A royalty payment clause specifies the terms under which one party (the licensee) compensates another party (the licensor) for the use of intellectual property, such as patents, copyrights, or trademarks. This clause typically outlines the percentage or fixed amount to be paid, the calculation method, the payment schedule, and any applicable terms or conditions impacting the payment structure, ensuring both parties agree on financial rights and responsibilities.
“Royalty Payment Date” means the date that is forty five (45) days after each Semi-Annual End Date (provided if any such date is not a Business Day, the Royalty Payment Date shall be the next following Business Day);
“Royalty Payments” means the Initial Royalty Payments and any Subsequent Royalty Payments;
“Subsequent Royalty Expiry Date” means the date that falls three (3) years after the relevant Subsequent Closing Date with respect to the funding of the relevant batch of Subsequent New Instruments; such that the “Subsequent Royalty Expiry Date” for the Subsequent Royalty Payments relating to Subsequent (1) New Instruments shall be three (3) years after Subsequent Closing Date (1) and the Subsequent Royalty Expiry Date for Subsequent Royalty Payments relating to the Subsequent (2) New Instruments shall be three (3) years after Subsequent Closing Date (2) and so on for each Subsequent Closing Date;
“Subsequent Royalty Shortfall” means in the event that the Subsequent Target Return is not achieved, the difference in US Dollars between the Subsequent Target Return and the Total Subsequent Royalty Payments relating to such Subsequent Invested Amount;
3. ROYALTY PAYMENT Initial Royalty Payment 3.1 In consideration of the Investors paying the Initial Invested Amount to the Company in accordance with Clause 2.1(a) above, the Parties agree that until the Initial Royalty Expiry Date or, to the extent Clause 3.5(a) applies, the Extended Initial Royalty Expiry Date, the Company shall pay to the Investors on each Royalty Payment Date an amount equal, in aggregate, to the product of: (a) the Royalty Rate; and (b) the Net Initial Strip Sales for the relevant Reporting Period, (the “Initial Royalty Payment”). Each Investor shall be entitled to such proportion of the Initial Royalty Payment as is set out in column (B) of Schedule 1 of this Agreement. 3.2 Each Initial Royalty Payment shall be paid by the Company to the Investors in immediately available funds by wire transfer to the Investors’ Account and receipt of the amount due into the relevant account shall constitute an effective discharge of the relevant payment obligation.
Subsequent Royalty Payment 3.6 In consideration of the Investors paying a Subsequent Invested Amount to the Company in accordance with Clause 2.1(b) above, the Parties agree that until the applicable Subsequent 14 Royalty Expiry Date or, to the extent Clause 3.10(a) applies, the applicable Extended Subsequent Royalty Expiry Date, the Company shall pay to the Investors on each Royalty Payment Date an amount equal, in aggregate, to the product of: (a) the Royalty Rate; and (b) the Net Subsequent Strip Sales for the relevant Reporting Period (the “Subsequent Royalty Payment”), separately calculated for each batch of Subsequent New Instruments (i.e. a Subsequent Royalty Payment will be payable in respect of Subsequent (1) New Instruments and a separate Subsequent Royalty Payment shall be payable in respect of Subsequent (2) New Instruments and so on). 3.7 Each Subsequent Royalty Payment shall be paid by the Company to the Investors in immediately available funds by wire transfer to the Investors’ Account and receipt of the amount due into the relevant account shall constitute an effective discharge of the relevant payment obligation.
General 3.12 No Royalty Payment shall accrue interest and no Royalty Payment shall be paid until the applicable Royalty Payment Date. 3.13 On any Royalty Payment Date, the Company shall have the right to, at its option, fund all of the Royalty Payments that are due and payable in one (1) aggregate payment to the relevant Investor (including the Initial Royalty Payment and any Subsequent Royalty Payment that is due and payable) and such payment by the Company shall be in full and final discharge of the relevant payment obligations. 3.14 All payments made by a Party hereunder shall be made by deposit of U.S. Dollars by wire transfer in immediately available funds into the applicable account. 3.15 The rate of exchange for any Net Strip Sales denominated in a currency other than US Dollars shall be the exchange rate at which the Company converted such currency into US Dollars.
The Company acknowledges cash flows related to these royalty payment plans should be operating activities based on the guidance in ASC 230-10-45-16(a) which states “cash receipts from sales of goods or services, including receipts from collection or sale of accounts and both short- and long-term notes receivable from customers arising from those sales.” Once executed, these royalty payment plans were categorized as transfers from accounts receivable to notes receivable, including the transfer of the associated reserves, if applicable. The transfers represent non-cash activity which was excluded from the activities reported in the Consolidated Statements of Cash Flows. Most repayments associated with these royalty payment plans will not begin until fiscal year 2021, in accordance with the terms of the notes receivable agreements.
