EXHIBIT 10.7
PROLONG SUPER LUBRICANTS, INC.
SERVICE AND ENDORSEMENT CONTRACT
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This Agreement is made this 29th day of April, 1996, by and between Prolong
Super Lubricants, Inc., a Nevada corporation ("Prolong"), and Xx Xxxxx, an
individual ("Unser"). Prolong and Unser are hereinafter at times referred to
individually as the "Party" and collectively as the "Parties."
RECITALS
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A) Prolong is in the business of manufacturing and marketing lubrication
products (the "Products"). The Products currently manufactured and sold by
Prolong are set forth on Exhibit "A" attached hereto. The defined term
"Products" shall include all enhancements, improvements, modifications and
changes to the existing Products;
B) Unser is a professional race car driver and has significant celebrity
recognition arising both out of his success as a race car driver and from other
activities in which he has engaged that have added to his public recognition;
C) Prolong believes it would be in its best interest and Unser believes it
would be in his best interest for Prolong to engage Unser and to use Unser's
likeness, name, photograph, voice, signature, initials and endorsements (the
"Promotional Materials") in marketing the Products.
NOW, THEREFORE, in consideration of the foregoing Recitals and the terms
and conditions hereinafter set forth, the Parties hereby agree as follows:
AGREEMENT
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1. Services.
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1.1 Use of Promotional Materials. Unser hereby grants to Prolong the
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exclusive right and license throughout the world (the "Territory") to use his
likeness, name, photograph, voice, signature, initials and endorsements in the
promotion and sale of the Products. The Promotional Materials may be used by
Prolong in any advertising now existing or hereafter used in any and all media
forms. The Promotional Materials shall be used to promote the sale of the
Products.
1.2 Personal Services. During each 12-month period that this
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Agreement is in effect, Unser shall make himself available without charge to
Prolong for five (5) one-day appearances for functions to meet and greet the
public or for special appearances. Unser also agrees to make additional
appearances subject to the compensation as set forth herein and which may be
reasonably required to carry out the express purpose and terms and conditions of
this Agreement. Appearances
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by Unser shall consist of participation in any media or promotional events,
filming, taping or any other activity reasonably related to the marketing and
promotion of the Products. Unser agrees to act as a goodwill ambassador for
Prolong and its products and to take advantage of opportunities to talk about
and promote Prolong and its products during the course of his day-to-day
activities. As part of said promotional activities Unser agrees to wear
Prolong's apparel, including hats, shirts and jackets, when such apparel would
be reasonably appropriate based on the nature of the event when Unser is in
attendance at race car events. The duties set forth in this Section 1.2 shall
hereinafter be referred to as the "Services."
2. Availability. The dates and times when Unser shall be personally
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available to make personal appearances or to provide other services on behalf of
Prolong shall be determined by mutual agreement between the Parties. Prolong
shall make every effort to notify Unser no less than thirty (30) days in advance
of any personal appearances and Unser shall not have the right to refuse said
appearances so long as they do not conflict with any items on his personal
schedule. Unser shall use his best efforts to honor any request by Prolong to
make an appearance.
3. Approval by Unser. All printed promotional materials, printed
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advertising, press releases and any other communicative materials utilizing
Unser's photographic image, name, signature, endorsement or initials shall not
be derogatory to the image of Unser as reasonably determined by Unser and Xxxxxx
Xxxx Marketing ("BDM"), Unser's authorized agent, prior to release, publishing,
broadcasting or other dissemination. Prolong agrees to provide BDM copies of all
such materials for approval no later than five (5) days before any such release
or dissemination. BDM and Unser agree to respond promptly to every such request
for approval, but in any case shall respond no later than five (5) days after
receipt of such request for approval. If no response is received by Prolong
within such five-day period, such non-response shall be deemed to constitute
approval. Any approval to be provided by Unser shall not be unreasonably
withheld.
