EXHIBIT 10.25
AGREEMENT
This Agreement effective as of December ___, 1996 is by and between
Xxxxxx Laboratories, Inc. ("Xxxxxx"), and Chromatics Color Sciences
International, Inc. ("Chromatics).
WHEREAS, Chromatics has designed and developed a device which analyzes
a consumer's skin tone and may be programmed to recommend the foundation
cosmetic shades best suited for each particular skin tone (the "Colormate
System");
WHEREAS, Xxxxxx and Chromatics desire to utilize Chromatics's technical
expertise in the programming and operation of Colormate Systems for custom
blended cosmetic foundations, all of which shall remain the property of
Chromatics.
WHEREAS, the parties intend to set forth the terms and conditions under
which Chromatics will make available pursuant to the terms hereof the Colormate
System for use in a field test retail program as described herein.
Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in Schedule 1 hereto.
NOW, THEREFORE, in consideration of the mutual covenants and terms
herein set forth, the parties agree as follows:
I. Colormate System Lease; Technology License
1. Unless sooner terminated pursuant to the terms hereof, the term of
this Agreement will be from the date hereof until six months after the later of
the date (i) Chromatics first notifies Xxxxxx in writing that twenty (20)
Colormate Systems are immediately available for shipment for use in the Field
Test (the "Ship Notice"), (ii) that Xxxxxx provides the "Final Samples" (as
defined in Article II), and (iii) that Xxxxxx provides the twenty (20) Custom
Blended Foundation Cosmetic Product Dispensing Systems. During the term of this
Agreement, Chromatics shall lease for a term not to exceed the earlier of (i)
six months from the date of the lease and (ii) the date of termination of this
Agreement or the Field Test to Xxxxxx'x customers approved in writing by
Chromatics ("Xxxxxx Approved Customers"), pursuant to lease documentation
satisfactory to Chromatics, a total of twenty (20) portable briefcase Colormate
Systems. In consideration of providing such Colormate Systems, Chromatics shall
receive from the "Budget Account" and pursuant to the "Budget" six equal
payments of $1,667 each on the first day of each month during the term hereof
commencing with the first day of the month following the month in which
Chromatics delivers the Ship Notice. Xxxxxx Approved Customers will not be
charged any lease or rental fee under such leases for the use of the Colormate
Systems during the Term of the Field Test. The Colormate Systems will be
available for use by the date of the Ship Notice and will be shipped from
Chromatics directly to the Customer Location. One Colormate System shall be
provided by Chromatics for each Customer Location and shall be used pursuant
to the lease solely at such Customer Location and shall not be used at any other
location without prior written consent of Chromatics. The leases shall expressly
provide that the Colormate Systems shall be returned directly to Chromatics at
the earlier of conclusion of the Field Test, the expiration of the Lease or the
termination of this Agreement.
2. Beginning on the date of the signing of this Agreement and
continuing until six months after the later of the date (i) of the Ship Notice,
(ii) Xxxxxx provides the Final Samples, and (iii) Xxxxxx provides the twenty
(20) Custom Blended Foundation Cosmetic Product Dispensing Systems, unless
sooner terminated pursuant hereto, Chromatics agrees to grant to Xxxxxx a
non-exclusive license solely in the contiguous states of the United States of
America for the Colormate Systems, "Software" (as defined in Article II
paragraph 1 below) and "Foundation Products Color Formulations" solely for use
in the marketing, distribution and sale to Xxxxxx Approved Customers in the
"Specialty Store Market" at Customer Locations of Foundation Cosmetic Products
manufactured directly by Xxxxxx for Chromatics under the terms specified in this
Agreement for a Field Test as described herein.
The Colormate Systems, Software and Foundation Product Color
Forumlations shall remain the property of Chromatics. Xxxxxx acknowledges and
agrees that the Colormate Systems, Software, and Foundation Products Color
Formulations may not be used in any manner whatsoever by Xxxxxx or by Xxxxxx
Approved Customers other than in the Field Test, and may not be used
independently of each other. In this regard, and by way of example but without
limitation, the Foundation Products Color Formulations may not be used in any
manner whatsoever other than in conjunction with formulation and manufacture of
the Foundation Cosmetics Products for distribution in the Field Test, the
Software may not be used in any manner whatsoever other than in conjunction with
the Colormate System for marketing efforts in the Field Test, and the Colormate
System and Software may not be used in any manner whatsoever other than in
conjunction with making analyses and recommendations in the sale of the
Foundation Cosmetic Products in the Field Test. Under no circumstances may the
Colormate System, Software or Foundation Product Color Formulations be used to
develop, distribute, manufacture, market or sell any cosmetic product other than
the Foundation Cosmetic Product for sale in the Field Test. Xxxxxx shall have no
right to subcontract, submanufacture, or otherwise retain any third party to
manufacture the Foundation Cosmetic Products, and shall not sublicense, assign,
pledge, transfer or dispose of in any manner whatsoever the license or any
portion thereof granted by Chromatics hereunder.
