EXHIBIT 10.4
DATE: January 21, 1999
TO: Xxxx Xxxxxxx, President
Endless Youth Products, Inc.
FROM: Xxxxxxxx X. Xxxx, President
Infomercial Development Services, Inc.
SUBJECT: "Le Solution Derma System" Marketing and Distribution Agreement
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Dear Xxxx:
This Marketing and Distribution Agreement ("Agreement") is between Endless
Youth Products Inc., a Nevada corporation ("EY") and Infomercial Development
Services, Inc., a California corporation ("IDS"), regarding the marketing and
distribution of the LE SOLUTION DERMA SYSTEM ("the Product"). The Product
which is the subject of this Agreement is defined on the attached Exhibit
"A".
1. PREVIOUS AGREEMENT. Effective as of November 17, 1998, EY and IDS
entered into a Letter of Intent regarding the subject of this Agreement. It
is the express intention of the parties that this Agreement shall supercede
the previous Letter of Intent between them and that this Agreement shall
serve as the sole and complete agreement between EY and IDS.
2. OWNERSHIP OF PRODUCT. EY is the owner of all of the worldwide patent,
trademark, and other intellectual property rights related to the Product. As
specified herein, IDS grants to EY the exclusive right to use the Infomercial
to market and sell the Product in all media, worldwide, during the term of
this Agreement. EY shall be solely responsible for defending, indemnifying,
and holding IDS harmless against any patent, trademark, or infringement
claims related to the Product which may be brought against IDS. However,
during the Term of this Agreement, EY and IDS shall jointly determine the
appropriate action to be taken against any person or entity who may infringe
on the Product of the rights granted hereunder and the costs of any such
action shall be either paid or reimbursed from the proceeds resulting from
the sale of the Product. If EY and IDS mutually agree to take and equally
pay for legal action due to an infringement, they shall equally share in the
proceeds resulting from any such action. Notwithstanding the foregoing,
either IDS or EY may individually take action against a party to protect
rights granted hereunder and if either party proceeds individually, it shall
incur all costs and recover all proceeds related to such action.
3. PRODUCTION OF INFOMERCIAL. IDS and EY shall be jointly responsible for
the coordination of all activities related to the production of the 30 minute
infomercial or other form(s) or direct response television commercial(s)
promoting the Product("the Infomercial"). IDS shall be solely responsible
for the payment of the cost of production of the Infomercial in accordance
with the production budget, the payment of the cost of the production of the
Infomercial in accordance with the production budget, approved in advance and
in writing by IDS, which shall be attached to the Production Agreement
between IDS and the Infomercial Producer jointly selected by IDS and EY. It
is agreed by EY and IDS
that the total cost and budget for all aspects of the production of the
Infomercial shall not exceed $230,000. Any production funds not expended for
the production of the Infomercial may be allocated for either editing of the
Infomercial or the media test of the Infomercial as shall be jointly
determined by IDS and EY. Except for the script review, approvals and the
substantiation of IDS specified in Section 3.1 below, EY shall have full
creative control over the content of the Infomercial.
As Infomercial Production Agreement between IDS, EY, and Xxxxx-Xxxxxx
Productions, the anticipated Producer of the Infomercial, is currently in
negotiation. The Production Agreement provides for progress payments which
total $145,000 to the Producer at specified periods during the production of
the Infomercial. IDS and EY agree that the timely payment of such amounts
are of the essence for this Agreement. Therefore, if the Producer terminates
the Production Agreement due to a payment default by IDS, EY shall have the
option of terminating this Agreement.
3.1 IDS APPROVALS. EY shall provide IDS with a copy of the Infomercial
script for IDS' reasonable approval prior to commencing production of the
Infomercial. Additionally, EY and IDS shall jointly (i) cause an infomercial
substantiation expert jointly selected by EY and IDS to review and approve
the Infomercial and the Product, as evidenced by an unqualified opinion
letter from such expert setting forth such approval, and (ii) obtain all
contracts, claims, substantiation materials, trademark confirmation, patent
confirmation, and similar information as reasonably necessary to evidence
such matters for this project. All participants in the Infomercial shall
sign a release satisfactory to IDS in the form indicated on the attached
Exhibit "B" and incorporated herein by reference.
3.2 IDS ASSISTANCE. On an "as requested" basis, IDS has agreed to
provide EY with assistance regarding certain aspects of the production of the
Infomercial. Such matters may include: creation of a budget; selection of a
producer; oversight of the production; and participation in editing. All
such services shall be provided subject to the availability of IDS personnel
and without charge to EY.
