EXHIBIT 6.1
PRODUCTION SERVICES AND MARKETING AGREEMENT
This Production Services and Marketing Agreement ("Agreement") is made
as of this 3rd day of November, 1999, between hawthorne direct inc, an Iowa
corporation with offices at 000 Xxxxx 00xx Xxxxxx, Xxxxxxxxx, Xxxx 00000
(hereinafter referred to as "Hawthorne"), and Kid Rom, Inc., a Delaware
corporation with offices at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
("Product Owner").
WHEREAS, Hawthorne is in the business of consumer product advertising,
marketing, television commercial production, media purchasing and management,
telemarketing management, fulfillment management, and management of marketing
campaigns utilizing television and other means; and
WHEREAS, Product Owner controls the marketing rights and certain
intellectual property for a product which improves skin wrinkles, tone and
texture, and which is currently known as Theracel (the "Product"); and
WHEREAS, Hawthorne and Product Owner desire that Hawthorne provide
certain services relating to the packaging, marketing, promotion and fulfillment
of the Product through direct response television and other means, and
WHEREAS, Hawthorne is willing to provide such services on the terms set
forth herein;
NOW, THEREFORE, in consideration of the promises contained in this
Agreement, Hawthorne and Product Owner agree, as follows:
1. Exclusive Rights. Product Owner hereby grants and gives to Hawthorne
the exclusive and unrestricted worldwide right to advertise, promote, market and
sell the Product through all forms of direct response and retail marketing,
including but not limited to infomercials and short form direct response
television commercials; QVC, HSN and other television home shopping channels;
radio; inbound and outbound telemarketing; credit card syndications; package
inserts; print advertising; direct mail solicitations; interactive and
non-interactive internet marketing such as web pages and email; catalogs; retail
stores (mass and specialty); and, in addition, other mutually agreed upon
marketing channels. During the term of this Agreement Product Owner shall not
market or sell the Product itself or through third parties through the marketing
channels as to which Hawthorne has exclusive rights without Hawthorne's prior
written approval.
2. Product Description. A description of the Product is set forth on
Attachment A.
3. Covenant Not To Compete. During the term of this Agreement, and for
a period of one year thereafter, neither Hawthorne nor Product Owner will market
any products that compete directly with the Product ("Competitive Product") in
the marketing channels as to which Hawthorne has exclusive rights hereunder,
unless agreed, in writing, by both parties. When Hawthorne is "functioning as an
advertising agency," meaning that it is performing services for traditional
advertising agency fees and commissions without receiving a percentage of sales
as part of its compensation, a "Competitive Product" means a product that
improves skin wrinkles by using live organic matter. On the other hand, when
Hawthorne receives a percentage of the sales as part of its compensation, a
"Competitive Product" means a product or line of products, applied externally,
whose purpose is to improve skin wrinkles or retard the person's aging process.
4. Intellectual Property/Marketing Materials
(a) During the term of this Agreement, Product Owner grants to
Hawthorne the exclusive right to use all existing and future trademarks and
copyrights (hereinafter referred to collectively as "Product Intellectual
Property") associated with the Product. Product Owner represents and warrants
that it is the lawful owner of all such rights as are necessary to provide the
exclusive use of the Product Intellectual Property to Hawthorne hereunder, and
that Hawthorne's use of the Product Intellectual Property shall not infringe
upon the rights of third parties.
(b) Product Owner shall make reasonably available to Hawthorne
original copies of all Product packaging, and sales and marketing materials,
whether in electronic, video or printed format (hereinafter referred to
collectively as "Product Marketing Materials"). A description of currently
existing Product Intellectual Property and Product Marketing Materials is set
forth as Attachment B.
5. Hawthorne Duties and Responsibilities. Subject to the remaining
provisions of this Agreement, including the payments to be made to Hawthorne by
Product Owner, Hawthorne shall be responsible to:
(a) Create and produce a 30-minute direct response television
commercial ("Infomercial"), which offers the Product, and exercise best efforts
to deliver final edit of Infomercial to Product Owner on or before March 6,
2000;
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(b) Create and produce a one and/or two-minute (as determined
by Hawthorne in consultation with Product Owner) television commercial ("Spot"),
which offers the Product Owner's Anti-Wrinkle Pillow, and exercise best efforts
to deliver final edit of Spot to Product Owner on or before January 7, 2000.
(c) Develop, with Product Owner's approval, Product pricing
and offers for all marketing campaigns as contemplated by this Agreement;
(d) Investigate, contract with and set up appropriate
agreements and procedures with suppliers of packaging, telemarketing,
fulfillment, customer service, banking and merchant account services for the
Product direct response marketing campaigns implemented hereunder;
(e) Create telemarketing scripts for Product direct response
marketing campaigns implemented hereunder;
(f) Design and execute a media test ("Media Test") for the
Infomercial and Spot (hereinafter referred to, collectively, as "Commercials");
(g) Create sub-masters and copies of Commercials ("Dubs") as
required to air on various broadcast television stations and cable networks
(hereinafter referred to, collectively, as the "Stations");
(h) Evaluate the results of the Media Tests and make
recommendations to Product Owner relative to potential adjustments, if any, to
Product pricing, offer structure, telemarketing scripts, or creative content of
the Commercials;
(i) Provided that the sales results of the Commercials meet
pre-established criteria ("Media Ratios") as established from time to time by
Hawthorne with the approval of Product Owner, which shall not be unreasonably
withheld, design, execute, manage and maintain an ongoing direct response
television marketing campaign for the sale of the Product by Product Owner
("Roll Out"); provided, however, that no cessation of the Roll Out shall affect
Hawthorne's rights to market the product through other marketing channels
authorized hereunder, or to subsequently resume a Roll Out of the Commercials in
the event of successful results from marketing the Product in other marketing
channels.