3. Beginning on the latest of the date of the Ship Notice, the date
Xxxxxx provides the Final Samples, and the date Xxxxxx provides the twenty (20)
Custom Blended Foundation Cosmetic Product Dispensing Systems, and continuing
for six months thereafter (the "Field Test"), Chromatics shall have available
for lease twenty (20) Colormate Systems, appropriately programmed with the
Software to recommend Foundation Cosmetic Products manufactured solely by Xxxxxx
for Chromatics as required by paragraph 1 of Article II hereof, to Xxxxxx
Approved Customers at the Customer Locations based on mutually agreed on
criteria. Xxxxxx shall arrange for the schedules and on-site training in the
operation of the Colormate Systems of
2
the Xxxxxx Approved Customers personnel at the Customer Locations at Xxxxxx'x
sole cost and expense (but reimbursable as set forth in the Budget), utilizing
up to two (2) Xxxxxx personnel so trained by Chromatics in the operation of the
Colormate Systems. Chromatics shall use its best efforts to so train such Xxxxxx
personnel prior to the date of the Ship Notice. Chromatics shall not be paid any
additional compensation for training up to two (2) such Xxxxxx personnel
(provided, however, that the Budget will provide for travel and expenses
incurred by Chromatics in training such Xxxxxx personnel); any additional
training requirements or the training of additional personnel shall be at rates
to be agreed upon by the parties. Prior to any disclosure of any confidential
information of Chromatics, including, without limitation, any confidential
information contemplated by Article IV hereof, Xxxxxx shall cause those of its
personnel and those of the Xxxxxx Approved Customers receiving such training, to
enter into confidentiality agreements with Chromatics in the form annexed as
Schedule 2 hereto, and the lease agreement between Chromatics and Xxxxxx
Approved Customers.
II. Field Test
1. On or before 30 days from the date hereof, Xxxxxx shall provide
Chromatics with samples and specifications of basic Foundation Product
Formulations to be included in the Field Test, which Foundation Product
Formulations must be approved by Chromatics. Chromatics shall be entitled to
unilaterally terminate this agreement without penalty pursuant to Article VI
hereof by written notice to Xxxxxx if such basic Foundation Product Formulations
have not been delivered by Xxxxxx and approved by Chromatics within 60 days of
the date hereof. Upon approval, Chromatics shall perform chromaticity studies at
Chromatics' expense on the sample to determine the appropriate color
compatibilities ("Chromaticity Studies"). Upon completion of the Chromaticity
Studies (approximately three (3) months), Chromatics shall provide to Xxxxxx a
written report of Foundation Product Color Formulations which report and
Foundation Product Color Formulations shall remain the property of Chromatics.
Promptly following receipt of such written report (but in no event later than 30
days from such receipt, plus an additional 30 days grace period), Xxxxxx shall
provide to Chromatics, for review and approval by Chromatics, such number of
samples and reformulation of each Foundation Product Formulation as Chromatics
may request, until such samples shall meet Chromatics' specifications for the
Foundation Product Color Formulations (the "Final Samples"). Xxxxxx shall not
manufacture quantities of any Foundation Cosmetic Products unless and until it
has received written notice from Chromatics that, based on the Final Samples,
all Foundation Product Formulations meet Chromatics, specifications. Chromatics
shall give, Xxxxxx the Ship Notice within 30 days (plus an additional 15 days
grace period) of Chromatics receipt of the Final Samples. If Xxxxxx fails to
deliver and have available twenty (20) Custom Blended Foundation Cosmetic
Product Dispensing Systems by the date of the Ship Notice, or fails to provide
Chromatics within thirty (30) days (plus an additional 30 days grace period)
following delivery to Xxxxxx of the written report regarding the Chromaticity
Studies (but in no event later than the date of the Ship Notice) with Final
Samples for all Foundation Product Formulations that meet Chromatic's
specifications, Chromatics shall have the right, to unilaterally terminate this
Agreement pursuant to Article VI hereof without penalty or liability to either
party by written notice to Xxxxxx. In the event that Chromatics has
3
not completed the Chromaticity Studies by April 1, 1997 (plus an additional 15
(days grace period), or delivered the Ship Notice within 30 days (plus an
additional 15 days grace period) of receipt of the Final Samples, either
Chromatics or Xxxxxx may unilaterally terminate this Agreement without penalty
or liability to either party pursuant to Article VI hereof on written notice to
the other. All Foundation Cosmetic Product manufactured by Xxxxxx under the
terms of this Agreement will bear the label of Chromatics and will remain the
property of Chromatics. Xxxxxx shall manufacture the initial inventory of
Foundation Cosmetic Product to implement the Field Test, together with, at no
additional cost, the bottle, cap, label and packaging, at a price of $1.25 per
ounce of Foundation Cosmetic Products, payable solely from the Budget Account
(but in an amount not to exceed $8,650) except as set forth in the last sentence
of the next paragraph. Xxxxxx shall manufacture additional quantities of such
inventory and such related materials as agreed upon by both parties to be needed
to implement the Field Test at the same per ounce cost, payable from the Budget
Account.
