The Director's Loan Agreement is essential when a company extends a loan to a member of its board of directors in the United States. This document is commonly used for various purposes, including financing share purchases, supporting business development activities, or as part of executive compensation arrangements. The agreement must comply with federal regulations, including IRS requirements for minimum interest rates, and state-specific corporate laws. It requires careful structuring to avoid characterization as disguised compensation or dividends and typically needs board approval. The document includes comprehensive terms covering loan amount, interest, repayment schedule, security arrangements, and default provisions, while ensuring compliance with Sarbanes-Oxley requirements for public companies and relevant state corporate governance standards.
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1. Parties: Identifies the company and the director entering into the loan agreement
2. Background: Explains the context and purpose of the loan agreement
3. Definitions: Defines key terms used throughout the agreement
4. Loan Amount and Purpose: Specifies the loan amount and its intended use
5. Interest Rate: States the applicable interest rate and calculation method, ensuring compliance with AFR requirements
6. Repayment Terms: Details the repayment schedule, including installment amounts and due dates
7. Security: Describes any security or collateral provided for the loan
8. Events of Default: Lists circumstances that constitute default and their consequences
9. Representations and Warranties: Standard declarations by both parties regarding their capacity and authority
10. Covenants: Ongoing obligations of the director during the loan term
11. Termination: Conditions and process for early termination of the agreement
12. Governing Law: Specifies the jurisdiction governing the agreement
13. Execution: Signature blocks and execution requirements
1. Board Approval: Required for companies where board approval is mandatory for director loans
2. Tax Provisions: Special tax considerations and requirements, particularly for below-market loans
3. Employment Link: Links to director's employment terms if loan is employment-related
4. Insurance Requirements: Required when specific insurance must be maintained against the loan
5. Prepayment Terms: Include when early repayment options are allowed
6. Subordination: Required when the loan needs to be subordinated to other company debt
7. Change of Control: Provisions for what happens to the loan if company ownership changes
8. Assignment: Terms for transferring loan rights, if permitted
1. Repayment Schedule: Detailed breakdown of repayment dates and amounts
2. Security Details: Comprehensive description of any collateral or security provided
3. Board Resolution: Copy of board resolution approving the loan
4. Loan Calculations: Details of interest calculations and applicable federal rates
5. Related Party Disclosures: Required disclosures for regulatory compliance
6. Form of Promissory Note: Standard form of note evidencing the debt
7. Security Documentation: Forms and documents related to any security arrangements
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