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(j) Select, with the approval of Product Owner, which shall
not be unreasonably withheld or delayed, the merchant account, telemarketer,
fulfillment house and other suppliers (collectively "Service Suppliers")
qualified to market the Product via means in addition to television, as set
forth in Section 1 herein ("Integrated Marketing Channels"); fund the expenses
related to setting up the Service Suppliers; and, subsequent to the Media Test,
and subject to Sections 5(i), (k), and (p) fund the purchase of Product
packaging and media time;
(k) Advance to Product Owner in a timely manner such funds as
shall be necessary to cover the direct out-of-pocket costs payable by Product
Owner to the manufacturer of the Product to cover such an amount of Product and
packaging as Hawthorne, after consultation with Product Owner, reasonably
determines to be warranted for the Roll Out and by the results of anticipated
results of marketing the Product through the Integrated Marketing Channels. The
Product shall be purchased from Product suppliers jointly selected by Product
Owner, and through Product packaging suppliers selected by Hawthorne
(collectively, "Approved Suppliers"). Hawthorne shall also arrange for
warehousing and shipment of packaged Product to fulfillment vendor(s);
(l) Manage the Customer List (as defined hereafter);
(m) With consent of Product Owner, which shall not be
unreasonably withheld, add an upsell script to be read to Commercial customers
calling the 800#, encouraging them to accept a 30 day free trial offer in a
discount shopping club ("Upsell Club");
(n) Generate semi-weekly, weekly, and monthly reports for
Hawthorne and Product Owner that provide forecasts and results of Product
marketing campaigns;
(o) Distribute all funds from merchant account and other
depositories of Product sales revenues to Product Owner, Hawthorne, suppliers
and Product customers (Product refunds) in accordance with the priorities
established in Section 7(k) herein, and in payment of all other contractual
obligations entered into by Hawthorne as required to fulfill its obligations of
this Agreement;
(p) Develop with the consent of Product Owner, which shall not
be unreasonably withheld or delayed, an integrated marketing plan to market the
Product via Integrated Marketing Channels, it being understood that Hawthorne
shall reasonably determine what media purchases, if any, shall be made as part
of the marketing plan and may refrain from any aspect of marketing through
Integrated Marketing Channels, or cease any marketing that has commenced, based
on media results or other sales criteria as reasonably determined by Hawthorne;
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(q) Maintain adequate accounting records related to Product
Owner's sale of the Product to consumers, as well as Hawthorne's activities
relative to this Agreement and provide Product Owner with reasonable and
appropriate substantiation of expenditures made by Hawthorne pursuant to this
Agreement.
(r) Use its best efforts to assist Product Owner in selling
any unsold Product.
6. Product Owner Duties and Responsibilities. Product Owner shall be
responsible to:
(a) Protect and enforce the Product Intellectual Property
rights on a best efforts basis;
(b) Provide timely consultation to Hawthorne in the creation
and production of the Commercials and in Product pricing and offer development;
(c) Provide Hawthorne in a timely manner with a list of
Product claims and substantiation of Product claims reviewed by a law firm
reasonably acceptable to Hawthorne and having a specialty in FDA and FTC
regulations and law (the "Firm");
(d) Oversee legal review of Product packaging and provide the
text of labels that may be used to provide an adequate product description
approved by the Firm;
(e) Provide Hawthorne with names of Product users for
Commercial testimonial purposes;
(f) Document Product quality and quantity requirements; use
its best efforts on a continuous basis to locate an alternative manufacturer
that is capable of manufacturing the Product at comparable costs to the present
manufacturer; insure, on a best efforts basis, that at least one Product
manufacturer is capable of meeting quality and quantity requirements; and
independently verify on a batch by batch basis that Product meets manufacturing
specifications;
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(g) Negotiate, on a best efforts basis and with Hawthorne's
joint participation, terms with Product manufacturers, including but not limited
to competitive volume pricing, 30- day net terms, and well documented return
privileges for off-specification production;
(h) Not unreasonably withhold consent of designated Media
Ratios that are required for Roll Out to occur;
(i) Pay the expenses related to (i) Hawthorne's creation and
production of the Commercials, based upon budgets set forth in Section 7 herein,
(ii) execution of the Media Tests, (iii) production of Dubs for the Media Tests
at rates set forth in Attachment C to this Agreement, (iv) legal review for
Product packaging and Commercials, including the claims that can be made, and
(v) manufacture of Product and packaging for Media Tests;
(j) Accept financial responsibility for all unsold, returned,
or defective Product other than Product damaged due to the negligence or willful
misconduct of Hawthorne.
(k) Fulfill all obligations of Product consumer warranties,
including replacement costs, refunds, and product liability claims. In this
regard, Product Owner shall obtain product liability insurance covering the sale
of the Product as set forth hereinafter.
7. Financial Considerations.
(a) Product Owner's cost of the Infomercial shall not exceed
$250,000, and Product Owner's cost of the Spot shall not exceed $28,000
(collectively referred to as "Cost Estimate"). For purposes of determining
Hawthorne's costs for all purposes under this Agreement, Hawthorne's staff will
be invoiced at actual salaries, plus 25% for taxes and benefits, and
out-of-pocket expenditures will be invoiced at Hawthorne's actual cost with no
markup by Hawthorne.