2.1. Royalty Payments. Beginning on the six-month anniversary of the Purchase Price Date and continuing until such time as the Royalty Repayment Amount has been paid in full, Company will pay Investor ten percent (10%) of Company’s Net Sales on Included Products and ten percent (10%) of worldwide revenues related to upfront licensing fees and milestone payments from licensees and/or distributors, but specifically excluding licensing fees and/or milestone payments that are reimbursements of clinical trial expenses (“Royalty Payments”). Company shall pay the Royalty Payments in arrears on the tenth (10th) day of each month for the prior month. For the avoidance of doubt, the first Royalty Payment will be due on May 10, 2021.
2.2. Minimum Royalty Payment. Beginning on the six-month anniversary of the Purchase Price Date and continuing until the 12-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $250,000.00, and (b) the actual Royalty Payment amount Investor is entitled to for such month pursuant to Section 2.1 above. Beginning on the 12-month anniversary of the Purchase Price Date and continuing until the 18-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $400,000.00, and (b) the actual Royalty Payment amount Investor is entitled to for such month pursuant to Section 2.1 above. Beginning on the 18-month anniversary of the Purchase Price Date and continuing until the 24-month anniversary of the Purchase Price Date, the monthly Royalty Payment shall be the greater of (a) $600,000.00, and (b) the actual Royalty Payment amount Investor is entitled to for such month pursuant to Section 2.1 above. Beginning on the 24-month anniversary of the Purchase Price Date and continuing until the Royalty Repayment Amount has been paid in full, the monthly Royalty Payment shall be the greater of (a) $750,000.00, and (b) the actual Royalty Payment amount Investor is entitled to for such month pursuant to Section 2.1 above.
The Company will bottle and sell the whiskey held in the Special Operations Barrels (the “Special Operations Bottles”), and the Holder will receive a royalty payment of $10 for every Special Operations Bottle sold (such payments “Royalty Payments”) until the earlier of either (i) the Maturity Date or (ii) the date on which all Notes and accrued interest has been repaid. The Holders will receive Royalty Payments due hereunder on the last Business Day of each calendar quarter (each such date, a “Royalty Payment Date”) for the previous calendar quarter’s Royalty Payments due. Such Royalty Payments shall reduce the principal amount outstanding under this Note in an amount equal to the amount of Royalty Payments received by the Holder until the earlier of either (i) the Maturity Date or (ii) the date on which the amount outstanding under this Note shall have been reduced to zero pursuant to such Royalty Payments. Royalty Payments shall be made pro rata across all Notes issued under this series of Notes. In lieu of receiving the Royalty Payments with respect to any Royalty Payment Date as cash payments, the Holder may elect, by providing written notice to the Company at least 10 days prior to the applicable Royalty Payment Date, to apply the Royalty Payments to exercise, in whole or in part, the Holder’s Warrant(s) for shares of Common Stock.
Beginning in the calendar year 2021 and for each year thereafter during the Term, if the total royalties payable by the Licensee to the University pursuant to Section 10.3 of the Business Terms do not meet the Minimum Royalty Payment for that year, then Licensee shall pay to University, within [***] after the conclusion of such year, such additional amount to ensure that the total royalties paid by the Licensee to the University during such year is at least equal to the Minimum Royalty Payment. Year(s) Minimum Royalty Payment [***] [***] The annual Minimum Royalty Payment is not available for carryforward or carryback against royalties for years other than the applicable year or for other payments due under this Agreement.
“Royalty Payment Date” means thirty (30) days after the end of each calendar quarter.
Royalty Payment. Distributor shall pay Company a royalty in exchange for the above licenses (“Royalty Payments”). Royalty Payments are calculated as seven percent (7%) of any net cash proceeds received by the Distributor in relation to use of the above licenses in any form or fashion. Distributor shall issue a Royalty Payment each month. The Royalty Payment is due no later than thirty (30) days after receipt of net cash proceeds received by the Distributor in relation to is use of the above licenses. Royalty payments will be wired or deposited electronically to an account specified by Company.
