The terms of a revenue royalty agreement typically require the company having sold a capital-raising royalty to pay to the royalty purchaser an agreed percentage of defined revenues, for an agreed period, upon the company’s receipt of the revenues.

This financing can be arranged by the company, which will be subject to an independent annual audit, the results of which will be provided to the royalty investor within an agreed period. The payment of the agreed percentage of revenues can be made directly by the company to the royalty investor or by instructing the company’s investor-approved bank to deposit in the investor’s account the agreed percentage of all amounts deposited by the company. The latter approach will require the company to establish an account at the bank specifically for receipt of all defined revenues.

The more frequent the royalty payments the higher is the royalty owner’s Internal Rate of Return (IRR) on the investment. This is important to understand because the calculation of a projected IRR only contemplates receipt of royalty payments at the end of stated periods, not as occurring earlier. The actual IRR can therefore be more favorable to the royalty owner.

We structure the terms of royalties, some of which structures are patented, to meet the needs of both investors and royalty issuers. These terms include varying royalty rates, scheduled payment, payment period maturity, issuer rights of redemption, possible payment delinquency remedies, securitization of obligations, etc. Our objective is to be fair and reasonable in recommending terms which will be equitable to all concerned.

 

Arthur Lipper, Chairman                          arthurlipper@gmai.com
British Far East Holdings ltd.