AGREEMENT
This agreement ("Agreement") is entered in to as of January 1, 1997,
among Xxxxxx Xxxxxxxx ("DR") (or a corporation to be designated by her), on the
one hand, and ILX, Incorporated ("ILX") and Red Rock Collection Incorporated
("Red Rock"), jointly and severally on the other, and is made with reference to
the following facts:
A. ILX is the owner of the Los Abrigados Resort and Spa in Sedona,
Arizona) the "Hotel"). Red Rock is a wholly-owned subsidiary of ILX and is
engaged in the business of manufacturing and selling personal care products
utilizing natural ingredients indigenous to the Sedona area and which is
marketed utilizing a Sedona theme, including, at the Hotel. Red Rock is seeking
to expand the marketing and sales of its product line through various
distribution channels including sales through its resort properties, sales to
other properties, direct sales, radio advertising, television infomercial
advertising and buying clubs.
B. Red Rock is seeking the services of DR to act as a spokesperson for
Red Rock's products and is desirous of acquiring certain personal care products
and video materials owned by DR for use in Red Rock's product line.
It is now agreed among the parties as follows:
1. SERVICES. Red Rock hereby engages DR to promote and endorse Red
Rock's line of face, body, bath and hair products ("Red Rock Line"). This
Agreement shall not cover any makeup or accessories unless specifically agreed
upon in writing by the parties.
DR's services shall consist of:
+ approximately two promotional appearances per year at the Hotel;
+ a limited number of radio spots;
+ a limited number of newspaper and magazine advertisements;
+ one or more (if agreed to by DR) television infomercials;
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+ such additional reasonable promotional services as may mutually
determined and approved by DR.
All services of DR hereunder shall be rendered at the Hotel, except
that certain production services in connection with the production of
advertising materials may be rendered in Las Vegas or Los Angeles. DR shall not
be required to travel to other locations to promote the Red Rock line. DR's
services shall not exceed two weeks per year. It is anticipated that DR shall
render such services during two visits to the Hotel for approximately one week
each during each year of the Term. During each such visit, advertising materials
may be produced and/or updated, if necessary, and DR will make one personal
appearance on behalf of the Red Rock Line. DR's services hereunder shall at all
times be subject to her availability, including her responsibilities at the
Xxxxxx Xxxxxxxx Hotel & Casino and her live performing, and motion picture and
television engagements.
2. APPROVALS. DR shall have approval of all of her services hereunder
and all aspects of Red Rock's promotional campaign utilizing her name, voice or
likeness (the "Campaign"), including all personal appearances, all print
advertisements, all radio and television advertising, all other marketing and
advertising materials and of the media, method and duration in which such
advertising and marketing occurs. DR shall have the right to utilize Xxxx Xxxxxx
("TF") to produce all infomercial and radio spots and subject to DR's approval
rights, TF shall have creative control thereof. DR shall also have the right to
designate TF to consult with Red Rock from time to time on her behalf as to
other matters hereunder. The parties shall consult on an ongoing basis with
respect to the creation and development of the Campaign and the utilization of
DR in connection therewith. DR shall have the right to designate TF to assist
and supervise in the development and implementation of the Campaign.
3. TERM. The Term of this Agreement shall be five (5) years, commencing
on the date hereof, subject to earlier termination as provided herein and
subject to extension upon mutual agreement of the parties.
4. TERRITORY: The United States (the "Territory").
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5. ROYALTIES. DR shall receive a royalty (the "Royalty") of fifteen
percent (15%) of all gross revenues received or credited to the account of Red
Rock (or any related entity) from any and all sales of any and all products
included in the Red Rock Line ("Products") during the Term hereof and for the
three-month period following the Term, less a reasonable allowance for returns,
not to exceed ten (10%) of gross revenues, with no other deductions whatsoever.