3.3. OWNERSHIP OF INFOMERCIAL AND MARKETING MATERIALS. IDS shall be the
sole owner or exclusive licensee of all testimonials, raw footage, and all
other elements of the Infomercial and all other promotional and/or marketing
materials related to the Infomercial. EY shall be the sole owner of all
promotional and/or marketing materials related to the Product. During the
term of this Agreement, EY shall exclusively license the right to use all of
these Product marketing materials to IDS for the sole purpose of the
production of the Infomercial. Upon the termination of this Agreement, all
rights of EY to broadcast, exhibit, or otherwise utilize the Infomercial for
any purposes whatsoever shall immediately cease and all rights of IDS to use
the promotional and/or marketing materials related to the Product shall
immediately cease.
4. INFOMERCIAL TESTING AND ROLL OUT Upon completion of the production and
editing of the Infomercial, EY shall schedule, coordinate, and/or pay for a
media test of the Infomercial to test the effectiveness of the Infomercial
for the sale of the Product. The media test shall be in the minimum amount
of $10,000 and for not less than three (3) days nor more than sixty (60) days
on such cable and broadcast television networks and stations and at such
times as EY and IDS jointly determine will draw favorable response rates for
the sale of the Product. On a weekly basis during the media test and on a
monthly basis thereafter, EY shall provide IDS with written reports
containing complete information regarding the media ratio. If the initial
media test yields a ratio of Product orders to media expenditures equal to or
greater than 2 TO 1, (the "media ratio") and no more than 15% returns, EY
shall immediately
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schedule, coordinate, and/or pay for sufficient television media for a full
"roll out" of the Infomercial for exhibition throughout the United States and
Canada. For the purpose of this Agreement, "roll out" shall mean the usual
and customary purchase of sufficient media and broadcast of the Infomercial
in a manner which will sustain no less than 2:1 media ratio with no more than
15% returns in accordance with EY's reasonable projections related thereto.
5. TERM. Unless sooner terminated as specified herein, the Initial Term of
this Agreement and the rights granted to EY for the exhibition of the
Infomercial for the sale of the Product within the United States and Canada
shall begin upon the date of this Agreement and shall continue for thirty-six
(36) months after roll out of the Infomercial. It is expressly agreed by EY
and IDS that the Term of this Agreement shall continue for the longer of (i)
the broadcast of the Infomercial; (ii) the broadcast of any "Sequel
Infomercials" (as defined in Section 8 below) and (iii) the marketing and/or
sale of the Product and "Sequel Product" (as defined in Section 8 below).
Upon termination of this Agreement and subject to EY's full payment of all
amounts due IDS, EY shall have the right to continue to accept and process
orders for Products which were placed via the Infomercial prior to the date
of termination. The representations and indemnifications of the parties
shall survive the termination of this Agreement.
6. GRANT OF RIGHTS. During the term of this Agreement and any extension
thereof, IDS grants to EY the exclusive right to exhibit the Infomercial to
market and distribute product through all media now known or hereafter
devised worldwide. Such rights shall include the associated rights related
to the Infomercial including without limitation trademarks, music rights, and
copyrights related thereto. The respective duties of EY and IDS regarding
the Infomercial and the Product are described on the attached Exhibit "C".
Any use of the trademarks, tradenames, likenesses, quotes, personal
appearances, or other intellectual property related to the Infomercial shall
require the approval of IDS, not to be unreasonably withheld, and once EY has
received approval for a particular matter further approval for similar uses
will not be required. IDS's approval shall be deemed given if EY makes a
written request for approval from IDS and IDS fails to respond to such
request within ten (10) days from the date of IDS's receipt of the request.
7. ROYALTIES AND PAYMENTS. In conjunction with the marketing and sale of the
Product, EY shall pay IDS the following amounts with respect to the sale of
the Product through the below described media and marketing methods:
7.1. DOMESTIC INFOMERCIAL SALES. During the Term and any extensions
thereof, as indicated and defined below on the chart of "media ratios" and
"gross royalty" numbers, on the basis of the media ratios for the Infomercial
EY shall pay to IDS payments equal to the percentage "Gross Receipts" from
the sale of the Product, and any upsell products, via the Infomercial only,
and within the United States and Canada.
