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Description and Rationale of
Royalty Issuer Assured Return

The REX-RIAR (Royalty Issuer Assured Return) website calculator is a new, dramatically different and greatly improved analytical tool for both investors and royalty Issuers to use in analyzing the impact of negotiable contract terms.
There can be user entered data re: the amount of money to be invested, the period of the investment and royalty entitlement, the Issuer's Projected Revenues as estimated or based on a projected Compound Annual Growth Rate in various periods, the estimated Pre and Net After Tax (NAT) profit margins, the Price/Earnings Ratio (P/E) which was estimated to be appropriate if the company's shares were publicly traded, the "Business Value" (without consideration of debt) which would occur if the NAT was multiplied by the P/E, the multiple of investor cost to be assured in a specific period and the different royalty rates to be applied depending on whether the royalties were periodically distributed to investors or credited to the investor's account but retained until maturity of the contract by the royalty issuing company.

Now, using our newly developed Royalty Rate of Return or RRR calculator, the user can enter values for the “Fixed Return”, as estimated by the user, of the expected return which will be received as a result of reinvesting the monies received quarterly from royalty payments. The RRR will always exceed the IRR, as calculated using the same projected revenues, as the inherent benefit of the quarterly royalty distribution approach is now measurable. Fiduciaries, professionally investing other people’s money, will be especially interested in this new analytical tool.

In a royalty transaction we recommend both investor protections and an Issuer redemption right, terminating the royalty are included. The redemption right is at an agreed value, including the cumulative amount of royalties paid. The investor protections include: an investor's right, but not obligation, to require, at the end of an agreed period, the return of the amount invested, less the cumulative value of the royalties paid, terminating the royalty. Also, that all revenues be deposited in investor approved banks, that royalties be paid at the time of revenue receipt (and either distributed to investors quarterly or credited to investors but retained by the company), that controlling owners personally attest that the royalty issuing company is in royalty payment contractual compliance with investors and finally that critical assets of the company are placed under the control of an agreed party, which exclusively licenses the company to use, without cost, those assets for so long as the company is in compliance with its obligations to the royalty investors.

The basic premise or our approached to using the sale of a percentage of a royalty issuing company's revenues, to create additional working capital, which would otherwise have to be borrowed or be acquired by the dilutive sale of equity, is that the safer the investor's capital the better the terms of the deal which can be justified and negotiated for the royalty issuer.

The sale of a royalty versus the sale of equity will be found compelling by the business owner truly believing in the projected revenues and profits. The benefit of their avoiding significant equity dilution, by the payment of a royalty for the use of business expanding capital, especially a royalty which can be redeemed, is obvious.

The royalty investor benefit of increasing revenues is in receiving increasing cumulative income irrespective of the royalty issuing company's level of reported profit.

Newly, conceived and developed is an A and B approach in which the A royalties are distributed as has previously been agreed and recommended and the B are royalties which are credited and retained by the royalty issuer until maturity of the royalty agreement. Due to the ability of the royalty issuing company to improve its profit margin by having increased working capital for the period of the royalty there will be a willingness to pay a higher royalty rate for the retention of the royalty payments. Of course, royalty issuers will be able, on pre-agreed terms, to redeem their royalties, therefore terminating their payment obligations. I believe that a lot of both investors and issuers will find the new approach of credited royalties attractive.

The REX-RIAR approach is likely to become a standard as it can be negotiated to be a win/win for both parties.



Arthur Lipper, Chairman
British Far East Holdings Ltd.
Chairman@REXRoyalties.com
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