standard form for requesting loan disbursements
4. Security Documents: Details of security arrangements including forms of debenture or charge documents
5. Financial Covenants Schedule: Specific financial ratios, thresholds and calculation methodologies
6. Form of Compliance Certificate: Template for periodic certification of financial covenant compliance
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