MEDIA RATIO GROSS ROYALTY
----------- -------------
2:1 or less 5% of Gross Receipts
2.01:1 - 2.5:1 6% of Gross Receipts
2.51:1 - 3:1 7% of Gross Receipts
3.01:1 - 3.5:1 8% of Gross Receipts
3.51:1 - 4:1 9% of Gross Receipts
4.01:1 or higher 10% of Gross Receipts
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For the purpose of this Agreement, "Gross Receipts" shall mean all revenue
or cash equivalents EY receives for sales of Product and upsell products,
less only returns, refunds, credit card chargebacks and fees, declines,
cancels, bad debt and sales taxes which are directly related to the Product
and upsell product(s) and shall not include shipping and handling revenues
and costs.
For the purpose of this Agreement, "Media Ratio" shall mean the fraction,
which EY shall calculate quarterly, the numerator of which shall equal Gross
Receipts from Infomercial sales and the denominator of which shall equal the
gross cost of media, including a 15% media commission, related to the
exhibition of the Infomercial. Gross Royalty payments due IDS for the sale
of Product via Domestic Infomercials shall be calculated and paid within
thirty-five (35) days of the end of each 30 day period of the Term of this
Agreement.
7.2. DOMESTIC NON-INFOMERCIAL SALES OF THE PRODUCT. EY shall pay to IDS
four percent (4%) of the Gross Receipts from all Domestic Non-Infomercial
sales of the Product.
7.3. INTERNATIONAL OF THE PRODUCT. EY shall pay to IDS five percent (5%)
of the Gross Receipts from all International sales of the Product from any
and all media.
7.4. HOME SHOPPING SALES. EY shall pay to IDS five percent (5%) of the
Gross Receipts (less only mutually approved payments to third-party talent)
from all sales of the product by way of home shopping.
7.5. CONTINUITY SALES. EY shall pay to IDS four percent (4%) of all Gross
Receipts from all sales of a "Continuity Product" (as defined below).
For the purposes of this Agreement, a "Continuity Product" shall mean a
product offered as a part of a program whereby there is an automatic shipment
of additional products or a re-order of the same product first ordered,
usually on a monthly basis, following the shipment of the initial order of
the Product.
8. SEQUEL INFOMERCIAL(S) AND SEQUEL PRODUCT(S). In the event EY and IDS
elect to produce one or more "Sequel Infomercials" for the marketing of the
Product or a "Sequel Product", the following shall be the terms of such
relationship: (i) EY shall be solely responsible for the coordination and
costs of the production of any Sequel Infomercial(s) and/or Sequel Products;
(ii) IDS shall receive compensation for all sales of the Product resulting
from a Sequel Infomercial as specified in Section 7.6 above; (iii) IDS shall
receive compensation for all sales of any Sequel Product(s) resulting from
the broadcast of a Sequel Infomercial equal to one-half of the compensation
rate due for sales resulting from the initial Infomercial produced hereunder
and (iii) the compensation due IDS shall be paid by EY for the entire term of
the broadcast of any Sequel Infomercial of the sale of any Sequel Product.
For the purposes of this Agreement, "Sequel Infomercial" shall mean an
Infomercial produced and exhibited for the sale of the Product or Sequel
Product after the production and/or exhibition of the Infomercial produced
under this Agreement. For the purposes of this Agreement, a "Sequel Product"
shall mean a product which is based upon, has the same characteristics of,
uses the same name or marketing materials, or is an improvement or derivative
of the Product.
9. PRODUCT MANUFACTURE, PACKAGING AND DELIVERY. EY shall be responsible to
coordinate all activities related to the manufacture and delivery of the
Product to EY or to the fulfillment center(s)
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designated by EY. In the event the media test of the Infomercial is
successful, EY as specified herein shall be responsible to coordinate all
aspects of the creation of and payment for the molds, Product packaging, and
other costs related to the marketing and sale of the Product and EY shall
coordinate and determine responsibility for all aspects of the manufacture
and delivery of the Product.
10. CUSTOMER LIST. During the term of this Agreement, EY shall compile and
maintain a list of names, addresses, and other information for the persons
who inquire about and/or order the Product. EY shall own this Customer List.
EY shall have the right to rent the Customer List for fair market value to
any party (including IDS or EY) for the marketing of any products which are
not directly competitive with the Product. All Net Profits received from the
rental of the Customer List shall be divided equally between EY and IDS.
11. ACCOUNTING; REPORTS, PAYMENTS; INSPECTION. EY and its sublicensees and
subsidiaries shall keep complete and accurate books of account relating to
the marketing, distribution and sale of the Product and any Sequel
Product(s). During the term of this Agreement for each month in which there
are sales of the Product or Sequel Product(s), within thirty-five (35) days
after the end of the month EY shall provide IDS with a report containing
complete information regarding sales of the Product or Sequel Product(s) and
as required hereunder the calculation of Royalties and/or Net Profits as
specified herein including therewith a payment of any Royalties and/or Net
Profits due IDS for the prior month activities. Such books of account and
supporting data shall be available for inspection by IDS during EY's regular
business hours for a period of two (2) years following the end of the fiscal
year to which they pertain.