The suggested wholesale price and retail resale price and other terms
of sales of the Foundation Cosmetic Products to be offered to Xxxxxx Approved
Customers and their customers, respectively, to the extent not specifically set
forth herein, shall be mutually agreed upon by Xxxxxx and Chromatics, including
without limitation providing written instructions directing such Xxxxxx Approved
Customers to direct payment for Foundation Cosmetic Products invoiced by Xxxxxx
to the Budget Account. At the end of the Field Test Chromatics will purchase
from Xxxxxx all remaining inventory of Foundation Cosmetic Products manufactured
by Xxxxxx under the Budget at a cost of $.625 per ounce of Foundation Cosmetic
Products, together with at no additional cost the bottle, cap, label and
packaging, dispenser and customer support/sales materials used in connection
with the Field Test, but only to the extent that (i) the foregoing have not been
invoiced to Xxxxxx Approved Customers, (ii) any such purchase by Chromatics does
not exceed $4,325 in the aggregate, (iii) that the funds remaining in the Budget
Account are not sufficient therefor, and (iv) any such amount to be paid to
Xxxxxx by Chromatics is in excess of amounts otherwise to be paid to Chromatics
pursuant hereto as contemplated by the Budget.
Chromatics shall develop software proprietary to Chromatics
recommending appropriate shades of the Foundation Cosmetic Products based on
skin tone (the "Software") for distribution and installation in the Colormate
Systems. The Software will provide a custom color formulation for each skin tone
that may be custom blended (pigments mixed with the basic Foundation Product
Formulation colors). At the conclusion of the Field Test, Chromatics shall
receive from the Budget Account and pursuant to the Budget in consideration of
developing and programming such Software the sum of $10,000.
2. During the Field Test, Chromatics' at its cost and expense shall
maintain and keep in good working order all Colormate Systems used in this test,
providing such maintenance is required as a result of normal wear and tear. Each
Xxxxxx Approved Customer will insure, pursuant to the terms of the Chromatics
lease, the Colormate System for damage or replacement under their existing
policies and Chromatics will be named the beneficiary and loss payee under
4
these policies for this purpose. Each Colormate System also will be insured
while shipping for its replacement cost of $3,500.00 per System; payable to
Chromatics, and the cost of all such shipping and insurance will be paid from
the Budget Account in conformity with the Budget. In the event any Colormate
System is damaged for reasons other than normal wear and tear then Chromatics
shall be reimbursed from the insurance carrier.
3. During the term of this Agreement, Xxxxxx shall provide the
following promotional, marketing, distribution, formulations, research and
merchandising functions for the consideration indicated below, payable solely
from the Budget Account and as set forth in the Budget as being payable to
Xxxxxx:
a) Design, develop and provide prior to the date of the Ship
Notice in quantities necessary, (but in no event fewer than
twenty (20)), point of sale packaging and custom blending
dispensing system as approved in writing by Chromatics (the
"Custom Blended Foundation Cosmetic Product Dispensing
System") for Foundation Cosmetic Products to be used at
Customer Locations, for consideration as set forth in the
Budget (Item #10) (and not in excess of $4,375 in the
aggregate).
b) Provide twenty (20) Customer Locations which will utilize the
Chromatics Colormate System and the Foundation Product Color
Formulations solely in connection with the sale, utilizing the
Custom Blended Foundation Cosmetic Product Dispensing System,
of Foundation Cosmetic Products as described herein solely at
each such Customer Location for the term of the Field Test,
without additional compensation.
c) Design and supply any supporting promotional literature, to be
approved by Chromatics, not to be unreasonably withheld for
consideration as set forth in the Budget (Item #2); provided,
however, that Chromatics shall in all events have final legal
approval.
d) Supply and distribute the Foundation Cosmetic Product, the
supporting promotional literature and the printer paper rolls
supplied by Chromatics for computer print-outs in quantities
as needed for each Customer Location during the Field Test,
without additional compensation. Xxxxxx Approved Customers
shall pay to Chromatics $2.00 per roll for each additional
roll beyond the first such roll provided by Chromatics
e) Compile and tabulate research/sales data relating to the Field
Test as specified in Exhibit A, without additional
compensation other than that approved for personnel in the
Budget (Item #1).
