Company officials should read and consider the following information about repayment prior to submitting a proposal. Companies must agree to the disclosure of repayment information.
Contribution agreements may stipulate conditional or unconditional repayment plans.
Under a conditional repayment plan, a medium-risk, "average" project will likely have a repayment cap of 150 percent of the value of the SADI contribution, over a repayment period of 15 years.
The repayment amounts come from a royalty applied against future revenues (or the royalty base — usually the company's gross business revenues or GBR). In exceptional circumstances, the GBR of a subunit or division may be used. Note, however, that companies that choose a royalty base other than the consolidated GBR — for example, the GBR of a division — will have to provide sufficient rationale for that choice, as well as 10 years of annual operating results, so that SADI can establish the volatility and risk of the proposed royalty base.
The royalty repayment period begins during the first company fiscal year after the completion date of the research and development phase of the project. The royalty rate, to be applied against future GBR, is not established until after the completion date. At that time, when the firm's annual audited statements are available (or the audited revenue statement in the case of a division), the amount of the SADI contribution will be divided by the actual GBR multiplied by the number of years in the royalty repayment period. This will establish the royalty rate that will be in effect during the repayment period. For each subsequent repayment year, the conditional repayment amount due will be influenced by the growth of the royalty base as well as royalty adjustment factors that increase or decrease the amount owed, depending on the year-over-year growth in the royalty base. In years in which the royalty base experiences negative year-over-year growth, no repayment for that year will be due. For years in which growth falls within or exceeds pre-established amounts, the royalty due will increase by a royalty adjustment factor (for example, 1.25 times when growth is between 3 and 6 percent; 1.33 times when growth is between 6 and 9 percent; and 1.5 times when growth is more than 9 percent).
The annual royalty is due 120 days after the company's fiscal year-end. This allows sufficient time for the company to provide its annual audited statements for payment verification.
Example: SADI contribution of $10 million; SADI repayment cap of $15 million; 11 percent annual growth in GBR:
- Royalty repayment period: 15 years
- Royalty base (base-year GBR): $45 million
- Royalty rate (SADI contribution ÷ (royalty repayment period x base-year GBR)): $10 million ÷ (15 x $45 million) = 1.48 percent
- Royalty base (GBR repayment year 1): $50 million (which equals 11 percent sales growth)
- SADI royalty (royalty rate x royalty base x royalty adjustment factor: 1.48 percent x $50 million x 1.5 = $1.11 million)
The annual royalty is payable until the company achieves the repayment objective or the end of the 15-year royalty repayment period, whichever is earlier.
Unconditional repayment amounts payable per year are determined at the time of SADI's risk assessment of the applicant.
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