(b) The terms of payment for production of the Spot are five
thousand dollars ($5,000) upon execution of this Agreement, five thousand
dollars ($5,000) one day prior to the commencement of principal photography for
the Spot, and final payment in full within 90 days from the execution of this
Agreement, with payment to be evidenced by a promissory note in the form
attached hereto as Attachment D. The payments by Product Owner for the
Infomercial shall be, as follows:
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(i) Fifteen percent (15%) of the Cost Estimate, at the
time the final Infomercial script ("Script") and Cost Estimate are presented to
Product Owner;
(ii) Fifteen percent (15%) of the Cost Estimate, plus
estimated talent fees one business day prior to commencement of principal
photography for the Infomercial;
(iii) Thirty percent (30%) of Cost Estimate one day prior
to the planned commencement of principal photography,
(iv) Final balance (based on actual costs), and Stock
Warrants (as defined in Section 7(j) herein) at the completion of editing of the
Infomercial, upon final Product Owner approval and prior to release of tape
master or release of copies of the Infomercial.
(c) The following costs are above the Cost Estimate and will
be billed to and paid by Product Owner at Hawthorne's cost:
(i) For travel approved in advance by Product Owner, all
travel and living expenses incurred by Hawthorne personnel (coach airfare,
standard hotel rates, $50 meal per diems) in connection with Hawthorne's
responsibilities under this Agreement;
(ii) All legal opinions for the Script, Commercial
off-line and Commercial on-line edits (estimated cost: $1,500 to $5,000)
rendered by attorneys with expertise in direct response television ads;
(iii) All approved by Product Owner talent related costs
related to the production and subsequent airing of the Infomercial including,
but not limited to: talent casting, travel, wardrobe, teachers, broker fees;
talent fees and royalties, payroll fees, pension and welfare fees, taxes;
AFTRA/SAG talent residuals.
(d) Subsequent to the termination of the Cost Estimate of the
Commercial, any additional production work due to Product Owner's initiated
changes in either the Product, Product offer, Script, set design, talent, music,
graphics, shooting schedule, rough edit, or final edit will be invoiced at
Hawthorne's cost as additional charges to Product Owner. Notwithstanding the
above, any additional costs directly resulting from Hawthorne's changes in
either the Product, Product offer, Script, set design, talent, music, graphics,
shooting schedule, rough edit, or final edit shall be for the account of
Hawthorne, unless otherwise agreed to in writing by Product Owner. Unanticipated
talent, crew and equipment overtime charges incurred during taping or filming
sessions will be invoiced to Product Owner, unless such overtime is due to
Hawthorne's negligence. Hawthorne reserves the right to invoice Product Owner
for additional charges incurred by Hawthorne due to unreasonable delays caused
by Product Owner. The additional charges set forth in this Section 7(d), should
they occur, will be mutually agreed upon in advance by both Product Owner and
Hawthorne.
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(e) Hawthorne shall have a lien on all tapes of the Commercial
until full payment for any due or outstanding accounts is received from Product
Owner.
(f) The Cost of the Infomercial Media Test shall not exceed
$60,000, and cost of Spot Media Test shall not exceed $7,500. The foregoing
Media Test budgets do not include the cost of Dubs.
(g) Hawthorne will receive a commission equal to fifteen
percent (15%) of the total gross media cost for media time that is purchased by
Hawthorne for the Commercial.
(h) Product Owner shall pay Hawthorne Participation Fees at
the following rates:
(i) Two and one-half percent (2.5%) of all direct response
(television, print or otherwise) Net Product Sales (as defined in Section 7(i),
below), direct response upsell Net Product Sales, and retail Net Product Sales;
(ii) Seven percent (7%) of direct response continuity Net
Product Sales; and
(iii) Ten percent (10%) of the Net Product Sales in all
other Integrated Marketing.
(i) For purposes of this Agreement, Net Product Sales are
equal to gross Product revenues less returns, credit card chargebacks and bad
debts, and do not include sales taxes or shipping and handling fees.
(j) Product Owner will issue to Hawthorne stock options
("Stock Options") as described on Attachment E.
(k) Subsequent to the Media Test, Hawthorne will make
disbursements from the merchant account in the following priority:
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(i) Reimbursable expenses incurred by Hawthorne in the
course of fulfilling its obligations under this Agreement including, but not
limited to: media costs and commissions; telemarketing, fulfillment and merchant
account set-up and operating expenses; cost of Product and Product packaging as
determined by Hawthorne for the commencement or continuation of any Roll Out or
for marketing through Integrated Media Channels, customer refunds, Dubs and
additional pre-approved production fees, if any, retail distribution fees, if
any;
(ii) Reimbursable expenses incurred by Product Owner,
Product Owner's share of gross profits (defined as "List Profits" below)
resulting from rental of Product customer names generated pursuant to this
Agreement ("Customer List"), and Upsell Club Revenues (as defined), if any;
(iii) Hawthorne Participation Fees, calculated on an
accrual basis, and other pre-approved additional fees, if any,
(iv) Product Owner profits, if any, calculated on an
accrual basis.
(l) Provided that funds are available in merchant account,
Hawthorne shall distribute from the merchant account payments described in
Sections 7(k)(i) and 7(k)(ii) at its discretion to meet obligations to suppliers
of Product, or for other materials or services hereunder. An accounting of all
such payments will be provided to Product Owner in a form that is satisfactory
to both parties within thirty (30) days following the end of each month.