In the event the inspection of EY's books and records reveals that any annual
payment to IDS was understated by five percent (5%) or more, EY shall be
responsible to pay for the reasonable costs of inspection. Additionally, any
amount due IDS which is unpaid shall accrue interest at the rate of ten
percent (10%) per annum until the total amount due, including interest, is
paid in full. Any determination of underpayment shall not be a breach of
this Agreement unless the full amount due remains unpaid for a period
exceeding ten (10) days after receipt of written payment demand.
12. REPRESENTATIONS
12.1 REPRESENTATIONS OF IDS. IDS represents and warrants that (a) they
are the sole owner of the Infomercial and all rights related thereto; (b) the
use of the Infomercial, and the titles, logos, and references made therein
are permitted and do not infringe upon the rights of any third-party; (c) the
distribution of the Infomercial is not restricted to or prohibited by any
Federal, State, local law or ERA guideline; (d) IDS has not entered into any
oral or written contract which would impair the rights granted to EY or limit
the effectiveness of this Agreement, nor is IDS aware of any claims or
actions which would impair or limit the rights granted to EY hereunder; (e)
IDS acknowledges that the sale of Products through infomercials and other
direct response media is a high risk activity without guarantee of success or
return of invested capital and (f) the entry into this Agreement by IDS will
not violate any agreements to which IDS is a party.
12.2. REPRESENTATIONS OF EY. EY represents and warrants that (a) they are
the sole owners the Product and all rights related thereto; (b) the use and
sale of the Product as contemplated herein is permitted and does not infringe
upon the rights of any third-party; (c) the distribution of the Product is
not restricted or prohibited by any Federal, State, local law or ERA
guideline; (d) EY has not entered into any oral or written contract which
would impair the rights granted to IDS or limit the effectiveness
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of this Agreement, nor is EY aware of any claims or actions which would
impair or limit the rights granted to IDS hereunder; (e) the undersigned
representative of EY has the right and power to enter into this Agreement and
(f) the execution and performance of this Agreement by EY will not violate
any agreements to which EY is a party.
13. INDEMNITY
13.1 IDS'S INDEMNITY OF EY. IDS shall hold harmless, indemnify, and
defend EY, at IDS's expense with counsel selected by EY, against any and all
claims, demands, liability, or other harm incurred by EY (including without
limitation claims of trademark, copyright, patent, or false advertising)
resulting from the exhibition of the Infomercial or the promotion or sale of
the Product or the negligent acts or actions of IDS.
13.2 EY'S INDEMNITY OF IDS. EY shall hold harmless, indemnify, and
defend IDS, at EY's expense and with counsel selected by IDS, against any and
all claims, demands, liability, or other harm incurred by IDS as a result of
the negligent acts or actions of EY.
14. INSURANCE. In the event "roll out" of the Infomercial occurs, during the
Term of this Agreement IDS shall maintain media liability insurance of the
type typically maintained by distributors of infomercials and infomercial
products and EY shall acquire for each Product products liability insurance
coverage of the type typically maintained by sellers of infomercial products.
Each such policy of insurance shall be in an amount of no less than $1
million per occurrence and $2 million in the aggregate and shall have the
following conditions: (i) a deductible not exceeding $10,000; (ii) a rating
of no less than B+ in the Best Guide; (iii) each party shall be named as an
additional insured on the other party's policy; (iv) no less than ten (10)
days written notice to the other party shall be required to decrease the
policy benefits or cancel the policy and (v) each party shall provide the
other party with a copy of certificate evidencing compliance with these
requirements within thirty (30) days of the date of this Agreement.
15. INDEPENDENT CONTRACTORS. It is expressly agreed that EY and IDS are
dealing with each other as independent contractors. Each party shall be
solely responsible, without liability to the other, for the timely reporting
and payment of all taxes and other withholdings, deductions and payments
required by law with respect to its own operations and employees.
