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DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made and entered into as
of October 1, 1997 (the "Effective Date") by and between Long Distance Direct
Holdings, Inc., a Nevada corporation ("LDDI") and Xxxxx-Xxxxxx Corporation, a
Delaware corporation ("GRC").
RECITALS
WHEREAS, LDDI's principal business is the provision of long distance
telephone service and certain ancillary telecommunications services which are,
in general, co-extensive with the services offered by AT&T Corporation ("AT&T")
and MCI Telecommunications Corporation ("MCI") to their own customers (such
services as more particularly described on Schedule I attached hereto are
hereinafter referred to as the "LDDI Services").
WHEREAS, GRC's principal business is the marketing and distribution of
products and services primarily through direct response programming, including
without limitation, television infomercials produced by GRC.
WHEREAS, Long Distance Direct Marketing, Inc. ("LDDM"), a subsidiary of
LDDI, and Guthy-Xxxxxx-Xxxxxx ("GRE"), a California general partnership and
affiliate of GRC, previously entered into an agreement dated May 15, 1996 (the
"Initial Agreement") regarding the marketing and distribution of a certain
product known as a Sales Agent Kit through a television infomercial produced by
GRE (the "Initial Infomercial");
WHEREAS, LDDI and GRC wish to terminate the Initial Agreement as of the
Effective Date and enter into this Agreement with respect to the marketing and
distribution of LDDI Services by GRC through direct response programming,
including television infomercials, or otherwise, all on the terms and subject to
the conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the Recitals and the mutual covenants
and agreements contained herein, LDDI and GRC agree as follows:
1. Termination of Initial Agreement. LDDI and GRC agree on behalf of
themselves, and LDDM and GRE, respectively, that upon their execution of
this Agreement and effective as of the Effective Date, the Initial
Agreement shall terminate and neither LDDI, GRC, LDDM or GRE shall have
any obligations or liabilities to the other under the Initial Agreement.
Notwithstanding the foregoing, (i) GRC shall be entitled to receive and
LDDI shall pay on the terms set forth in the Initial Agreement a two
percent (2%) commission on all Net Receipts (as detailed below) received
by LDDI from long distance telephone xxxxxxxx to LDDI customers generated
directly or indirectly by the Initial Infomercial (the "Initial
Infomercial Customers"), except that if GRC elects, pursuant to Section
4.1.1 below, to
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substitute the Initial Infomercial for the New Infomercial (as defined in
Section 4.1.1), then the provisions of Section 5 and not this Section 1
shall govern with respect to amounts to be paid to GRC on all Net Receipts
received by LDDI from xxxxxxxx to Initial Infomercial Customers following
such election; (ii) LDDI shall provide LDDI Services to the Initial
Infomercial Customers; (iii) the provisions of paragraph 10 of the Initial
Agreement shall remain in full force and effect; and (iv) the amount of
Net Xxxxxxxx (as defined below) to such Initial Infomercial Customers
after the Effective Date shall be included in making certain calculations
pursuant to Section 5.2. below.
In addition, (a) Schedule 1-A attached hereto sets forth the amount owed
by LDDI to GRC under and pursuant to the terms of the Initial Agreement and the
terms for the payment of such amounts, and (b) LDDI shall provide GRC with
reasonably detailed information following the Effective Date regarding the
Initial Infomercial Customers, including summary information regarding any
Initial Infomercial Customers who were misappropriated by MCI or any other
carrier.
As used herein, the term "Net Receipts" shall mean all cash or other
consideration received by or on behalf of LDDI and its affiliates or agents, net
of sales, excise and other similar taxes, for LDDI Services for the relevant
period, and the term "Net Xxxxxxxx" shall mean all xxxxxxxx by or on behalf of
LDDI and its affiliates or agents, net of sales, excise and similar taxes, for
LDDI Services and any other services performed by LDDI pursuant to Section 4.2
for the relevant period.
2. Term. This Agreement shall be effective as of the Effective Date and shall
continue in effect until January 1, 2003, unless terminated earlier as
provided herein.
3. LDDI Services. In consideration for GRC generating additional customers
for LDDI, LDDI agrees to perform LDDI Services for (i) New Infomercial
Customers (as defined in Section 5.1 below), (ii) customers introduced to
LDDI directly or indirectly by GRC or agents of GRC and (iii) other agents
or customers introduced to LDDI by GRC with respect to which LDDI and GRC
shall have jointly entered into arrangements pursuant to Section 4.2 below
(all of such customers are referred to herein as "GRC Customers"). The
LDDI Services shall be performed on the terms and conditions specified on
Schedule 1 attached hereto or on such other terms and conditions as may be
agreed to, in writing, by LDDI. LDDI shall bear and be responsible for all
costs and expenses associated with the performance of the LDDI Services,
including without limitation, the costs and expenses set forth on Schedule
I attached hereto.