(m) Provided that funds are available in the merchant account,
Hawthorne shall distribute payments, if any, described in Sections 7(k)(iii) and
7(k)(iv) herein from the merchant account within twenty (20) days following the
end of each month, and shall accompany such payments with an accounting in a
form that is satisfactory to both parties.
(n) Hawthorne grants Product Owner the right to examine
Hawthorne's books and records related to Product sales resulting from
Hawthorne's activities pursuant to this Agreement up to two (2) times per
calendar year, such examination to take place at Hawthorne's place of business
during normal business hours upon seven (7) days' written notice. Product Owner
agrees to bear the cost of such examination except in the event that examination
discloses a discrepancy in Product Owner's favor of more than five percent (5%);
in which case Hawthorne shall bear Product Owner's reasonable costs of such
examination. Notwithstanding the above, any payment discrepancies shall be
adjusted and paid within thirty (30) days of discovery of such discrepancies,
including interest at ten percent (10%) per annum..
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8. Original Music. If Hawthorne causes the creation of original music
for the Commercial (hereinafter referred to as "Original Music"), and Hawthorne
obtains publishing rights from the author(s) of the Original Music, Hawthorne
shall share the profits from publishing rights, including all publishing
royalties in connection with Original Music, in the ratio of 50% to Hawthorne
and 50% to Product Owner. Hawthorne shall use its best efforts to obtain from
the author(s) for Product Owner the non-exclusive, perpetual right to the use of
such Original Music in, and in connection with, the Commercial. In the event
that an individual or entity other than Hawthorne purchases media time for the
Commercial at any time in the future, Product Owner agrees to provide Hawthorne
or its designated representative a monthly media buy list which shall be used
for the exclusive purpose of obtaining royalties for Original Music. Such media
buy lists shall be grouped by broadcast market or cable network and will contain
the following information: name of broadcast market, station or network call
letters, date and time of airing.
9. Product Samples. For purposes of taping the Commercial, Product
Owner will provide Hawthorne with six (6) complete Product units at no charge to
Hawthorne.
10. Ownership and Storage of Commercial. Upon Hawthorne's receipt of
final payment for the Commercial and airing of the Media Test, the Product Owner
is entitled to full ownership rights of the completed Commercial and will
receive one edit master. Additional edit masters of different lengths may be
required for airing on certain cable networks. All production work performed
after the completion of the Commercial such as additional masters, Dubs, special
edits, and shipping of Dubs are additional costs and will be invoiced at
Hawthorne's current rates. As a service to Product Owner, Hawthorne will store
edited Commercial source footage, masters, sub masters, source video and audio
tapes, film transfers, and graphics discs (hereinafter referred to as ("Source
Materials") in Hawthorne's climate controlled library. Hawthorne shall not be
liable for any damage to or loss of Source Materials by any cause including,
without limitation, fire, theft, act of God, or the negligence or other fault of
Hawthorne or its employees or agents. While Product Owner Source Materials are
stored at Hawthorne facilities, Hawthorne's liability is limited to the cost of
a like amount and type of blank stock only. This is the Product Owner's sole
remedy, and recovery for any other damages is excluded, including, without
limitation, incidental or consequential damages.
11. Ownership of Customer List and Profit Sharing. The Customer List
shall be owned by Product Owner and for purposes unrelated to the marketing of
the Product may be jointly managed by Product Owner (Hawthorne manages the
Customer List for purposes relating to the Product), however, Hawthorne and
Product Owner shall share all List Profits in the ratio of 50-50. The Customer
List, as managed by Hawthorne, may be used for marketing the Product, upsells,
backsells, cross-sells and related activities. The Customer List, as managed by
Product Owner, shall not be used to market any products competing with the
Product. Hawthorne shall be notified in writing in advance of all marketing uses
of the Customer List by Product Owner, and Product Owner shall provide Hawthorne
with reasonable information about all such uses. For purposes of this Agreement,
List Profits shall consist of gross revenues generated by the rental of the
Customer List, less broker, shipping, data processing and other direct costs
customary and necessary to generate mailing list rental income.
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12. Upsell Club Revenues. Hawthorne shall pay Product Owner twelve
dollars ($12) for each customer who agrees to the free trial of the club upsell,
and will also pay for the cost of the additional telemarketing script for the
club upsell ("Upsell Club Revenues").
13. Financial Risk. Product Owner acknowledges that it is well informed
of the financial risks associated with airing the Commercial and agrees not to
hold Hawthorne responsible for the degree of success or any lack of success
resulting from airing the Commercial. Hawthorne provides no warranty, expressed
or otherwise, as to the potential degree of success that may result from airing
the Commercial, except that it agrees to exercise its best efforts to distribute
the Product in accordance with the terms of this Agreement.
14. Confidential Information. During the course of this Agreement, each
party may provide the other with confidential, trade secret information. Each
party agrees that information that has been identified as the Confidential
Information of a party in writing shall be held in confidence by the other party
and not used (except for purposes of this Agreement) or disclosed to third
parties in perpetuity. Confidential Information shall not include information in
the public domain, information already known by a party prior to its receipt
from the other party as evidenced by written documentation in possession of the
receiving party prior to the disclosure, and information received by a party
from third parties without any breach of a confidentiality obligation.