5
f) Provide in-store training for each Customer Location during
the Field Test, at Xxxxxx'x cost and expense (but reimbursed
as set forth in the Budget) (Items #1 and 6) and utilizing
Xxxxxx personnel trained by Chromatics as described above.
g) Provide a name, logo and mechanical art work for the Colormate
Systems to be used at Customer Locations. Cost of producing
and installing this into the Colormate Systems will be paid to
Chromatics as provided in the Budget (Item #3).
h) Provide Foundation Cosmetic Product tester kits for each of
twenty (20) Customer Locations for consideration as provided
in the Budget (Item #11).
i) Provide two (2) Foundation Product Formulations in 10 basic
color formulations specified by Chromatics and up to 3 pigment
formulations specified by Chromatics (all of which are to be
approved by Chromatics and which remain the property of and
proprietary to Chromatics and for use only in this Field Test
and under the terms of this Agreement) for aggregate
consideration of $10,000 payable at the conclusion of the
Field Test (Item #13).
j) Coordinate distribution and sales support and overall customer
support during the term of the Field Test, without additional
compensation other than as provided in the Budget (Items #1,
2, 4, 6).
k) Manage overall activities of the Field Test as approved by
Chromatics, without additional compensation other than as
provided in the Budget (Items #1, 5). Disbursement of Budget
items requires joint signatures by Chromatics and Xxxxxx.
4. If The Field Test has met the requirements set forth in Exhibit A
hereto, Chromatics and Xxxxxx intend to enter into good faith negotiations to
establish a joint venture under terms acceptable to both parties and which shall
include the terms referenced in Exhibit C hereto, it being expressly
acknowledged that there are no other obligations or agreements of the parties
with respect to the formation of any joint venture or other business
arrangement.
III. Budget Matters
1. Chromatics and Xxxxxx will each contribute $37,500.00 (the "Initial
Payment") to the Budget on the date which is 30 days prior to the date
Chromatics reasonably anticipates delivering the Ship Notice (as notified in
writing to Xxxxxx by Chromatics), to jointly finance this Field Test. The Budget
for the use of these funds including use of any sales income received from the
Field Test is attached hereto as Exhibit B. Any sales income generated by the
Field Test in excess of Field Test expenses in the Budget and reimbursement to
be provided to the parties as set forth herein and pursuant to the Budget shall
be shared equally by Chromatics and Xxxxxx. It
6
is agreed by the parties that should there be less sales income than projected
in the Budget or no sales income received from the Field Test to contribute to
the Budget, then each of Xxxxxx and Chromatics will pay, in equal amounts, up to
$5,234 each (the "Additional Payment").
2. In no event will either Xxxxxx or Chromatics be responsible to pay
an amount in excess of the sum of the Initial Payment and the Additional Payment
unless mutually agreed upon in writing by both parties. Xxxxxx shall be entitled
to make payments from the Budget Account to third parties in the amounts
specified as set forth in Exhibit D hereto ("Approved Payments"). Any payments
from the Budget Account other than Approved Payments (including, without
limitation, any payments to either Xxxxxx, Chromatics or their respective
affiliates, other than (i) $8,650 to Xxxxxx for initial inventory, (ii) $4,375
to Xxxxxx for the Custom Blended Foundation Cosmetic Product Dispensing Systems,
(iii) $10,000 in 6 monthly installments of $1,667 to Chromatics for the
Colormate II Systems, and (iv) $2,500 to Chromatics for repackaging the
Colormate II Systems, which amounts shall be paid by Xxxxxx without additional
consent of Chromatics) shall require the consent of both parties.
IV. Additional Limitations and Confidentiality
1. a) Xxxxxx may not grant any rights in any Software, Colormate System
or any custom blended foundation (including without limitation any Foundation
Product Color Formulation) or any Foundation Cosmetic Product or system
utilizing any color formulations or systems of color formulations or pigments
provided or disclosed to Xxxxxx by Chromatics or permit anyone else to take
credit for the invention, development or design of such Colormate Systems or
formulations or pigments without the prior written approval of Chromatics.
Xxxxxx acknowledges that the Colormate System and the Software, including,
without limitation, the processes, Foundation Product Color Formulations,
pigments, custom blended foundation colors, Foundation Cosmetic Product, color
formulations or systems of color formulations or pigments, techniques, programs,
parts, methods, color chart and swatch pack colors, designs and ideas embodied
therein are the proprietary products of Chromatics (and any licensor to
Chromatics), shall remain the property of Chromatics (and any such licensor) and
are furnished on a strictly confidential basis, for use exclusively in the Field
Test provided herein and agrees that no other use shall be made thereof. No
title to or ownership of any of the same or any rights therein, including all
rights to patents, trade names and copyrights applicable thereto, or any copies
thereof, in whole or in part, shall be transferred to Xxxxxx. In addition,
Xxxxxx shall keep confidential and use only for the Field Test and under the
terms of this Agreement all of the kinds of following information;
1) Hardware design, parts, and integration.