4. Professional Conduct. Unser hereby agrees to provide the Services
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pursuant to this Agreement in a professional manner that will reflect favorably
on Prolong and others associated with Prolong, and on the Products. Unser agrees
to use his best efforts to promote Prolong and the Products during the term of
this Agreement and will take every reasonable opportunity during the term of
this Agreement when and where reasonably appropriate to promote Prolong and the
Products. Unser agrees to conduct himself with due regard to public conventions
and morals and further agrees not to do or commit any act or thing that would
reasonably tend to derogate or detract from the goodwill of Prolong or the
Products.
5. Use of Promotional Materials. Use of the Promotion Materials shall be
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subject to approval by Unser as set forth in Section 3 above. The Promotional
Materials shall not be used in any way that would diminish the goodwill
associated therewith or in any way damage the image or reputation of Unser.
6. Term. The Promotional Materials shall be available to Prolong and the
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Services shall be provided to Prolong for a period of three (3) years, beginning
on November 1, 1996 and ending
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on October 31, 1999 subject to an option to extend for an additional four (4)
year term as set forth herein (the "Term"). On or before the 90th day prior to
the end of the third year, either Party upon notice to the other Party may
extend the Term of this Agreement for an additional four (4) years (the
"Option"). The Option period shall be governed by the express terms and
conditions as set forth in this Agreement. Prolong may terminate this Agreement
prior to the end of the Term if Unser is unable to perform the Services for any
reason or if there is a material breach of this Agreement by Unser. Any
compensation to be paid to Unser shall be prorated through the date of
termination.
7. Compensation.
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7.1 Compensation Amount. Prolong shall compensate Unser for the
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right to use the Promotional Materials and the Services by providing the
following consideration to Unser:
Percentage of Prolong Guaranteed
Year Net Retail Sales Common Stock Earnings Cap Payment
---- ---------------- ------------ ------------ ----------
1 1.5% 40,000 $100,000 $15,000
2 1.25% -- $125,000 $15,000
3 1.0% -- $150,000 $15,000
4 1.0% -- $175,000 $75,000
5 1.0% -- $200,000 $75,000
6 1.0% -- $225,000 $75,000
7 1.0% -- $250,000 $75,000
7.2 Payment Terms. The guaranteed payments set forth above shall be
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offset against any Royalties received from Net Retail Sales. The Guaranteed
Payments for years one through three shall be paid in four equal quarterly
installments each year of $3,750 each, with the payments to be made on the first
day of each calendar quarter beginning on January 1, 1997 during each 12-month
period. The Guaranteed Payments during years four through seven shall be made in
four equal quarterly installments of $18,750 each with each payment to be made
on the first day of each calendar quarter beginning on January 1, 2000 during
each 12 month period. All payments to Unser shall be made payable to BDM,
Unser's authorized representative, at 00000 Xxxxxxxxx Xxxx., Xxxxx "X", Xxxxxx,
Xxxxxxxxxx 00000.
Royalties shall only be paid at such time as the total Royalty
payments for the applicable year exceed the amount of the total Guaranteed
Payment amount for said year. For purposes of this Agreement "Royalty" shall
mean the payments based on a percentage of Net Retail Sales. "Net Retail Sales"
shall mean sales of Prolong products to end users located in the United States
or to resellers who will sell products to end users located in the United States
all of whom sell said products as "consumer goods" for use primarily for
personal, family or household purposes. Net Retail Sales shall not include the
sale of "consumer goods" sold by Prolong as a result of direct response sales
which include, but are not limited to, sales made through media advertisements
of any nature that result in product sales to customers through their response
to an advertised telephone order number such as an "800" number. Net Retail
Sales shall be equal to gross sales minus any
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charge backs, taxes, returns and allowances, shipping and handling charges,
credit card charge backs and any other deductions used to arrive at "net sales"
in accordance with generally accepted accounting principles consistently
applied.
The Royalty shall be paid on or before the twentieth (2Oth) day
following the end of each applicable quarter.
7.3 Accounting. Prolong shall submit comprehensive quarterly Royalty
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statements to BDM along with each payment to BDM. BDM and Unser shall have the
right to reasonably review and inspect all accounting documents, methods and
materials used by Prolong to record sales and earnings in order to verify
Royalty payments. BDM and Unser agree to keep confidential and secret all
information they receive from the accountings provided by Prolong and
acknowledge that such information, if disseminated to third parties, could harm
Prolong economically.