15. Indemnification.
(a) Product Owner shall indemnify and hold Hawthorne and its
affiliates, representatives and employees free and harmless from all claims,
demands, losses, and liabilities (including, but not limited to, actual damages,
punitive damages, fines and reasonable legal fees) arising out of the airing or
other use of the Commercial, and/or the Products sold as a consequence of the
Commercial or through the Integrated Marketing Claimants, whether instituted by
any governmental body, federal, state, or local, any prosecutorial or law
enforcement agency, or any other person or organization, including, but not
limited to, any FTC, FDA, or Dept. of Agriculture proceeding or investigation,
and any suit for product liability.
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(b) Product Owner shall use its best efforts to obtain product
insurance in the amount of at least $2 million naming Hawthorne as an additional
insured, and shall provide a certificate of insurance from the carrier to
Hawthorne prior to delivery of the final tape of the Commercial. Such insurance
shall not be cancelable, except on 30 days' written notice to Hawthorne. In the
event of a termination of such insurance, Product Owner shall be deemed to be in
breach of this Agreement, and, at Hawthorne's option, Hawthorne may terminate
the Agreement on 15 days' notice to Product Owner, or Hawthorne may suspend any
media buys during the term such insurance is not maintained. Any period of
suspension shall be added to the term of this Agreement notwithstanding anything
to the contrary herein. Hawthorne shall give Product Owner prompt written notice
of all suits and claims for infringements and an opportunity to defend the same,
at its own expense, through counsel of Product Owner that is reasonably
acceptable to Hawthorne, and to control such defense. Notwithstanding the
foregoing provisions of Section 15, in the event Product Owner cannot reasonably
obtain such insurance and Hawthorne can obtain such insurance, or it is
significantly less expensive for Hawthorne to obtain such insurance, Product
Owner shall pay cost of such insurance at the time or times payment is required
by Hawthorne's insurance carrier.
(c) Hawthorne shall indemnify and hold Product Owner and any
of its affiliates, representatives and employees free and harmless from all
claims, demands, losses, and liabilities (including, but not limited to, actual
damages, punitive damages, fines and reasonable legal fees) arising out of the
production of the Commercial. Product Owner shall give Hawthorne prompt written
notice of all suits and claims for infringements and an opportunity to defend
the same, at its own expense, through counsel for Hawthorne that is reasonably
acceptable to Product Owner, and to control such defense.
16. Representations and Warranties of Product Owner. Product Owner
warrants and represents that:
(a) Product Owner is a corporation, duly organized and in good
standing under the laws of the state of Delaware;
(b) The execution and delivery of this Agreement and the
consummation of transactions contemplated hereby do not conflict with, and shall
not result in a breach of, or constitute a default under any agreement to which
Product Owner is currently a party;
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(c) Product Owner has good and marketable title to the Product
and the right to sell the Product bearing any trade names or trademarks or
Product Intellectual Property contained thereon, free and clear of all liens,
leases, pledges, claims, charges, conditions or encumbrances of any kind or
nature, except for the lien and security interest granted to Hawthorne in this
Agreement;
(d) There are no claims, lawsuits, actions or proceedings
pending, or threatened against Product Owner which could adversely affect the
Product or the rights granted to Hawthorne hereunder or the transactions
contemplated by this Agreement;
(e) The Products are merchantable, suitable and fit for the
use for which each was intended. Product Owner is not aware of any defects or
potential harm to users. Product Owner is not aware of any claims which have
been made in connection with the safety or efficacy of the Products. Product
Owner has complied with all federal, state or other laws, rules and regulations
with respect to the development, manufacture, testing and packaging of the
Product, including without limitation, consumer protection law and rules and
regulations of the Food and Drug Administration or any other agency having
jurisdiction;
(f) Product Owner has the full right and title to use and
exploit the Commercial, and neither Product Owner nor any third party will cause
any claims or litigation with respect thereto, concerning or purporting to
affect adversely the Commercial;
(g) No consent of any third party or any state or federal
government agency is required to be obtained by Product Owner in order to
consummate the transaction contemplated by this Agreement (including airing of
the Commercial and sale of the Product) or to enable Product Owner to perform
Product Owner's obligations hereunder;
(h) Product Owner will be able to manufacture or cause to be
manufactured an adequate supply of the Products to be sold pursuant to the
Commercials.
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(i) Product Owner will not receive any commissions or other
payments from Approved Suppliers, unless such payments are approved in advance
by Hawthorne.
17. Representations and Warranties of Hawthorne. Hawthorne warrants and
represents that:
(a) Hawthorne is a corporation, duly organized and in good
standing under the laws of the state of Iowa;
(b) The execution and delivery of this Agreement and the
consummation of transactions contemplated hereby do not conflict with, and shall
not result in a breach of, or constitute a default under any agreement to which
Hawthorne is currently a party,
(c) No consent of any third party or any state or federal
government agency is required to be obtained by Product Owner in order to
consummate the transaction contemplated by this Agreement or to enable Hawthorne
to perform Hawthorne's obligations hereunder.
18. Independent Parties. This Agreement is not intended to create any
partnership or joint venture arrangement. Each of the parties is independent
contractors and, except as expressly set forth in this Agreement, neither party
shall have the right to bind the other party or any other person by virtue of
the relationship created hereby.
