This review list is intended to educate you on the subject of this document and to guide you in its preparation. Royalty recipients are frequently unaware of the value of a pledge in securing financing. Several such transactions have been completed, and you, too, can participate on either side of the transaction. Because payments are made by a third party, it is quite simple to perfect the interests in favor of the Secured Party.
- Make several copies. Each signatory should receive one. Maintain one in your transaction file.
- Additionally, you can amend the preceding agreement to require the royalty payer to pay royalties directly to the Secured Party until all obligations are satisfied. In that instance, the Royalty Payer’s name and signature should be included in the Agreement.
Pledge Of Royalties
Pledge of Royalties
_____________________, referred to as DEBTOR, and _____________________, referred to as SECURED PARTY, agree:
DEBTOR is indebted to SECURED PARTY in the sum of $______ (___________________________ & _____/100 dollars) pursuant to a promissory note dated _____________________; and in consideration of said note, and as security for the payment of said indebtedness, the DEBTOR hereby assigns, transfers to and pledges, any and all royalties and other compensation due from ______________________ to the DEBTOR.
The DEBTOR warrants and represents with respect to such royalties:
1. That the DEBTOR is the absolute owner of the right to receive such royalties.
2. That the royalties are not subject to any prior, assignment, claim, lien or security interest.
3. The DEBTOR will not make any further assignment of the collateral or create any further security herein, nor to permit his right therein to be reached by attachment, levy, garnishment or other judicial process.
4. That the payer of the royalties is not in default under its obligations to pay the same.
5. That the DEBTOR is in compliance with all of his obligations under the contract with the payer.In the event that the payer has the right to charge the account of the DEBTOR for failure to perform under the agreement, the DEBTOR shall promptly perform all of such contractual obligations.
Upon the request of the SECURED PARTY, the DEBTOR shall, at the expense of the SECURED PARTY, audit the books and records of the payer to ascertain the proper payment of the royalties. In the event that the audit results in the recovery of funds, the recovery shall first be applied to the expenses, and the surplus, if any, to the debt.
Upon the request of the SECURED PARTY, the DEBTOR shall direct the payer to pay all royalties directly to the SECURED PARTY.
DEBTOR herewith constitutes the SECURED PARTY as his lawful attorney to demand payment of the royalties, as well as bring any actions to secure payment of the royalties, or any other rights of the DEBTOR under the contract. DEBTOR shall fully and completely cooperate with the SECURED PARTY in such actions.
Should DEBTOR breach any of the warranties or obligations of this agreement the same shall be considered to be a breach of the underlying debt and shall entitled SECURED PARTY to accelerate payment of the debt.
The collateral pledged herein shall secure any and all obligations of the DEBTOR to the SECURED PARTY.
Dated: ______________________
___________________________________________
_____________________, DEBTOR___________________________________________
_____________________, SECURED PARTY
Pledge of Royalties
Review ListThis review list is provided to inform you about this document in question and assist you in its preparation. Royalty receivers rarely realize how valuable a pledge can be to secure funding. Many such deals have been done and you to can do one, on either side of the transaction. Since payments come from a third party, it is relatively straightforward to perfect the interests in the favor of the Secured Party.
1. Make multiple copies. Give one to each signatory. Keep one in the transaction file.
2. You can also modify the above agreement to provide for the royalty payer to pay the royalties directly to the Secured Party until all obligations are extinguished. In that case, the Royalty Payer should be included in the Agreement and as a signatory.
Frequently Asked Questions
What is a pledge of royalties?
A pledge of royalties is a security arrangement in which a debtor assigns and transfers any and all royalties and other compensation due from a specified payer to a secured party. This pledge serves as collateral for an indebtedness, typically evidenced by a promissory note. The debtor must warrant that they are the absolute owner of the right to receive such royalties and that the royalties are free from prior claims or liens.
What does a debtor warrant in a pledge of royalties agreement?
The debtor warrants that they are the absolute owner of the right to receive the royalties, that the royalties are not subject to any prior assignment, claim, lien, or security interest, and that they will not make any further assignment of the collateral or create any further security. Additionally, the debtor warrants that the payer of the royalties is not in default and that the debtor is in compliance with all obligations under the contract with the payer.
Can a debtor assign royalties that are already subject to a lien?
No, the agreement requires the debtor to warrant that the royalties are not subject to any prior assignment, claim, lien, or security interest. If such encumbrances exist, the debtor would be in breach of the warranty. Therefore, the debtor cannot pledge royalties that are already encumbered without violating the terms.
What happens if the payer of royalties defaults?
The agreement includes a warranty that the payer of the royalties is not in default under its obligations to pay the same. If the payer defaults after the pledge is made, it may constitute a breach of the debtor's warranty. However, the article does not specify the consequences of such a default beyond the warranty.
Is the debtor allowed to assign the same royalties to another party?
No, the debtor warrants that they will not make any further assignment of the collateral or create any further security herein. This means the debtor cannot pledge or assign the same royalties to another party while the pledge is in effect. Doing so would violate the terms of the agreement.
What is the role of the secured party in a pledge of royalties?
The secured party is the party to whom the royalties are pledged as security for the debtor's indebtedness. The secured party holds a security interest in the royalties until the debt is repaid. The agreement does not detail specific actions of the secured party beyond being the beneficiary of the pledge.
What does the debtor promise regarding judicial process?
The debtor promises not to permit their right to the royalties to be reached by attachment, levy, garnishment, or other judicial process. This is part of the warranty that the debtor will not allow the collateral to be encumbered or seized. It ensures the secured party's interest remains protected.
What is the consideration for a pledge of royalties?
The consideration for the pledge is the indebtedness owed by the debtor to the secured party pursuant to a promissory note. The pledge is made as security for the payment of that indebtedness. The agreement states that the pledge is in consideration of said note.
Does a pledge of royalties require a promissory note?
Yes, the agreement references a promissory note dated a specific date, which evidences the indebtedness. The pledge is made in consideration of that note. Therefore, a promissory note is a key component of this type of agreement.
What royalties are covered by a pledge of royalties?
The pledge covers any and all royalties and other compensation due from a specified payer to the debtor. The agreement does not limit the type of royalties, so it can include various forms of royalty payments. The exact payer is identified in the agreement.
