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.
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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.
_____________________, SECURED PARTY
Pledge of Royalties
This 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.