19. Term of Agreement. The term of this Agreement shall be for one year
following the initial air date of the Media Test; provided, however, that this
Agreement shall be automatically renewed for a second year provided that an
aggregate of at least 50,000 Product units are sold during the initial year and
shall be automatically renewed for a third year provided that an aggregate of at
least 75,000 Product units are sold during the second year; and provided,
further, that this Agreement shall be renewed for year-long periods thereafter,
in the event at least 100,000 Product units are sold in the third year and in
subsequent years, pursuant to the marketing and exploitation rights granted to
Hawthorne hereunder.
20. Default. A party shall be in default hereunder in the event that it
fails to make a payment when due for a period of seven business days after
written notice of default is given to the party and, in the case of defaults
other than the payment of money, in the event a party fails to fulfill his
obligations after 30 days' written notice of default is given; provided,
however, that if the nature of the default is such that it cannot reasonably be
cured within such 30-day period, a party shall not be deemed to be in default
provided that it commences to cure the default within such 30-day period and
thereafter diligently completes the cure. In the event of a default, a party
shall have all remedies available to it at law or in equity, including the
option to terminate this Agreement within 30 days after the party's knowledge of
the default and the expiration of any cure period; provided that in the event
the non-breaching party does not elect, by notice to the defaulting party, to
terminate this Agreement during such 30-day period, the option to terminate this
Agreement on account of such default (but not future defaults) shall lapse.
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21. Rights and Duties on Termination.
(a) Upon any termination of this Agreement, and irrespective
of the reason for termination, Hawthorne shall have the right to (i) sell any
Product inventory (which shall be owned by Hawthorne until sold to third parties
or Product Owner) to Product Owner at Hawthorne's cost, and if Hawthorne
exercises such option as to some or all of the inventory of Product, the Product
Owner shall pay for the Product contemporaneously with the delivery thereof,
with title to pass at the time of shipment from Hawthorne's warehouse, and with
the Product Owner to pay all freight and insurance in connection with the
shipment, and (ii) to sell any unsold Product Inventory, through any marketing
channels Hawthorne is permitted to utilize under this Agreement, for a period of
24 months after such termination.
(b) Upon any termination of this Agreement by Product Owner
for any reason other than a material default hereunder by Hawthorne or a
termination as a result of Hawthorne not selling the number of Product Units
necessary to extend the term of this Agreement, as, for example, a termination
on account of a breach of this Agreement by Product Owner, the Product Owner
recognizes that Hawthorne may not have had the opportunity to earn the discount
that it is providing by virtue of being paid only an amount approximating
Hawthorne's cost in connection with the production of the Commercial, and by
virtue of Hawthorne not being paid for certain other services hereunder as, for
example, services in establishing agreements and procedures with Telemarketers,
Product Suppliers, Merchant Accounts, and the like. Accordingly, the damages to
Hawthorne as the result of any such termination shall include, but not limited
to, the cost that Hawthorne would have been paid for the Commercial, but for the
discount herein, and the fair value of any other services paid for by Hawthorne
and not compensated for hereunder.
22. Notices. Any notices hereunder shall be in writing and shall be
deemed given in case of notices by mail, three business days after deposit in a
U.S. mail receptacle, properly addressed, certified mail, return receipt
requested, or upon receipt in the case of notices by telecopy, personal delivery
or email. Notices shall be given to the address set forth above, or to any other
address provided by a party hereunder in the requisite manner.
15
23. Entire Agreement. This constitutes the entire Agreement of the
parties with respect to its subject matter and supersedes any and all prior
understandings. This Agreement may only be modified by an agreement in writing
signed by both parties.
24. Section Headings. The section headings or captions in this
Agreement have been set forth by the parties as a convenience, and shall not
have any bearing on the interpretation of this Agreement.
25. Waiver of Breach. The waiver of a party of any breach of this
Agreement shall not constitute a waiver of any other breach of this Agreement.
26. Assignability. This Agreement shall be binding upon the parties and
any successors to the business of the parties. In view of the personal nature of
certain of the services and the close relationship of the parties necessary in
connection with fulfilling the obligations of this Agreement, this Agreement
shall not, however, be permitted to be assigned to any third party (except in
the case of a sale of all or substantially all the assets of a party), without
the written consent of the other, which consent may be withheld for any reason
whatsoever.
27. Arbitration. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the rules of the American
Arbitration Association. The award of the arbitrator(s) shall be final and
binding on the parties and may be enforced in any court of competent
jurisdiction. Arbitration shall be held in Des Moines, Iowa. The prevailing
party in any arbitration shall be reimbursed for all costs and expenses in
connection with the arbitration, including reasonable attorneys' fees.
16
28. Applicable Law. The Agreement and all matters and/or issues
collateral thereto will be governed by the laws of the State of Iowa applicable
to contracts made and performed entirely therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date first above mentioned.
Kid Rom, Inc. hawthorne direct inc
By: By:
---------------------------- ----------
Print Name: Print Name:
Title: Title:
17
Kid Rom, Inc. Product Description
TheraCel Line of Products
UltraDerm Advanced Pro-Cellular Formula
Day Moisturizer
Night Serum
Cleansing Bar
Pro-Cellular Moisturizer
Anti-Wrinkle Pillow (to be named)
18
ATTACHMENT A
Product Intellectual Property
Theracel Trademark
Anti-Wrinkle Pillow Patent--large and small versions, including cover
19
Product Marketing Materials
None
20
ATTACHMENT B
Videotape Dubbing and Editing Rates
Duplication (with no editing)
Tape stock and box included
30 Minute 1 to 2 Minute
Programs Spots
1/2" VHS Demo $7 $5
3/4" Broadcast Dub $30 $25
Beta Broadcast Tape $40 $25
Beta SP Broadcast Tape $50 $30
1" Broadcast Dub $50 $15
Note: $10 additional charge per tape for 24 hour turnaround. Above rates do
not include shipping charges for tapes sent to or returned from
stations.