If after the first 6 months of the Term is its apparent that such reserve for
returns is inadequate to cover actual returns, then such reserve shall be
adjusted upwards, but not higher than fifteen percent (15%) and such reserve
shall be reduced if it is apparent that a lower reserve would be adequate to
cover actual returns on an ongoing basis, but not below five percent (5%). The
unused portion of any allowance for returns shall be liquidated and payment made
based thereon to DR within six (6) months. Notwithstanding the foregoing, DR
shall not be paid the Royalty on (i) sales of Products by Red Rock to ILX for
use as give away "premiums" to prospective time share purchasers or for use as
hotel amenities (i.e., sample size containers provided in hotel guest rooms) at
hotels owned by ILX, or (ii) limited quantities of sample Products given away
(and not sold) by Red Rock for the purpose of promoting the Red Rock line to
potential customers such as other hotels, retailers and the like ("Excluded
Sales"). No other sales or other distribution of Products by Red Rock, ILX or
any related entity shall be Excluded Sales.
6. ACCOUNTINGS/AUDITS. DR shall receive bi-monthly accounting
statements within twenty (20) days of the expiration of each calendar monthly
period detailing all sales, the gross revenues received by or credited to Red
Rock (or any related entity) all return allowances, any unused return allowance
from prior periods, all Excluded Sales and the amount due DR for such accounting
period. Each accounting statement shall be accompanies by payment of the amount
due DR for such period. DR shall also receive on a quarterly basis, within
twenty (20) days of the expiration of each calendar quarter a statement
detailing all sales and returns on a Product by Product basis.
Red Rock shall maintain accurate books and records concerning all sales
and returns of Products made by Red Rock (or any affiliated entity) at its
principal office and DR shall have the right at any time upon not less than ten
(10) days prior notice to inspect the books and records of
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Red Rock to verify the accuracy thereof. In the event that as a result of any
such inspection it is determined that an accounting statement provided to DR
contains a discrepancy in the amount due DR of more that five percent (5%), then
Red Rock shall pay for cost of such audit.
7. MINIMUM ROYALTIES. DR shall have the right to terminate this
Agreement if DR has not received the following minimum royalties during the
following applicable period:
+ Commencement through end of second year to Term: $350,000
+ Third and each succeeding year of Term: $250,000
8. RED ROCK STOCK. As an inducement to DR to enter into this Agreement,
upon execution hereof ILX shall irrevocably transfer ownership to DR or her
designee of ten percent (10%) of the issued and outstanding stock of Red Rock
("DR Percentage"). ILX and Red Rock warrant that there is only one class of
stock outstanding. Immediately prior to the transfer of said shares, all
existing intercompany debt owed by Red Rock to ILX shall be converted to a
contribution to capital by ILX such that no intercompany debt shall exist at the
time of the transfer. DR's percentage shall be based upon the total number of
Red Rock shares issued and outstanding after taking into account any additional
shares issued or to be issued in respect of such ILX capital contribution.
Within sixty (60) days following the transfer of shares to DR, ILX
shall "spinoff" thirty percent (30%) of the issued and outstanding shares of Red
Rock to the existing ILX shareholders. ILX shall then undertake to promptly
register Red Rock shares with the SEC with a view to listing Red Rock on NASDAQ
as soon as all requirements for listing are met. Either as part of the aforesaid
registration or by separate registration, and upon the advice of Red Rock's
underwriters, Red Rock shall undertake an initial public offering ("IPO") of
$2-5 Million Dollars. The DR Percentage shall not be diluted by, or at any time
prior to, the initial IPO (but may be diluted by subsequent public offerings in
the same manner as applicable to the other shareholders). In the event the IPO
does not occur within one (1) year after the date hereof, DR shall have the
right to terminate this Agreement.
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Xxx XX shares shall be subject to a Stock Transfer Agreement to be
entered into concurrently herewith which shall contain the foregoing terms and
additional mutually acceptable terms, including a 2 year "lock up" provision and
a "buy-sell" agreement which shall provide, INTER ALIA, that DR shall be given
the opportunity to sell her shares prior to any sale of shares by Xxxxxx Xxxxxxx
(or any individual, trust or other entity related to Xxxxxx Xxxxxxx) and to
participate on an equal basis in all public and private offerings. A copy of the
Stock Transfer Agreement is attached hereto as Exhibit "A" and incorporated
herein by this reference.