2) All aspects of software for systems.
3) Foundation Product Color Formulation, Foundation
Color Pigments, Chromaticity Studies, including the
results of the Chromaticity Studies.
7
4) Color Consultant Training Techniques.
2. a) Nothing in this Agreement will restrict Xxxxxx in the use or
treatment of any of Chromatics' confidential information:
(a) which is freely available to the public on a
unrestricted basis and without violation of any
confidentiality obligations prior to the disclosure
of same by Chromatics to Xxxxxx; or
(b) which can be shown by written contemporaneous records
to have been known to Xxxxxx prior to the date of
disclosure by Chromatics to Xxxxxx of the same; or
(c) after such Chromatics confidential information
becomes freely available to the public on an
unrestricted basis through no fault of Xxxxxx.
This paragraph shall not limit any patent protection Chromatics may have.
V. Indemnity
1. Chromatics shall indemnify and hold Xxxxxx harmless from and against
any and all actions, causes of action, claims, demands, liabilities, losses,
judgments, damages or expenses and charges which Xxxxxx shall or may at any time
incur, sustain, or become subject to by reason of any claim or claims against
Xxxxxx arising out of any act or omissions of Chromatics related to this
Agreement, or the performance thereof (provided that Chromatics will not be
responsible for any of the foregoing attributable to failure to use the
Colormate System strictly in accordance with the training and instructions
provided by Chromatics) ; provided that Chromatics is given prompt notice of
such claims and has the right to manage and control all such claims with
attorneys of its own selection.
2. Xxxxxx shall indemnify and hold Chromatics harmless from and against
any and all actions, causes of actions, claims, demands, liabilities, losses,
judgments, damages or expenses and charges which Chromatics shall or may at any
time incur, sustain, or become subject to by reason of any claim or claims
against Chromatics arising out of any act of omission of Xxxxxx related to this
Agreement, or the performance thereof, including but not limited to claims
regarding: advertising or product claims or promises made by Xxxxxx; consumer
use or purchase of Xxxxxx manufactured products, including without limitation
Foundation Cosmetics Products; loss of business due to damage to the Colormate
Systems in transport and any act which is the responsibility of Xxxxxx as
provided in this Agreement; provided, that Xxxxxx is given prompt notice of such
claims and has the right to manage and control all such claims with attorneys of
its own selection.
VI. Miscellaneous
8
1. This Agreement will be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof. The parties
hereto hereby irrevocably submit to the jurisdiction of any New York State or
Federal court sitting in the County of New York, State of New York, in any
action or proceeding arising out of or relating to this Agreement, and the
parties hereby irrevocably agree that all claims in respect of such action or
proceeding shall be heard and determined in such New York State or Federal
court. The parties hereto irrevocably waive, to the fullest extent permitted by
law, any objection which they or any of them may now or hereafter have to the
laying of the venue of any such action or proceeding brought in any such court,
and any claim that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. The parties hereto agree that a final
judgment in any such action or proceeding shall be conclusive and binding on the
parties hereto.
2. This Agreement will continue in effect until six months after the
latest of the date (i) of the Ship Notice, (ii) Xxxxxx delivers the Final
Samples, and (iii) Xxxxxx delivers twenty (20) Custom Blended Foundation
Cosmetic Product Dispensing Systems, unless earlier terminated pursuant to
Article II hereof by Chromatics or Xxxxxx, as applicable, provided the
provisions of Articles IV, V and VI, shall survive the termination of this
Agreement. In the event of such termination, all funds in the Budget Account
after any required payments to third party suppliers, shall be disbursed to
Xxxxxx and Chromatics, in their capacity as creditors in accordance with the
Budget, and all other funds in the Budget Account shall be disbursed Fifty
Percent (50%) to Chromatics and Fifty Percent (50%) to Xxxxxx. Upon the
termination of this Agreement, Xxxxxx will immediately return to Chromatics all
documents and materials of Chromatics referred to in Article IV hereof and/or
otherwise provided to Xxxxxx or its customers by Chromatics, including, without
limitation, the Colormate Systems provided by Chromatics and all documents,
including copies, extracts, or derivations thereof prepared by Xxxxxx or such
customers, including without limitation any marketing material relating to the
Field Test whether or not provided by Chromatics.
3. Nothing contained herein shall place the parties in the relationship
of partners, joint venturers, principal-agent, or employer-employee and neither
party shall have any power to obligate or bind the other whatsoever.
4. None of the terms of this Agreement may be waived or modified, nor
may this Agreement be renewed or extended except by express agreement in writing
signed by both parties.