Commercial and Program Editing
30 Minute 1 to 2 Minute
Programs Spots
Dub Master-Custom Voice Over* $175 $36
Special Edit** $150 $36
* Dub masters are created each time a new 800# is used.
** Special edits are required for changes in show length (as specified by
certain cable networks), product price changes, inserting special keys
and crawls into the body of the show, voice or music change, graphic
tag change, etc.
DUB RATE C
August 1998
21
ATTACHMENT C
PROMISSORY NOTE
November 3, 0000
Xxxxxxxxx, XX
FOR VALUE RECEIVED, the undersigned, Kid Rom, Inc. ("Maker"), whose address is
000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, hereby promises to pay to the
order of hawthorne direct, inc. (the "Holder"), at Holder's offices, located at
000 Xxxxx 00xx Xxxxxx, Xxxxxxxxx, Xxxx 00000, or at such place as Holder may
from time to time designate in writing to Maker, in lawful money of the United
States and in immediately available funds, the principal amount of $28,000 or
such lesser sum as Maker shall prove shall be owed to Holder on account of a one
and/or two minute television commercial (the "Spot") offering the Maker's
anti-wrinkle pillow pursuant to the Production Services Marketing Agreement
("Agreement") between the parties. The Principal shall be paid as follows:
$5,000 one day prior to the commencement of principal photography for the Spot
and final payment on the date that is 90 days after the execution of this Note.
A further $5,000 is being paid by Maker to the Holder on execution of this Note
and is not covered by the Note.
After the due date, the Principal shall bear interest at the rate of one and
one-half percent (1.5%) per month.
Upon the occurrence of any one of the following events of default, all
outstanding Principal amounts under this Note, and interest calculated thereon
at the rate set forth above, shall become immediately due and payable:
A. Failure to pay Principal or interest when it is due and payable, if not cured
within seven (7) days after notice;
B. Commencement against Maker of any proceeding under any bankruptcy,
reorganization, readjustment of debt, dissolution, or liquidation law, status,
rule or regulation of any jurisdiction, whether now or hereafter in effect which
proceeding is not dismissed within ninety (90) days of such commencement; or
C. Any assignment by Maker for the benefit of creditors; or
D. Any admission in writing by Maker of its inability to pay its debts as they
become due; or
E. The filing by Maker of a voluntary petition in bankruptcy or any petition
seeking for it any reorganization, readjustment of debt, dissolution,
liquidation, or similar relief under any law, statute, rule or regulation of any
jurisdiction, whether now or hereafter in effect.
22
The Maker, and any other person or entity which is or becomes liable for the
payment or collection of this Note, hereby waives presentment, demand, protest,
and notice of dishonor and protest.
This Note shall be secured by all assets of the Maker in possession of the
Holder as of the date hereof or thereafter acquired. The Maker shall cooperate
with the Holder in taking such steps as are necessary or convenient to perfect
the Holder's security interests, including the execution of financing
statements.
Should the indebtedness represented by this Note or any part thereof be placed
in the hands of an attorney for collection after an event of default, as defined
herein, the Maker agrees to pay the principal and interest due and payable
hereon, and all costs of collection of this Note, including reasonable
attorneys' fees and expenses. Any action on or relating to this Note shall be
governed by the law of Iowa, without regard to conflicts of law rules.
KID ROM, INC.
By:
--------------------------------
23
ATTACHMENT D
STOCK OPTION AGREEMENT
Kid Rom, Inc.
THIS OPTION AGREEMENT ("Agreement"), dated as of the 3rd day of
November, 1999, between Kid Rom, Inc., a New York corporation with offices at
000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (hereinafter called the
"Company"), and hawthorne direct, inc., an Iowa corporation with offices at 000
Xxxxx 00xx Xxxxxx, Xxxxxxxxx, Xxxx 00000 (hereinafter called the "Optionee").
WITNESSETH:
WHEREAS, the Optionee is entering into a Production Services
and Marketing Agreement (the "Product Agreement") with the Company, pursuant to
which this option shall be granted to Optionee;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter set forth, using terms as defined in the
Production Agreement, the parties hereto agree as follows:
x. Xxxxx of Option. Subject to the remaining terms and conditions of
this Option Agreement, the Company grants to the Optionee the option (the
"Option") to purchase that number of shares s of common stock of the Company,
determined in accordance with Section 2 (c), subject, however, to adjustment as
provided in Section 2 (e) hereof ("Option Stock")
24
2. Terms and Conditions of Option.
(a) Option Price. The price at which each share of Option
Stock may be purchased shall be as set forth in Section 2 (c).
(b) Option Period. The period for exercise of the Option (the
"Option Period") with respect to the Option Stock shall commence immediately
upon the execution by the Company and the Optionee of this Agreement and shall
end five years after the end of the performance year with respect to which the
options hereunder and the Option Price are determined, as set forth in Section 2
(c).
