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Royalty Agreement

Royalty Agreement

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Date: 8/10/2011
Industry: Communications Equipment     Sector: Technology

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           THIS ROYALTY AGREEMENT (the “ Agreement’ ) is entered into and effective July 1, 2011 (the “Effective Date”), by and between SECUREALERT, INC., a Utah Corporation (“ Grantor ”), with its principal executive office located at 150 West Civic Center Drive, Suite 400, Sandy, Utah 84070, and BORINQUEN CONTAINER CORPORATION (“ Grantee ”), with a principal mailing address of P.O. Box 364744, San Juan, Puerto Rico 00936~4744. Grantor and Grantee are also referred to individually as a “ Party ” and collectively as the “ Parties .”




           WHEREAS, Grantee is the owner of all of the issued and outstanding shares of stock (the “ ISS Shares ”) of International Surveillance Systems, Inc., a Puerto Rico corporation (“ ISS ”);


           WHEREAS, the Parties have entered into an Exclusive Distribution Agreement ( herein referred to as the “ Distribution Agreement “) that grants ISS the exclusive right to promote, market and sell certain Products and Services within the Territory (as defined in Section 1 below);


           WHEREAS, Grantor has agreed to acquire from Grantee and Grantee has agreed to sell to Grantor all of the ISS Shares under that certain agreement of even date herewith (the “ Purchase Agreement ”), and


           WHEREAS, as part of the consideration to be paid to Grantee under the Purchase Agreement, Grantor has agreed to grant certain royalties to Grantee under the terms of this Agreement.


           NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and good and valuable consideration between the Parties, the adequacy of which is hereby acknowledged, the Parties agree as follows:






Products . “ Products ” shall mean electronic location monitoring devices used or provided by Grantor in its business using Grantor’s intellectual property.




Services . “ Services ” shall mean services relative to the monitoring, maintenance and repair of the Products.




Territory . As used in this Agreement, the term “ Territory ” is defined in the attached Exhibit A .






Net Revenues .  As used in this Agreement the term “ Net Revenues ” shall mean gross revenues of Grantor (or any of its subsidiaries) derived within the Territory from the sales and/or lease of any and all electronic monitoring equipment and/or required monitoring center tracking services, and/or any other right to use the Products, less and limited to only those fees and/or commissions paid to independent sales or other third-party sales/monitoring agents within the territory. “Net Revenues” explicitly excludes Grantor’s direct monitoring costs or expenses, which will not be in any way considered or deducted from the calculation of Net Revenues.












Royalty Granted . Grantor hereby grants to Grantee, and Grantee hereby accepts, the right to receive twenty percent (20%) of the Net Revenues, (the “ Royalty ”). These Royalties shall be paid not later than the fifteenth (15 th ) day of the following month and will be determined on the basis of the Net Revenues received the preceding month.




The Grantor, at its option, may pay the Royalty payments to the Grantee in cash or shares of Grantor’s Series D Convertible Preferred stock, valued at $500 per share, or an equivalent number of shares of Common Stock of the Grantor (at a price of $0.083 per Common Stock) from inception of this Agreement, until such time as the Grantor achieves positive cash flow, determined under Generally Accepted Accounting Principles (GAAP). However, the Grantor is required to pay the Royalty payments in cash upon achieving quarterly positive cash flow determined under GAAP.






Grantor shall deliver to Grantee throughout the term of this Agreement monthly reports indicating the Net Revenues received and the Royalties payable each month in connection with such Net Revenues.




Grantee and its representatives shall have the right at its own expense, on not less than five (5) business days notice to Grantor, to examine and audit Grantor’s books and records with respect to the determination of the Royalty and any other fees payable to Grantee hereunder, and, at Grantee’s sole cost and expense, Grantee shall have the right to copy and duplicate such information as Grantee may require. In addition, if Grantee requests, Grantor shall deliver to Grantee, within five (5) business days following Grantee’s request therefore, a certificate from Grantor’s Chief Executive Officer or Chief Financial Officer certifying the accuracy of the information delivered by Grantor to Grantee. If any such audit discloses that the actual amount due to Grantee hereunder exceeds the amount paid, Grantee shall give written notice thereof to Grantor, including the calculations showing the amounts due to Grantee (the “Deficiency Notice”) and Grantor shall, within five (5) business days after receipt thereof, pay to Grantee all such additional Royalties and other fees due to Grantee. If the unpaid Royalties and other fees due as disclosed in such audit exceed the amount of the Royalty originally paid to Grantee by more than the greater of (i) $50,000 or (ii) two (2%) percent of the amount originally paid, Grantor shall also then pay the cost of such audit and examination wi

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