5. All notices which must or may be given pursuant to this Agreement
shall be delivered by hand or sent by certified or registered mail in the case
of Xxxxxx to-
with a copy to:
9
Xxxxxxxx Xxxxx, Esq.
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
and in the case of Chromatics to:
Xxx. Xxxxx Xxxxxxxxxx
Chromatics Color Sciences International, Inc.
0 Xxxx 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
with a copy to:
Xxxx X. Xxxxxx, Esq.
Rosenman & Colin LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
--------------------------------------------------------------------------------
AGREED: |
------------------------------|-------------------------------------------------
CHROMATICS COLOR SCIENCES |
INTERNATIONAL, INC. | XXXXXX LABORATORIES, INC.
------------------------------|
By:___________________________ By:____________________________
Title:________________________ Title:_________________________
--------------------------------------------------------------------------------
10
EXHIBIT A
FIELD TEST REQUIREMENTS
1) Chromatics delivers 20 Colormate Systems for use at 20 Customer
Locations with Software as defined within.
2) Xxxxxx provides 20 Customer Locations which utilize the Colormate
System and Custom Blended Foundation Cosmetic Product Dispensing Systems.
3) Xxxxxx Delivers 20 Custom Blended Foundation Cosmetic Product
Dispensing Systems to the Customer Locations.
4) The Foundation Cosmetic Product manufactured by Xxxxxx for this
Field Test is acceptable to Chromatics.
5) Minimum monthly store sales over a 6-month period (such period
commencing on the date of the Ship Notice) of 45 1 oz. units per Customer
Location.
6) The Custom Blended Foundation Cosmetic Product Dispensing System
dispenses accurately the Foundation Cosmetic Product correctly reflecting the
Foundation Product Color Formulation provided by Chromatics as recommended by
the Software of the Colormate System provided by Chromatics at each Customer
Location.
7) CCSI's Colormate System identifies the customers' skin tones and
produces a color compatible custom blending formulation to be mixed by the
Custom Blended Foundation Cosmetic Product Dispensing System at each Xxxxxx
Customer Location.
1
EXHIBIT B, Part 1
Budget (Without Additional Field Test Income)
1. Salaries - $36,000 (includes training cost of Xxxxxx and Chromatics)
2. Marketing - $9,900 (includes printing of support and promotional
materials costs)
3. CMII(Trademark) Case Logo - $2,500 to CCSI for printing and installation
4. Auto - $000
5. Office - $1,100
6. Travel - $15,000 (includes travel expenses for Chromatics, or Xxxxxx
for Xxxxxx training by Chromatics)
7. Misc. - $3,400
8. Freight (Shipping CMII(Trademark)s and Insurance) - $2,500
9. Use of CMII(Trademark)s (to CCSI). $10,000 (6 x $1,667; 6 monthly
installments beginning 30 days after
Ship Notice)
10. Dispensing Systems - $4,375 (for dispensing systems when bought)
11. Original Cosmetic inventory Cost - $8,650 to Xxxxxx
Operating Cost
Sub-Total: $94,025
-75,000 - Originally contributed by CCSI and Xxxxxx
------- ($37,500 each)
$19,025
-10,468 - the Additional Payment committed to by Xxxxxx
------- and Chromatics if revenue insufficient from
$ 8,557 Field Test ($5,234 each)
$8,557
-4,325
------
$4,232 - up to $4,325 to be paid by Chromatics to Xxxxxx at
End of field test for receiving remaining inventory
product not sold during Field Test at $0.625 per
ounce together with other items described in Article
II.
$4,232 remaining indebtedness for total Budget if no additional revenue received
during Field Test.
12. Software Programming - to CCSI for programming cost for
CMII(Trademark)s (will only be paid out
of Budget if additional revenue received
to pay this amount from Field Test
otherwise CCSI absorbs this cost).
13. Cosmetic Product Formulation - to Xxxxxx for formulating Foundation
Cosmetic Product (will only be paid out
of Budget if additional revenue received
to pay this amount from Field Test,
otherwise Xxxxxx absorbs this cost.)
1
EXHIBIT B, Part 2
Chromatic Color Sciences/Xxxxxx Laboratories Field Test Budget with
Protected Field Test Income.