(c) Number of Options and Option Price. During the period of
one year following the initial air date of the Media Test (the "First
Performance Year"), in the event that the number of Product units sold pursuant
to the Production Agreement, is as set forth in the table below, Optionee is
granted the option to purchase the number of shares of common stock of the
Company at the price set forth in the table below. Similarly, in the event the
Product Agreement continues for a Second or Third Performance Year, Optionee is
granted the further option to purchase the number of shares of common stock of
the Company at the price set forth in the table for each such Performance Year,
with each such option as is granted hereunder to be exercisable for a period of
five years after the end of the Performance Year whose sales determined the
grant of options. By virtue of the table below, in the event 65,000 Product
Units are sold in the First Performance Year, 110,000 Product Units are sold in
the Second Performance Year, and 200,000 Product Units are sold in the Third
Performance Year, the Optionee is granted a five year option at the end of the
First Performance Year to purchase 110,000 shares of common stock of the Company
at $.85 per share, a further five year option at the end of the Second
Performance Year to purchase 200,000 shares of the Company's common stock at
$.85 per share, and a further five year option at the end of the Third
Performance Year to purchase 600,000 shares of common stock of the Company at
$.50 per share. There shall be no interpolations in the table other than as set
forth therein, such that in the event 54,000 Product units are sold in the First
Performance Year, the Optionee is, at the end of such Year, granted the option
to purchase 50,000 shares of common stock of the Company at $1.00 per share.
25
First Performance Year
Product Units Sold Number of Option Shares Granted Option Price per Share
------------------ --------------------------------- ----------------------
50,000 50,000 $1.00 per share
55,000 70,000 .95
60,000 90,000 .90
65,000 110,000 .85
70,000 130,000 .80
75,000 150,000 .75
80,000 180,000 .70
85,000 210,000 .65
90,000 240,000 .60
95,000 270,000 .55
Second Performance Year
Product Units Sold Number of Option Shares Granted Option Price per Share
80,000 80,000 $1.00 per share
90,000 120,000 .95
100,000 160,000 .90
110,000 200,000 .85
120,000 240,000 .80
130,000 300,000 .725
140,000 360,000 .65
150,000 420,000 .575
160,000 480,000 .50
Third Performance Year
Product Units Sold Number of Option Shares Granted Option Price per Share
100,000 100,000 $1.00 per share
110,000 140,000 .95
120,000 180,000 .90
130,000 220,000 .85
140,000 260,000 .80
150,000 300,000 .75
160,000 360,000 .70
170,000 420,000 .65
180,000 480,000 .60
190,000 540,000 .55
200,000 600,000 .50
(d) Exercise of Options. In order to exercise the Option, the
Optionee shall deliver to the company written notice specifying the number of
shares of Option Stock to be purchased, together with cash or a check payable to
the order of the Company in the full amount of the purchase price therefor. The
Optionee shall not have any of the rights of a stockholder until the shares of
Option Stock are issued to it.
26
(e) Adjustments for Change in Stock and Other Events. In the
event of a reorganization, recapitalization, stock split, stock dividend, any
other issuance of shares for no consideration, or a combination of shares,
consolidation, merger (other than a merger or consolidation which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares), any sale or transfer by the Company of all or substantially
all of its assets, or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the then
outstanding voting securities of the Company, or any other change in the
corporate structure or rights with respect to any shares of the Company, the
Company shall make such adjustments as shall be appropriate in the number and
kind of shares of Option Stock subject to the Option, and/or in the option price
per share, to provide that the Optionee shall have the right following such
event, during the period that the Option shall be exercisable, to exercise the
Option for the kind and amount of securities, cash and other property receivable
upon such event by a holder of the number and kind of shares of common stock for
which such Option might have been exercised immediately prior to such event.
27
(f) Registration, Listing and Qualification of Shares of
Stock/Shareholders' Agreement. The Option shall be subject to any legal
requirements relating to the issuance of securities. For example, if it becomes
necessary to register the Option Stock with the Securities and Exchange
Commission, or if any other government approval is necessary in connection with
the issuance of the Option Stock, the Board of Directors may impose reasonably
necessary conditions upon the exercise of the Option in order to comply with
such legal requirements.
3. Modification and Waiver. Neither this Option Agreement nor any
provision hereof can be changed, modified, amended, discharged, terminated or
waived orally or by any course of dealing or purported course of dealing, but
only by an agreement in writing signed by the Optionee or his estate and the
Company. No such agreement shall extend to or affect any provision of this
Option Agreement not expressly changed, modified, amended, discharged,
terminated or waived. The waiver of or failure to enforce any breach of this
Option Agreement shall not be deemed to be a waiver or acquiescence in any other
breach thereof.
28
4. Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
5. Arbitration. Any dispute hereunder shall be settled by arbitration
in Des Moines, Iowa, in accordance with the rules of the American Arbitration
Association. The award of the arbitrator in such proceeding shall be final and
binding and may be enforced in any court of competent jurisdiction. The
prevailing party in any such arbitration shall be reimbursed for all expenses of
the arbitration, including reasonable attorneys' fees.
6. Notices. Any notices or other communications hereunder shall be in
writing and sent by registered or certified mail, return receipt requested, or
hand delivered, and if to the Company to it at its principal place of business,
and if to the Optionee to him at the address set forth above. The address for
the giving of notices may be changed by notice given in the manner set forth
herein.
IN WITNESS WHEREOF, Kid Rom, Inc. has caused this Option Agreement to
be duly executed by its duly authorized officer, and the Optionee has hereunto
set his hand, on the day and year first above written.
OPTIONEE: COMPANY:
hawthorne direct inc Kid Rom, Inc.
By By
--------------------- ------------------------
29
ATTACHMENT E
30
