This Royalty Agreement involves
Title: ROYALTY AGREEMENT
Governing Law: Delaware Date: 8/17/2012
This Royalty Agreement (the “ Agreement ”) is made and entered into as of August 15, 2012 by and between CMG Holdings Group, Inc., a Nevada corporation (“ CMGO ”) and Audio Eye, Inc., a Delaware corporation (“ AE ”) with reference to the following:
A. Pursuant to a Master Agreement dated as of June 22, 2011 as amended (the “ Master Agreement ”) between CMGO and AudioEye Acquisition Corp. (“ AEAC ”), a newly formed corporation, CMGO and AEAC agreed, among other things, that AEAC will receive from CMGO 80% of the capital stock of AE and CMGO will distribute to its shareholders in the form of a dividend 5% of the capital stock of AE (collectively, the “ Separation ”). Pursuant to the Master Agreement, CMGO will retain approximately 15% of the outstanding capital stock of AE as of the closing.
B. As a condition to the closing of the Separation (the “ Closing ”), AE and CMGO are required to enter into an agreement pursuant to which AE will pay to CMGO a royalty based on cash received by AE or its affiliates from the exploitation of AE’s technology as described below.
NOW, THEREFORE, in consideration of the mutual covenants and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CMGO and AE agree as follows:
PAYMENT OF ROYALTIES
Effective as of the Closing, AE shall pay to CMGO 10% of cash or other forms of payment or compensation received as income earned or settlements on claims, suits or judgments directly resulting from AE’s patent enforcement and licensing strategy, whether received by AE or any of its affiliates, net in either case of any direct costs incurred in pursuit of such strategy as they relate to the following: (1) United States Patent Number #7,653,544 and all continuations and continuations in-part, (2) Patent Number 7966184 and all continuations and continuations in part, and (3) Patent Number 7653544. Without limiting the generality of the foregoing, direct costs shall include attorneys’ fees and costs incurred by AE in obtaining or attempting to obtain settlement or judgments as a result of patent enforcement regardless of whether the results therefrom are successful. Said direct costs shall be calculated as to each settlement or judgment obtained and shall be deducted from the gross proceeds obtained from the specific claim, suit or judgment in which they were incurred. Amounts due hereunder shall be payable on a quarterly basis commencing with the calendar quarter in which the Closing occurs with respect to amounts collected, costs incurred or taxes accrued in such quarter. Payment shall be made within fifteen business days from the end of a calendar quarter and shall be accompanied by a statement from AE stating in reasonable detail the calculation of amounts payable.
REPORTS, BOOKS AND RECORDS; AUDIT; LATE PAYMENTS AND TAXES
2.1. Reports . Within thirty (30) days after the last day of each quarter subsequent to the Closing Date, AE shall submit to CMGO written statement (the “Quarterly Reporting Statement”) detailing with respect to the preceding quarterly period: (a) all Gross Revenue; and (b) the amount to be paid to CMGO under this Agreement based on such Gross Revenue.
2.2. Adjustments . If AE has to reverse previously recognized Gross Revenue reported under a previous Quarterly Reporting Statement, AE can claim credit on a subsequent Quarterly Reporting Statement for the same quarter it reverses the previously recognized Gross Revenue in AE’s income statement. Such credit will not exceed the amount to be paid in the then-current quarter, but the unused credit may be carried over to succeeding quarters within the same contract year.
2.3. Payment Timing . AE shall pay CMGO, on a quarterly basis, the amounts reported in the Quarterly Reporting Statement for such quarter not later than thirty (30) days after the end of such quarter.
2.4. Books and Records . AE shall maintain appropriate books of account and records with respect to Gross Revenue in accordance with generally accepted accounting principles and shall make complete and accurate entries concerning all transactions relevant to this Agreement. All such books of account and records shall be kept available by AE for no less than three (3) years after the end of each calendar year, or, in the event of a dispute between the parties involving in any way those books of accounts and records, until such time as the dispute will have been resolve, whichever is later.
2.5. Audit . CMGO shall have the right during the Term and for a period of three (3) years after the end of the calendar year, or, in the event of a dispute concerning the accuracy and/or correctness of a Quarterly Reporting Statement or any other payment made under this Agreement, until the dispute is resolved, whichever is later, through an independent public accountant or other qualified expert selected by CMGO and reasonably acceptabl