4. GRC Services.
4.1 Infomercial.
4.1.1 Production. GRC shall create and produce a new television
infomercial (the "New Infomercial") designed to sell the LDDI products described
on Schedule 2 attached hereto (the "LDDI Products"). As of the Effective Date,
LDDI shall have received, reviewed and approved the latest version of the New
Infomercial. LDDI shall have the right to approve any subsequent changes
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to the New Infomercial which in any way affect the terms and conditions upon
which LDDI shall be obligated to perform LDDI Services for New Infomercial
Customers (as defined in Section 5.1.1 below) GRC shall bear and be responsible
for all costs and expenses associated with the creation and production of the
New Infomercial, including without limitation, the costs and expenses set forth
on Schedule 3 attached hereto, but excluding all costs incurred by GRC in
editing the New infomercial due to the failure of LDDI to provide adequate
substantiation or necessitated by any material misrepresentations made by LDDI
hereunder. LDDI shall not be entitled to any profits or charged with any losses
associated with the marketing, distribution and sale of LDDI Products trough the
New Infomercial. In the event that GRC determines that the results of the test
marketing of the New Infomercial are unsuccessful, GRC shall have the right to
make, at its own expense, such changes to the Initial Infomercial as may be
agreed to, in writing, by LDDI and GRC and to televise the Initial Infomercial
on the terms set out herein in relation to the New Infomercial. If GRC elects to
exercise this right, then for all purposes of this Agreement, the term "New
Infomercial" shall include the Initial Infomercial in respect of all televisings
of the Initial Infomercial from The date that the Initial Infomercial is
operated by GRC pursuant to the terms of this paragraph 4.1.1.
4.1.2 Telemarketing Services. Subject to Section 4.3 below, GRC shall
provide or retain one or more telemarketing agencies to provide telemarketing
services, including without limitation, the telemarketing services set forth on
Schedule 3 attached hereto. GRC shall bear and be responsible for all costs and
expenses associated with providing such telemarketing services. GRC shall
diligently monitor and evaluate the performance of any telemarketing agency
providing telemarketing services in connection with the New Infomercial. If GRC
determines that such performance is not producing the desired results, GRC may,
at its option, request LDDI to establish a telemarketing department to provide
such telemarketing services at such prices and upon such terms as shall be
mutually agreed upon, it being understood that LDDI shall not be required to
provide such telemarketing services at prices and on terms that would result in
a net loss to LDDI.
4.1.3 Manufacture and Distribution of LDDI Products. Subject to Section
4.3, GRC shall manufacture and deliver all of the LDDI Products offered and sold
through the New Infomercial. GRC shall bear and be responsible for all costs and
expenses associated with the manufacture and delivery of the LDDI Products,
including without limitation, the costs and expenses set forth on Schedule 3
attached hereto; provided, however, that LDDI, and not GRC, shall be responsible
for all costs and expenses associated with any premiums, such as free long
distance telephone time, provided by LDDI in connection with the New
Infomercial.
4.2 Other Activities. LDDI and GRC may from time to time jointly enter
into activities other than the New Infomercial relating to the marketing and
distribution of LDDI Services ("Other Activities") upon such terms and
conditions, including without limitation, the amount of royalties or other
compensation payable to GRC in connection with such Other Activities, as shall
be contained in an amendment or addendum to this Agreement signed by the parties
hereto. The parties understand that in connection with such Other Activities and
except as otherwise agreed to by the parties, (a) GRC shall bear and be
responsible for all of its own marketing, distribution and GRC customer account
acquisition fees, costs and expenses, whether such accounts are procured by GRC
or by or through agents procured by GRC, such that at the time such accounts are
delivered to LDDI
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for proposed activation of service on LDDI's network, all fees, costs and
expenses incurred in procuring and delivering such prospective accounts shall
have been paid by GRC, and (b) LDDI shall bear and be responsible for the costs
and expenses associated with providing such LDDI Services, including, without
limitation, all costs of activating such prospective accounts on LDDI's network.
4.3(a) LDDI's Right to Operate New Infomercial. If, in the calendar
quarter commencing January 1, 1998 or any calendar quarter thereafter during the
term of this Agreement, GRC shall have failed to deliver a minimum of 25,000 new
GRC Customers generated by (i) the New Infomercial or (ii) the New Infomercial
and any other direct response programming or other means by which GRC markets
LDDI Services, and less than 40% of such new GRC Customers are generated by the
New Infomercial, LDDI shall have the right, on a non-exclusive basis, to operate
the New Infomercial and distribute the LDDI Products sold thereunder as a
principal. In such event, GRC shall be obligated to provide services with
respect to the televising of the New Infomercial (the "Marketing Services") on
terms comparable with the terms set forth in Schedule 4 attached hereto. The
exercise of such right by LDDI shall be without prejudice to the continuance of
this Agreement in respect of Other Activities, but in such case, customer
accounts, revenues, and Net Receipts or Net Xxxxxxxx attributable to the New
Infomercial as operated by LDDI shall not be included for purposes of
calculating royalties under Section 5.1 or for the purposes of calculating the
Referral Percentage under Section 5.2.2, as the case may be.