Red Rock will pay for the cost of a professional valuation of both Red
Rock and the DR Percentage and DR's approval of such valuation shall be a
condition precedent to the effectiveness of this Agreement. The parties
acknowledge that the Mentor Group of Westlake Village, California has been
engaged to undertake such valuation.
9. DR OWNED PRODUCTS. Concurrently with the execution hereof, DR shall
quitclaim all of her interest in the personal care products listed in Exhibit
"B" hereof to Red Rock for the purpose of including same (either in present or
reformulated state) in the Red Rock Line. DR shall also concurrently grant an
exclusive license to Red Rock during the Term in the Territory to distribute and
sell the existing "make up and hair" videotape production featuring DR
previously delivered to Red Rock (the "Video") in the United States. The cost of
any necessary legal clearances in connection with the exploitation of the Video
shall be borne by Red Rock. Such products (together with the hairclip being
concurrently transferred to Red Rock by Xxxx Xxxxxx) and the Video shall be
considered Products hereunder upon which Royalties are payable in accordance
with the terms hereof. DR shall have approval over all manner of distribution of
the Video and advertising therefor and same shall not be edited or modified
except with DR's written approval. DR may require that any editing of the Video
be undertaken by TF. Upon expiration of the Term, all materials relating to the
Video, including the video master and all copies thereof, shall be returned to
DR.
10. EXCLUSIVITY. During the Term hereof, DR shall not authorize the use
of DR's name, likeness or identifiable voice to appear in or endorse any
"Competitive Products" in the
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Territory. "Competitive Products" shall be defined as face, body, bath and hair
care products, but excluding make up and accessories.
11. TIMESHARE. In further consideration for the services of DR
hereunder, upon execution hereof, DR shall be granted a continuing one-week
timeshare interest at the "Stonehouse" lodging at the Hotel, which shall not be
subject to any yearly dues or other costs or assessments. Concurrently herewith
and as a condition precedent to DR's obligations hereunder, ILX shall deed to DR
and record in DR's name such timeshare interest.
12. TRAVEL AND EXPENSES. At any time DR's services hereunder are
required at a location other than the city of her residence, Red Rock shall
provide first-class air transportation and hotel accommodations for two,
together with payment of all expenses, including meals, incidentals and the
like. When DR's services are required in Sedona, the accommodations shall be,
when available, the Stonehouse lodging at the Hotel (or other accommodations
acceptable to DR if the Stonehouse is not available), and DR shall be provided
with first-class meals for DR and her guest and free use of all of the Hotel's
facilities and services. DR shall be provided with first-class ground
transportation (limousine if requested) to and from all airports, locations
where her services may be rendered and at all other times when desired by DR
while at a location.
13. HAIR STYLIST AND MAKE UP ARTIST. Red Rock agrees to utilize and pay
customary rates for DR's designated hair stylist and make up artist for all
services hereunder.
14. LEGAL FEES. Red Rock agrees to reimburse DR for all legal expenses
incurred in the review of any registration statements or other similar public
filing prepared by ILX and Red Rock, as contemplated hereunder. In addition, Red
Rock agrees to pay directly or reimburse DR for legal fees incurred in the
preparation, review and negotiation of this Agreement, and the related
agreements being executed concurrently herewith, not exceeding Twenty Thousand
Dollars ($20,000.00).
15. UNION SIGNATORY. Red Rock agrees that all television or radio
commercials produced hereunder shall be produced in a manner consistent with the
Union having jurisdiction
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over same, and subject to all the terms and conditions of the applicable Union
Agreement. The production company involved shall be a Union Signatory. Red Rock
shall pay any minimum amounts required to be paid pursuant to such Union
Agreement to DR and in respect of pension, health and welfare contributions.
16. NO ASSIGNMENT. Red Rock shall not have the right to assign this
Agreement or its rights without DR's prior written approval.