7.4 Personal Appearance Fees. For each additional one-day appearance
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by Unser, Prolong shall pay to Unser $5,000 for the first day and $3,500 for
each consecutive day thereafter. In the event that a personal appearance relates
to a charity event, Unser hereby agrees to a fee of $3,750 per day. The
foregoing personal appearance fees shall be paid on or before the 30th day
following the date of the appearance.
7.5 Infomercial Contract Offset. The Parties entered into an
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Agreement dated July 28, 1995, whereby Unser agreed to provide personal services
used by Prolong in the taping of an infomercial (the "Infomercial") for Prolong
(the "Infomercial Contract"). Unser hereby agrees that if, for any reason, the
Infomercial is discontinued at any time on or before the end of the second year
of the Infomercial Contract, the Guaranteed Payment shall be equal to the
greater of the guaranteed amount in the Infomercial Contract for the year in
which the Infomercial Contract is terminated or the Guaranteed Payment amount
pursuant to this Agreement for the year following the year in which the
Infomercial is terminated, and Unser would not be entitled to receive a
guaranteed payment amount pursuant to the Infomercial Contract. For example, if
the Infomercial Contract is terminated at the end of year 2 on July 28, 1997,
the guaranteed amount for year 3 of $60,000 would be substituted in the place of
the Guaranteed Payment of $15,000 for "year 2" of this Agreement beginning on
November 1, 1997. If the Royalty based on the Percentage of Net Retail Sales
during "year" 2" equals $55,000, the payment to Unser for "year 2" under this
Agreement would be $60,000 (the greater of the Percentage amount or the
Guaranteed Payment). No payment would be due under the Infomercial Contract.
7.6 Stock Consideration. The 40,000 shares of stock to be issued to
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Unser (the "Shares") shall be issued effective as of the date of this Agreement,
April 29th, 1996 subject to the representations and warranties and restrictions
set forth herein. The value of the Shares as negotiated by the Parties shall be
deemed to be $1.00 per Share.
7.7 BDM Stock Payment. Prolong hereby agrees to issue 10,000 shares
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of Prolong common stock (the "BDM Stock") to BDM as partial consideration for
services rendered
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by BDM relating to the Promotional Material and Services to be provided to
Prolong. The BDM stock shall be issued concurrent with the execution of this
Agreement and Prolong shall not have any obligations whatsoever to BDM for any
other costs, fees or consideration in any way relating to the subject matter of
this Agreement. The BDM Stock is also referred to hereinafter at times as the
"Shares."
7.7.1 REPRESENTATIONS OF UNSER. Unser hereby represents,
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warrants and agrees as follows:
(a) The Shares have not been registered under the Act, as amended, in
reliance upon the exemption from the registration requirements under the Act
provided in Section 3(b) as interpreted by Regulation D. The Shares have not
been registered under the California Securities Laws or under the Nevada
Securities Laws. Therefore, Unser understands that Unser must bear the economic
risk of the investment for an indefinite period of time since the Shares cannot
be offered for sale or sold without compliance with the provisions of the Act,
the California Securities Laws and the Nevada Securities Laws.
(b) Unser will not sell, assign, transfer or otherwise dispose of all
or any part of the Shares without complying with the provisions of the Act, the
California Securities Laws and the Nevada Securities Laws. In addition, the
transfer records of Prolong will be noted indicating the restrictions on
transferability and sale and the stock certificates will bear any legend
required by the California Securities Laws and the Nevada Securities Laws, as
well as the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
FEDERAL SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THAT ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
7.7.2 KNOWLEDGE OF UNSER. Unser acknowledges and is aware of the
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following:
(a) Unser has adequate means of providing for Unser's current needs
and possible personal contingencies, and has no need for liquidity of Unser's
investment in Prolong. Unser understands the highly speculative risk of
investing in the Shares and that there is a high degree of risk of loss of
Unser's entire investment or of having to hold the Shares for an indefinite
period of time.