Profit & Loss Start Up Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Totals
Sales 0 3,240 6,600 15,760 16,900 18,900 18,900 80,300
Cost of Goods 0 875 1,800 3,080 3,935 3,935 3,935 17,560
Gross Profit 0 2,365 4,800 12,680 12,965 14,965 14,965 62,740
Expenses
Salaries 6,000 6,000 6,000 6,000 6,000 6,000 36,000
Marketing 6,200 2,500 750 750 750 750 750 12,450
Auto 100 100 100 100 100 100 600
Office Expense 500 100 100 100 100 100 100 1,100
Travel & Entertainment 3,000 3,000 3,000 2,000 2,000 2,000 15,000
Miscellaneous 500 665 456 458 448 448 448 3,423
Freight 420 420 420 1,200 2,460
Total Operating Expenses 7,620 12,785 10,826 10,408 9,398 9,398 10,598 71,033
(7,620) (10,420) (6,026) 2,272 3,567 5,567 4,367 (8,293)
Net Income
Balance Sheet
Assets:
Cash 62,380 42,959 31,686 25,111 25,860 29,750 32,404
Accounts Receivable 0 3,240 8,820 15,750 18,900 18,900 18,900
Inventory 8,660 8,660 8,660 8,660 8,660 8,660 8,660
Total Current Assets 71,040 54,859 49,166 49,521 53,420 57,310 59,964
Fixed Assets
Equipment Dispensing 4,375 4,375 4,375 4,375 4,375 4,375 4,375
Colormate Systems 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Colormate Software 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Xxxxxx Foundation Formula 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Total Assets 105,415 89,234 83,541 83,896 87,795 81,094 94,028
Liabilities & Equity
Accounts Payable 43,035 36,994 35,328 33,062 31,990 30,330 28,000
Paid-In Capital 70,000 70,000 70,000 70,000 70,000 70,000 70,000
Retained Earnings (7,620) (10,766) (21,700) (18,000) (14,200) (8,645) (4,331)
Total Liabilities & Equity 105,415 89,234 85,531 83,896 87,795 91,685 94,339
Cash Flow
Cash Flows from Operating
Activities
Net Income (7,620) (10,420) (6,026) 2,272 3,567 5,567 4,367 (39,839)
(Revenue) Decrease from
Changes
Accounts Receivable 0 (5420) (3,400) (7,100) (3,750) 0 0 (19,670)
Inventory (8,660) 0 0 0 0 0 0 (8,660)
Accounts Payable 43,085 (6,041) (1,055) (1,600) (1,600) (1,000) (1,000) 30,789
Cash Listed In Operating
Activities 26,735 (19,421) (11,094) (6,750) 749 3,599 2,635 (3,547)
Cash Flows from Inventory
Activities
Equipment Dispensing (4,375) 0 0 0 0 0 0 (4,375)
Colormate Systems (10,000) 0 0 0 0 0 0 (10,000)
Colormate Software (10,000) 0 0 0 0 0 0 (10,000)
Xxxxxx Equipment
Foundation (10,000) 0 0 0 0 0 0 (10,000)
Cash Used in Investing
Activities (34,375) 0 0 0 0 0 0 (34,375)
Cash Flows From Financing
Activities
Net Proceeds from CCSNGL 70,000 0 0 0 0 0 0 70,000
Cash provided by Financing
Activities 70,000 0 0 0 0 0 0 70,000
Net Increase of Cash 62,300 (79,221) (1,094) (6,755) 749 3,899 2,035 32,394
Cash Beginning 0 62,300 42,950 31,856 25,111 25,850 29,750 0
Cash Ending 62,300 42,950 31,856 25,111 25,850 29,750 32,394 32,394
EXHIBIT C
The following terms are to be reflected in any joint venture the parties
may enter into:
CCSI agrees to grant the Joint Venture exclusive distribution
rights in respect of the Foundation Cosmetic Products in the Specialty Retail
market (as defined in Exhibit A). In order to maintain the exclusivity
agreements, CCSI will receive preferred returns from the "free cash flows" (to
be defined) generated by the Joint Venture in each of the first 5 years of the
agreement or until CCSI receives a total of $2.5 million within the first 5
years of the agreement. In year 1, CCSI will receive the first $60,000 of free
cash flow. In year 2, CCSI will receive the first $690,000 of free cash flow. In
year 3, CCSI will receive the first $750,000 of free cash flow. In year 4, CCSI
will receive the first $500,000 of free cash flow. In year 5, CCSI will receive
the first $500,000 of free cash flow. In the event CCSI does not receive the
preferred returns from free cash flow as listed above during any of the first 5
years, both parties agree that (i) the exclusivity agreement with the Joint
Venture will be terminated and will be replaced with non-exclusive distribution
rights, (ii) CCSI and GAC will subsequently divide equally all future free cash
flow, and, (iii) CCSI will not directly sell to the following accounts already
established by the Joint Venture: Garden Botanika, Bare Essentials, Xxxxxxxx &
Xxxxxx, Bath & Body Works, Ulta 3, Beauty Mart, CEDA, the Body Shop, and H20
Plus.
