Friday, July 18, 2003

OOH, OOH, PIK ME You may find that VCs or other lenders may choose to have notes accrue "payment-in-kind interest," or PIK interest. The "in kind" feature may provide for interest under a note to be paid in stock or other securities of the Company. Here's a good discussion of how PIK can be advantagous to a VC.

But here's a practice note. Your client may ask you to prepare a note that provides PIK interest, when all he really means is compounded interest. Say, compounded quarterly. His thinking is that the interest accrues and is being paid "in-kind" but increasing the principal balance of the note by the amount of accrued interest. Sure, your client should use the work compounded if that what he means, but we all know how VCs love to use "terms of art" or other business clich├ęs.


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