(b) There are substantial restrictions on the transferability of the
Shares; the Shares will not be, and investors in Prolong have no rights to
require that the Shares be, registered under the Securities Act; there will be
no public market for the Shares; Unser may not be able to avail itself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities
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Act with respect to the resale of the Shares; and, accordingly, it may not be
possible for Unser to liquidate its investment in Prolong.
(c) Unser is personally familiar with and fully understands the
business operations and financial condition of Prolong, and has full access to
the records of Prolong and all information pertaining to its operations, plans
and financial condition.
(d) Unser is aware that Prolong has just been successful starting in
the first part of 1996 in creating a substantial market for and/or penetrating
markets for the sale of its products and is competing in a highly competitive
market which includes more experienced and larger companies. There can be no
assurance that Prolong or its products will be able to successfully compete with
these companies for potential customers.
(e) Unser is an investor of sufficient sophistication able to make an
informed investment decision based upon his knowledge of the business and
affairs of Prolong; the records, files and plans of Prolong, as to all of which
Unser has had full access; such additional information as Unser may have
requested and received from Prolong; and, the independent inquires and
investigations undertaken by Unser.
(f) Unser has had an opportunity to ask questions of and receive
answers from the officers and directors of Prolong, or persons acting on their
behalf, concerning the terms and conditions of this investment, and all such
questions have been answered to Unser's full satisfaction.
(g) Unser has the authority to execute this Agreement.
(h) Unser is aware that no federal or state agency has made any
finding or determination as to the fairness for public investment in, nor any
recommendation or endorsement of the Shares.
(i) Unser hereby understands that the price per share has been
determined by management of Prolong and the per Share price does not necessarily
reflect the same price that may be charged to other investors for shares in
Prolong and Unser had the opportunity to fully and fairly negotiate the purchase
price of the Shares.
(j) Unser understands that Prolong may require additional funds in
order to continue its operations and may need to raise additional capital. There
is no assurance, however, that Prolong will be successful in additional private
offerings or in obtaining the necessary underwriting or investment support to
complete a public offering as required to provide the necessary funds to
Prolong.
(k) Unser recognizes that Prolong is relying upon the representations
and warranties made in this Section 7.6.2 in selling the Shares pursuant to this
Agreement, and agrees to
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indemnify Prolong against any and all loss, damage or liability arising out of a
breach of any such representations or warranties.
7.7.3 Forfeiture of Shares. In the event this Agreement is terminated
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on or before November 1, 1997, Unser shall forfeit 32,000 Shares to Prolong and
BDM shall forfeit 8,000 Shares to Prolong. In the event this Agreement is
terminated after November 1, 1997, but on or before November 1, 1998, Unser
shall forfeit 20,000 Shares to Prolong and BDM shall forfeit 5,000 Shares to
Prolong. In the event of a forfeiture as set forth herein, Unser and BDM shall
be deemed to transfer all right, title and interest in the forfeited Shares to
Prolong as of the date of termination of this Agreement. After November 1, 1998,
the Shares shall be fully vested in Unser and BDM and shall not be subject to
forfeiture pursuant to this Section. Until the time of forfeiture, if it occurs,
Unser and BDM shall have all rights associated with all of the Shares held by
them.
7.7.4 Restriction on Transfer of Shares. Until such time as the
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Shares become fully vested, those Shares that are still subject to forfeiture
shall not be sold, transferred or encumbered in any way without the express
written consent of Prolong which may be withheld in its sole and absolute
discretion.
8. Expenses. Prolong shall pay for all reasonable expenses incurred by
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Unser associated with any personal appearances made by Unser pursuant to the
terms and conditions of this Agreement (the "Expenses"). The Expenses shall
include first-class, round-trip air transportation and reasonable costs
associated with lodging, meals and other transportation expenses incurred by
Unser in the course of making the personal appearances. Prolong shall either pay
the Expenses directly or shall reimburse Unser for the Expenses incurred by him
no later than 30 days following receipt of an accounting of the Expenses from
Unser.