For their part, in year 1, GAC will receive the second $60,000
of free cash flow. In year 2, GAC will receive the second $690,000 of free cash
flow, but not less than a minimum total payment of $250,000. In year 3, GAC will
receive the second $750,000 of free cash flow, but not less than a minimum total
payment of $375,000. In year 4, GAC will receive the second $500,000 of free
cash flow, butnot less than a minimum total payment of $500,000. In year 5, GAC
will receive the second $500,000 of free cash flow, but not less than a minimum
total payment of $500,000. In the event the Joint Venture fails to generate
sufficient free cash flow in any of the first 5 years to make its preferred
payment to CCSI and its secondary payment to GAC, provided the Joint Venture has
made its minimum total payments to GAC, the deficit will roll over into the
following year and be added to the secondary payment due to GAC in that year,
and so on for each of the subsequent years in the first 5 years. In each of the
first 5 years of the agreement, after CCSI has received its preferred payment
and GAC has received its secondary payment (plus any appropriate deficit
payments), CCSI and GAC will equally divide any remaining free cash flow. In
the event GAC does not receive their minimum total payments from free cash flow
as listed above during any of the first 5 years, both parties agree that (i) the
exclusivity agreement with the Joint Venture may be terminated at GAC's option
and will be replaced with non-exclusive distribution rights, (ii) CCSI and GAC
will subsequently divide all future free cash flow, and (iii) CCSI will not
directly sell to the following accounts already established by the Joint
Venture: Garden Botanika, Bare Essentials, Xxxxxxxx & Xxxxxx, Bath & Body Works,
Ulta 3, Beauty Mart, CEDA, the Body Shop, and H20 Plus.
In consideration of the preferred payments, at the time CCSI
receives a total of $2.5 million within the first 5 years of the agreement, CCSI
agrees to (i) pay GAC $300,000 from
1
their portion of future payments that exceed $500,000 in any one year until the
entire $300,000 is paid and, (ii) equally divide the free cash flows generated
by the Joint Venture after CCSI and GAC have each received a total of $2.5
million within the first 5 years of the agreement.
2
EXHIBIT D
APPROVED PAYMENTS
1. Salaries - not to exceed $36,000 - payable at Xxxxxx'x discretion to
third parties.
2. Marketing - not to exceed $9,900 - payable at Xxxxxx'x discretion to
third parties.
3. CMII Case Logo - not to exceed $2,500 - to CCSI.
4. Auto - not to exceed $600 - payable at Xxxxxx'x discretion to third
parties.
5. office - not to exceed $1,100.
6. Travel - not to exceed $15,000 - payable at Xxxxxx'x discretion to third
parties (includes CCSI travel costs for training Xxxxxx).
7. Miscellaneous - not to exceed $3,400.
8. Freight (shipping CMII's and Insurance) - not to exceed $2,500 - payable
at Xxxxxx'x discretion to third parties.
9. Dispensing Systems - not to exceed $4,375 - payable at Xxxxxx'x
discretion.
10. Cosmetic Product Inventory - not to exceed $8,650 - payable at Xxxxxx'x
discretion.
11. CMII Equipment - not to exceed $10,000 to CCSI @ $1,667 per month from
Ship Date for six months.
*12. Software Programming - not to exceed $10,000 to CCSI at end of six months
test, but payable only from additional income from Field Test.
*13. Formulation of Cosmetic Products - not to exceed $10,000 to Xxxxxx at end
of six months test, but payable only from additional income from Field
Test.
---------------------------
* Additional Income to be applied pro rata to items 12 and 13.
3
Schedule 1
Glossary
"Customer Location" shall mean those retail establishments selected by Xxxxxx
and approved in writing by Chromatics and which are owned and/or operated by
Xxxxxx Approved Customers.
"Foundation Products Formulations" shall mean that aspect and portion of the
Foundation Cosmetic Product which has been developed by Xxxxxx with respect to
the chemical and ingredient composition and the consistency of the Foundation
Cosmetic Product.
"Foundation Cosmetic Products" shall mean the final foundation cosmetic product
to be manufactured, marketed and distributed by Xxxxxx in the Field Test as
approved in writing by the parties hereto and reflecting the Foundation Products
Formulations and the colors and specifications of the Foundation Product Color
Formulations.
"Foundation Product Color Formulation" shall mean the recommendations and
specifications developed and licensed by Chromatics hereunder with respect to
the pigmentation, color and color compatibility aspects of the Foundation
Cosmetic Products.
"Budget" shall mean the approved Budget attached as Exhibit B hereto for the
Field Test described in Exhibit A hereto, as it may from time to time be
modified by the express written agreement of the parties.
"Budget Account" shall mean the Xxxxxx/Chromatics Joint Special Account at a
bank to be mutually agreed upon.
"Specialty Retail Market" shall mean any retail store chain that commits 80% of
its total retail selling space to personal care or cosmetic products such as
creams, lotions, makeups, or bath and body products such as shampoos,
conditioners, or gels, e.g., Garden Botanika, H20 Plus.
4