17. BREACH. In the event of a breach hereof by Red Rock, DR shall have
the right to terminate this Agreement unless the breach is cured within fifteen
(15) days after Red Rock's receipt of notice thereof from Lender. Said notice
shall be five (5) business days with respect to payments hereunder. Upon any
termination of this Agreement, there shall be no further use or dissemination by
Red Rock of DR's name, voice or likeness, including, but not limited to, in or
in connection with any advertising, marketing or promotional materials or
products.
18. INDEMNIFICATION. Red Rock agrees to defend, indemnify and hold DR
and her representatives from and against any claims, losses, suits, liabilities,
obligations, costs and attorneys' fees which DR or DR's representatives may
suffer as a result of any actions (including, without limitation, consumer
actions) stemming directly or indirectly from DR's participation on behalf of
Red Rock, including, without limitation, any product liability claims, errors
and omissions claims, claims by competitors or governmental authorities.
19. INSURANCE. ILX and Red Rock shall name DR as an additional insured
on each of their product liability insurance policies, general liability
insurance policies and errors and omissions insurance policies. Said policies
shall initially be in an amount not less than One Million Dollars ($1,000,000)
per person and Five Million Dollars ($5,000,000) per occurrence, but shall be
raised to Two Million Dollars ($2,000,000) per person and Ten Million Dollars
($10,000,000) per occurrence on the earlier of the IPO or the commencement of
the second year of the Term. Such policies shall be maintained by Red Rock in
effect during the Term and for two (2) years thereafter. Said policies shall
further provide that DR will receive at least thirty (30) days advance notice of
termination of such insurance. Prior to the dissemination of any
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commercials or other productions utilizing DR's name, voice or likeness, DR will
be provided with Certificates of Insurance with respect to such insurance. A
breach by Red Rock of this paragraph shall be a material breach of this
Agreement giving DR the right to terminate and to seek injunctive relief,
without limitation of any other remedies.
20. CHANGE OF CONTROL. DR shall have the right to terminate this
Agreement and her further obligations hereunder if Xxxxxx X. Xxxxxxx shall cease
to be the Chairman and Chief Executive Officer of ILX and Red Rock, as well as
the controlling shareholder of ILX and, if and when Red Rock is no longer a
subsidiary of ILX, Red Rock.
21. NOTICES. All notices, payments and statements given hereunder shall
be mailed, postage pre-paid, hand-delivered or, in the case of notices which do
not involve payment or an accounting statement, telefaxed. Notices shall be
effective on the third day after the date of mailing by United States mail or on
the date of telefax or hand delivery. Notices to the parties shall, until
further notice, be sent to the following addresses:
DR: RED ROCK/ILX
c/x Xxxx & Xx Xxxxx Company Red Rock Incorporated
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000 0000 Xxxxx 00xx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000 Xxxxxxx, Xxxxxxx 00000
Attention: Xx. Xxxxx Xx Xxxxx Attention: Xxxxxx X. Xxxxxxx
WITH COPY TO:
Xxxxxxxxx, Lopez, Lange, Xxxxxxx & Cuddy
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx, Esq.
22. GENERAL. This Agreement sets forth the entire Agreement between the
parties and supersedes all other written or oral agreements of the parties
relating to the subject matter hereof. This Agreement cannot be modified,
altered or amended except by an agreement in writing signed by each of the
parties. The failure of either party to this Agreement to object or take action
with respect to breach of this Agreement shall not be construed as a waiver said
breach or any future breach hereof. This Agreement shall be construed and
interpreted in accordance with
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the laws of the State of California, applicable to agreements to be executed and
performed therein. If either party initiates legal action to enforce this
Agreement, the prevailing party shall be entitled to recover, in addition to
such other relief as may be granted, all reasonable attorneys' fees and costs
incurred in connection with such litigation. Headings are for the convenience of
the parties and should not be used to construe meaning. This Agreement may be
executed in counterparts with some legal effect as if each party had signed the
same copy.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the dated first indicated above.
RED ROCK INCORPORATED
/s/ Xxxxxx Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------- ---------------------------------
XXXXXX XXXXXXXX
Its: CHIARMAN
--------------------------------
ILX INCORPORATED
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Its: CHAIRMAN
--------------------------------
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