(a) Royalty Payments. In further consideration of the license and rights granted to Nippon Kayaku hereunder, during the Royalty Payment Period (as defined below), Nippon Kayaku will make annual royalty payments to Adlai Nortye determined by the Net Sales of Licensed Product(s) in the Field in the Territory by Nippon Kayaku and its Affiliates and sublicensees, for the Fiscal Year multiplied by the applicable royalty rate for such portion of Net Sales (“Royalty Payment”):
(b) Royalty Payment Period. The Royalty Payments set forth in Clause 6.3(a) will be payable on a Licensed Product-by-Licensed Product basis from date of the First Commercial Sale of such Licensed Product in the Territory and shall continue to be paid in accordance with the terms of this License Agreement until the latest of: (a) the expiration of the last to expire Valid Claim of any Licensed Patent Covering such Licensed Product in the Territory; (b) the expiration of Regulatory-Based Exclusivity for such Licensed Product in the Territory; and (c) the [***] year anniversary of the date of First Commercial Sale of such Licensed Product in the Territory (the “Royalty Payment Period”).
(d) Royalty Rate Reduction. On a Licensed Product-by-Licensed Product basis, if Adlai Nortye’s royalty payment obligations under the Novartis Agreement for such Licensed Product are terminated prior to the end of the Royalty Payment Period of this License Agreement, then the Royalty Payment rate payable by Nippon Kayaku to Adlai Nortye pursuant to Clause 6.3(a) for such Licensed Product shall automatically be reduced and converted to a flat rate of [***] from the effective date of such termination of Adlai Nortye’s royalty payment obligations under the Novartis Agreement until the end of the Royalty Payment Period.
the Royalty Payments made and to be made on each Royalty Payment Date shall be, and have been, calculated by applying the Royalty Rate to the gross amount invoiced by the Company Group in respect of Sales or other dispositions of Test Strips for usage in such Allocated New Instruments by the Company Group, less the Net Sale Deductions, with a single payment (equal to each Investor’s pro rata entitlement to the Royalty Payment based on the Investor’s proportionate contribution to the aggregate Invested Amount) being made to each Investor on each Royalty Payment Date;
Royalty Payment Rights on Royalty Payment Rights Certificates The Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designation”), establishing the rights and preferences of the holders of the Series A Convertible Preferred Stock, including certain directors and officers of the Company (the “Royalty Payment Rights”). As set forth in the Certificate of Designation, the Royalty Payment Rights initially entitled the holders in aggregate, to a royalty in an amount of: ● 3% of net sales subject to a maximum in any calendar year equal to the total dollar amount of Units closed on in the Company’s 2017 private placement (the “2017 Private Placement”); and ● 5% of licensing proceeds subject to a maximum in any calendar year equal to the total dollar amount of Units closed on in the 2017 Private Placement.
In addition, in connection with completion of the 2017 Private Placement, the Company issued the placement agent royalty payment rights certificates (the “Placement Agent Royalty Payment Rights Certificates”) which grants the placement agent, and its designees, the right to receive, in the aggregate, 10% of the amount of payments paid to the holders of the Series A Convertible Preferred Stock, or the holders of the Royalty Payment Rights Certificates (the “Royalty Payment Rights Certificates”), upon the conversion of the Series A Convertible Preferred Stock into shares of the Company’s common stock. The Placement Agent Royalty Payment Rights Certificates are on substantially similar terms as the Royalty Payment Rights of the Series A Convertible Preferred Stock.
The Royalty Payment Rights Certificate obligation and Placement Agent Royalty Payment Rights Certificate obligation (the “Contingent Royalty Obligation”) was recorded as a liability at fair value as “Contingent royalty obligation” in the consolidated balance sheets as of June 30, 2022 and December 31, 2021 (see Contingent Royalty Obligation below). The fair value at inception was allocated to the royalty rights and the residual value was allocated to the preferred shares and recorded as equity.
A royalty payment is a financial compensation made to a rights holder or creator for the continued use or exploitation of their intellectual property (IP). This compensation is usually in the form of a percentage of the revenue generated from the use of the IP, such as books, music, films, patents, or trademarks. Royalties are a crucial way to ensure that creators and inventors receive a fair return on their work.
You should use a royalty payment structure in scenarios where intellectual property is being utilized by someone other than its creator or owner. This includes instances like:
Using a royalty payment mechanism helps foster innovation by ensuring creators continue to benefit from their inventions or artistic works without selling their rights outright.
When drafting a royalty payment clause, clarity and precision are crucial. Such a clause should include:
Example: “The Licensee shall pay the Licensor a royalty of 8% of net revenue from the sale of the Licensed Products on a quarterly basis, with payments due 30 days after the conclusion of each quarter.”
Royalty payment clauses are typically found in contracts that involve the use and licensing of intellectual property. These can include:
These contracts ensure that the rights holders are compensated for the use of their work while allowing others to profitably leverage their intellectual property.
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