An amended and restated pledge agreement is a contract to modify an existing contract of pledge. A pledge agreement or a contract of the pledge as it is commonly called is an arrangement between the pledger and the creditor, wherein a personal possession of the pledger is transferred to the creditor in lieu of the loan borrowed. Such a contract acts as security for the lender and reduces financial risk. Such a contract can also be on a tripartite basis. For example, the holding company can pledge its properties to the lender to enable the subsidiary to avail loans. If the parties wish to carry out modifications in the same, then an amended and restated pledge contract is drawn up.
Purpose of An Amended and Restated Pledge Agreement?
An amended and restated contract of pledge, as the name suggests captures the alterations made in the original agreement and restates the terms. It serves the purpose of having a definite document in writing which reflects the intention of the parties to modify the terms of the original contract. It assures both the creditors and the borrowers of their rights and obligations respectively.
Inclusions in An Amended and Restated Pledge Agreement?
Apart from the modified terms of the original contract, an amended contract of pledge also needs to include standard boilerplate clauses. These clauses become all the more important, this being like an amendment agreement. Hence, terms such as dispute resolution, severability, waiver, and remedies should necessarily be included. Caution be to draft the entire agreement clause carefully, as this along with the original contract would be read as the whole agreement.
Key Terms of An Amended and Restated Pledge Agreement?
The key terms of an amended and restated pledge contract are:
- Recitals: Recitals explain the background of the agreement and hence form an important part of any amended and restated agreement. This clause will refer to the original contract and help in understanding the intent of the parties.
- Alterations in definitions: As this is a contract for modification, certain new terms may be introduced. Any definitions associated with such changes need to be captured. Alterations of existing definition also need to be captured.
- Security: Any alteration in the security provided needs to be captured.
- Effective date: The date when the changes are to take place needs to be mentioned in the contract.
- Modification of rights and obligations: Any modification in rights and obligations need to be captured in the contract.
Drafting of An Amended and Restated Pledge Agreement?
The following guidelines need to be followed for the drafting of an amended and restated contract of the pledge:
- References to the original contract need to be included.
- Representations and warranties if any given in the amended contract’s context or in the context of any new term, need to be included.
- Duration of the agreement needs to be mentioned clearly and so does the date of implementation.
- All technical jargons newly included need to be included in the definitions.
- Any re-negotiated terms should also be captured. For example, if a one-sided indemnity clause is sought to be made mutual in the amended agreement, then the same should be done.
Benefits of An Amended and Restated Pledge Agreement
Following are the benefits of an amended contract of the pledge:
- Gives an opportunity to the parties to renegotiate the terms of the original contract.
- In the event the given security is inadequate, such a contract helps the parties to add new security interests as well.
- Redemption terms and timelines may also be re-negotiated in the event of pre-payment. The scope for amendment assures the debtor on this ground.
- Having a written agreement which captures the modifications with the consent of both the parties reassures both the borrower and the creditor.
Cons of An Amended and Restated Pledge Agreement
Following are the cons of an amended pledge agreement:
- The disparity in the negotiation power of the two parties may lead to discriminatory modifications.
- Having the power to modify the pledge agreement may enable the creditor to impose more onerous terms.
- The timeline for redemption may be reduced.
- Frequent amendments may destroy the essence of the agreement.
- An amendment agreement which is not carefully drafted may affect the rights and obligations of the parties adversely.
An amended and restated pledge agreement helps the parties capture modified terms and hence, prevents a contract from becoming redundant. Being a contract which is purely the product of negotiations based on mutual consent, disputes seldom arise. However, if they do then they should preferably be settled through mediation or arbitration.
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