9. Noncompetition by Unser. Unser agrees that he will not endorse any
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competitive products during the Term of this Agreement. The competitive products
shall be as follows: Engine treatment, transmission treatment, fuel conditioner,
penetrant spray, precision oil, engine oil and grease.
10. Confidentiality. In the course of working with Prolong in providing
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the Services as set forth in this Agreement, Unser may have access to certain
confidential information and materials which may be disclosed verbally or in
writing to Unser concerning Prolong and/or the Products (the "Confidential
Information"). Unser hereby agrees not to utilize or disclose any Confidential
Information except as required in carrying out the Services and shall take
reasonable steps to protect any public disclosure of the Confidential
Information. Unser shall, during the Term of this Agreement and at any time
thereafter, hold in confidence and not disclose to any person or entity without
the express prior written authorization of Prolong, names or addresses of any of
Prolong's customers, Prolong's past or prospective dealings with its customers;
the parties, dates or terms, if any, of Prolong's contracts; any information,
trade secrets, systems, processes or business methods, or any other secret
confidential matters relating to the customers or business affairs of Prolong or
any companies affiliated with Prolong. All written material or other property,
tangible or intangible,
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provided to Unser, or developed in conjunction with Unser, that contain
proprietary rights and materials, including copyrights therein, arising out of
or resulting from the performance of this Agreement shall belong to Prolong and
shall not be disseminated or used in any way by Unser except as expressly set
forth herein. Upon termination of this Agreement, all said materials shall be
returned by Unser to Prolong. Such information and materials shall not include
any general marketing information or other materials or information that is
generally known by or has been disseminated to the public.
Prolong's rights and interests (including all rights of copyright print) in
and to the Promotional Materials and the results and proceeds of the Services
hereunder are at times referred to hereinafter as the "Proceeds". The Proceeds
are a "work made for hire" for Prolong to be used by Prolong in its promotional
and marketing materials, commercials and ads in any form of marketing media and,
therefore, are "specially ordered and commissioned" for use as a part of the
marketing activities and promotional works of Prolong.
11. Independent Contractor Status. Unser hereby declares that Unser is
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engaged in an independent business and Unser will perform the Services as an
independent contractor and not as agent, employee or servant of Prolong. In no
event shall Unser be allowed to engage any other individual to carry out the
duties of Unser pursuant to this Agreement. Unser shall be responsible for the
payment of any state or federal withholding tax, social security tax or other
payroll tax, and worker's compensation insurance related to the performance of
the Services.
12. Indemnification. Prolong agrees for itself and its successors and
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assignors to defend, hold harmless and indemnify, both collectively and
individually, Unser and BDM, their officers, agents, employees and their
successors and assigns, and anyone acting on behalf of any of them, from and
against any and all losses, costs and damages, expenses or claims (including
attorney's fees), whether such claims are groundless or to, arising out of any
claim, including but not limited to claims of personal injury, death or damage
to property, whether real or personal, or false advertising or
misrepresentation, uniess such claims arise from Unser or BDM's misconduct or
negligence. The intent of this indemnification Section is to cause Prolong to
indemnify and hold harmless Unser and BDM from any and all third-party claims of
any nature arising out of, or related to this Agreement or performance
hereunder, unless such claims arise from the breach of this Agreement by
Unser or the misconduct or negligence of BDM or Unser.
13. Termination.
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(a) Termination by Either Party. Either party may, upon 30 days'
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notice to the other of breach and a subsequent failure to correct such breach
within 30 days after such written notice, terminate further performance under
this Agreement, while maintaining the right to require performance by the other
party of those obligations accruing prior to the date of termination as
determined herein. The payment of all compensation earned by Unser under this
Agreement will fully discharge all of Prolong's obligations hereunder.
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(b) Cure. At any time that Prolong is in breach of the compensation
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terms of this Agreement, either for Royalties or guarantees, Prolong shall have
30 days to cure such breach after 30 days' written notice from Unser/BDM of the
breach. In the event of failure to cure within the time limits provided
hereunder, in addition to such other remedies to which Unser may be entitled,
Unser shall have the right to halt use of the Promotional Materials by Prolong
thereafter, in which event Prolong agrees it shall cease using in any way the
Unser image and agrees to recall all outstanding material produced hereunder
which uses the Unser image.