16. DISPUTE RESOLUTION. In the event of any dispute regarding this Agreement
or the respective rights of the parties under this Agreement, the parties
agree to submit such dispute to binding arbitration in Orange County,
California before a professional arbitrator selected by the parties or, if
the parties cannot agree on an arbitrator, appointed by the court. Any such
arbitration shall be commenced within fifteen (15) days and completed within
forty-five (45) days of selection of the arbitrator and the discovery rules
contained in the California Code of Civil Procedure shall apply to all such
proceedings. The arbitrator shall have the right to order all remedies and
award attorney's fees and costs to the prevailing party; and any such orders
may be entered into a court of competent jurisdiction. This Agreement shall
be governed by and construed under the laws of the State of California.
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17. NOTICE All notices under this Agreement shall be in writing and
effective when confirmed delivered by personal service, telefax, overnight
delivery or other method to the addresses indicated below or otherwise later
designated in writing by the parties:
TO IDS: TO EY:
Infomercial Development Services, Inc. Endless Youth Products, Inc.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000 0000 X. Xxxxxxxxx Xx. Xxxxx 000
Xxx Xxxxx, XX 00000 Xxx Xxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxx Attn: Xxxx Xxxxxxx
Fax (000) 000-0000 Fax (000) 000-0000
18. GENERAL PROVISIONS This Agreement represents the entire understanding
of the parties and no modification of the terms contained herein shall be
effective unless in writing and signed by the parties. Time is of the
essence for all performance under this Agreement. Neither party shall have
the right to assign this Agreement without the prior written consent, not be
unreasonably withheld, of the other party. No failure to enforce or waiver
shall constitute a waiver of future performance. In the event any provision
of this Agreement is found to be unenforceable, that provision shall be
severed from this Agreement and the remaining provisions shall remain in full
force and effect. This Agreement may be executed in counterparts which may
be taken together to constitute the original of this Agreement. Each party
to this Agreement has been represented by independent counsel and each party
has fully participated in the drafting of this Agreement so as to eliminate
any issue of interpretation against the preparer of this Agreement.
AGREED TO AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN
ENDLESS YOUTH PRODUCTS, INC. INFOMERCIAL DEVELOPMENT SYSTEMs,
INC., A NEVADA CORPORATION INC., A CALIFORNIA CORPORATION
By: /s/ Xxxx Xxxxxxx
----------------------------- By: /s/ Xxxxxxxx X. Xxxx
Xxxx Xxxxxxx, President -------------------------------
Xxxxxxxx X. Xxxx, President
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EXHIBIT "A"
PRODUCT DEFINITION
For the purposes of this Agreement, the Product shall be defined as the
following:
[omitted]
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EXHIBIT "B"
FORM INFOMERCIAL PARTICIPANT RELEASE
[omitted]
9
EXHIBIT "C"
RESPECTIVE DUTIES OF THE PARTIES
For the purposes of this Agreement, the following shall be the respective
duties and responsibilities of EY and IDS:
RESPONSIBLE PARTY
EY IDS DUTY AND/OR RESPONSIBILITY
X Finance and produce completed Infomercial
--- --- (including generic end tag and applicable notations
for credit cards, shipping and handling, taxes, phone
number and addresses as designated by EY),
X Produce completed Product, Product packaging and
--- --- Product "welcome letter".
X Assist with the Infomercial script and production
--- --- (including pre-production and post-production) and
coordinate development of molds, packaging and
marketing materials for the Product.
X Obtain all direct response phone numbers and
--- --- addresses and customize the Infomercial with
appropriate direct response ordering information.
X Select inbound telemarketing company, create
--- --- inbound telemarketing scripts and manage all aspects
of inbound telemarketing process.
X Coordinate all aspects of Product order processing
--- --- including receipt of orders, credit card authorization
and deposits, order shipping, processing of Product
returns and refunds and all related matters.
X Coordinate the collection, reporting and payment of
--- --- all appropriate taxes (including sales, excise,
inventory, etc.) related to Product sales.
X Coordinate duplication of Infomercial sub-master
--- --- tapes and distribution of sub-masters to television
stations.
X Select, manage, purchase and place all media for
--- --- exhibition of the Infomercial and marketing of the
Product in all media and markets.
X Coordinate the manufacture of sufficient quantities
--- --- of the Product, at the designated price and quality,
to meet orders.
X Select and manage all aspects of the receipt and
--- --- processing of Product orders by the designated
fulfillment center(s).
00
XXXXXXX "X" (xxxx)
RESPECTIVE DUTIES OF THE PARTIES
EY IDS DUTY AND/OR RESPONSIBILITY
X Coordinate the delivery of the Product to the
--- --- designated fulfillment center(s).
X Manage all aspects of the marketing and sale of the
--- --- Product in all designated media and markets throughout
the term of the Agreement.
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