(14) General Provisions.
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(a) Notices. All notices pertaining to this Agreement shall be in
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writing and shall be transmitted either by facsimile, overnight mail, personal
hand delivery or through the facilities of the United States Post Office,
certified or registered mall, return receipt requested. The addresses set forth
below for the respective Parties shall be the places where notices shall be
sent, unless written notice of a change of address is given.
Prolong Super Lubricants, Inc. Xx Xxxxx
0000 Xxxxx Xxxxxxx Xxx x/x Xxxx Xxxxx
Xxxxxxx, XX 00000 Xxxxxx Xxxx Marketing
00000 Xxxxxxxxx Xxxx, Xxx. X
Xxxxxx, XX 00000
Any such notices shall be deemed to be given as of the date so delivered.
(b) Attorneys' Fees. In the event that any legal, declaratory, self
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help, or equitable action or arbitration or any other action not considered to
be a legal or equitable action is commenced between the Parties hereto or their
personal representatives concerning any provision of this Agreement or the
rights and duties of any person in relation thereto, the prevailing Party shall
be entitled, in addition to such other relief that may be granted, to a
reasonable sum for their attorney's fees and any other costs and expenses
relating thereto.
(c) Governing Law. The validity, interpretation, construction and
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performance of this Agreement shall be controlled by and construed under the
laws of the State of California. In the event of any litigation arising out of
any dispute in connection with this Agreement, the Parties hereby consent to the
jurisdiction of the California courts with venue in Orange County, California
which is the agreed upon location where the Parties entered into this Agreement.
(d) Binding Effect. Each and every covenant, term, provision and
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agreement herein contained shall be binding upon and inure to the benefit of the
Parties hereto and their respective heirs, successors, assigns and legal
representatives and shall survive the termination of this Agreement where
appropriate to carry out the terms thereof.
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(e) Amendments. Modifications and Waivers. No amendment or
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modification of this Agreement or any exhibit or schedule hereto shall be valid
unless made in writing and signed by the party to be charged therewith. No
waiver of any provision of this Agreement shall be deemed, or shall constitute,
a waiver of any other provision, whether or not similar. No waiver shall be
binding unless executed in writing by the party making the waiver.
(g) Assignment. The interest of Unser in this Agreement is personal
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and shall not be assigned, transferred, shared or divided in any manner by
Unser.
(h) Severability. Every provision of this Agreement is intended to be
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severable. If any terms or provisions hereof are illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of the Agreement.
(i) Parties in Interest. Nothing in this Agreement shall confer any
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rights or remedies under or by reason of this Agreement on any persons other
than the Parties and their respective successors and assigns nor shall anything
in this Agreement relieve or discharge the obligation or liability of any third
person to any party to this Agreement, nor shall any provision give any third
person any right of subrogation or action over or against any party to this
Agreement.
(j) Entire Agreement. This Agreement contains the entire Agreement
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between the Parties hereto, and supersedes any prior written or oral agreement
between the Parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements or understandings, oral or written
between the Parties hereto, relating to the subject matter contained in this
Agreement, which are not fully expressed herein.
This Agreement is adopted and made effective as of the date first set forth
above as evidenced by the signatures of the Parties hereto.
PROLONG SUPER LUBRICANTS, INC.
By:
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Xxxxx Xxxxxxxx, President
XX XXXXX
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Xx Xxxxx
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Xxxxxx Xxxx Marketing in return for the BDM Stock issued to them
pursuant to the Agreement hereby agrees that the representations and warranties
set forth in Sections 7.7.1 and 7.7.2 shall apply to BDM as though BDM is
inserted in place of Unser and that BDS shall be deemed a party to the Agreement
subject to all the terms and conditions set forth therein except to the extent
that such terms and conditions relate to rights, duties and obligations of
Unser.
Xxxxxx Xxxx Marketing
By:
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Xxxx Xxxxx
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