4.3(b) If LDDI desires to exercise its right to operate the New
Infomercial, LDDI shall deliver a notice to GRC in the manner set forth in
Section 23 below of LDDI's intention to operate the New Infomercial.
4.3(c) Effective thirty (30) days after receipt of the notice, GRC shall
be obligated to provide the Marketing Services on the terms specified in Section
4.3(a) above for a period of two (2) years following the effective date of such
notice.
5. Compensation to GRC.
5.1 Royalties.
5.1.1 LDDI shall pay to GRC a five percent (5%) royalty on (a) all Net
Receipts during the term of this Agreement from long distance telephone xxxxxxxx
(but not from xxxxxxxx for any other LDDI Services unless otherwise agreed to,
in writing, by LDDI) to New Infomercial Customers (as defined below) and (b) all
compensation, whether cash, service credits or otherwise, received by LDDI from
MCI or any other carrier arising out of or in connection with any
misappropriation of New Infomercial Customers by MCI or any other carrier. "New
Infomercial Customers" shall mean (i) all sales agents recruited or "signed up"
by LDDI after their purchase of LDDI Products; (ii) all third party customers
introduced to LDDI by the sales agents referred to in (i) above; (iii) all sales
agents recruited or "signed up" by LDDI who responded to the New Infomercial but
did not purchase any LDDI Products; (iv) all third party customers introduced to
LDDI by the sales agents referred to in (iii) above; (v) all other customers of
LDDI who shall have become such as a direct
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or indirect result of responding to the New Infomercial and (vi) all third party
customers introduced to LDDI directly or indirectly by agents of GRC, provided
that the amounts of any royalty paid by LDDI to such agents shall reduce the
amount that LDDI is obligated to pay GRC under this Section 5.1.1.
5.1.2 LDDI shall pay to GRC royalties in amounts and on terms mutually
agreed to, in writing, by the parties in connection with any Other Activities
jointly entered into by the parties pursuant to Section 4.2 above.
5.1.3 LDDI and GRC agree that the amount of the royalty payable to GRC
under Sections 5.1.1 has been or, in the case of any royalty payable under
Section 5.1.2 (only as it relates to long distance telephone services), will be,
calculated so as to provide GRC with an amount equal to approximately 50% of
LDDI's Anticipated Net Profits (as defined below) derived from all GRC-related
Revenue (as defined below) which is attributable to the New Infomercial or any
Other Activities for each fiscal year of LDDI during the term of this Agreement.
Each royalty rate shall be reviewed quarterly, as hereinafter provided, to
determine if any adjustment to such rate is warranted (so as to continue to
provide GRC with an amount equal to the greater of (i) 50% of LDDI's Anticipated
Net Profits derived from all GRC-related Revenue attributable to the New
Infomercial or Other Activities or (ii) the aggregate amount of royalties
payable under Section 5.1.1) in future quarters as a result of any material
changes in the rates charged by AT&T, MCI or other carriers to LDDI or any other
material changes affecting LDDI's cost of providing LDDI Services. Such review
shall be undertaken within thirty (30) days after the end of each calendar
quarter during the term of this Agreement and any agreed upon change in the
royalty rate shall become effective as of the first day of the calendar quarter
in which such adjustment is made. No change in the royalty rate set forth in
Section 5.1.1 above, or in any royalty rate hereafter established pursuant to
Section 5.1.2 above (only as it relates to long distance telephone services),
shall be effective unless agreed to, in writing, by the parties. As used herein,
the term "GRC-related Revenue" shall mean all Net Receipts received by LDDI from
xxxxxxxx to GRC Customers for LDDI Services or Other Activities during the term
of this Agreement, and the term "Anticipated Net Profits" shall mean the gross
revenues of LDDI attributable to the New Infomercial or other Activities less
all direct costs incurred by LDDI in connection therewith and a ratable
proportion of all substantiated indirect costs and expenses, including all
general and administrative expenses, incurred by LDDI in the management of its
business, but not subtracting any amounts for income taxes of any kind.
5.1.4 LDDI shall pay royalties to GRC on a monthly basis during the term
of this Agreement, with each payment to be made no later than thirty (30) days
after the end of each month based on the amount of "GRC-related Revenue"
received by LDDI in the preceding month. LDDI shall provide GRC with reasonably
detailed monthly accounting statements for all GRC-related Revenue received by
LDDI during such month. if any payment of royalties under this Agreement is not
made within sixty (60) days after the end of the month for which such payment is
due, LDDI shall pay a late charge in an amount equal to ten percent (10%) of the
unpaid amount.
5.1.5 During the term of this Agreement LDDI agrees to pay a minimum
amount of Thirty Thousand Dollars ($30,000) (the "Minimum Royalty") to GRC on
account of royalties payable to
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GRC pursuant to Section 5.1.1 or 5.1.2 above in any month in which GRC shall
have introduced not less than 9,000 new GRC Customers to LDDI (a "Minimum
Royalty Month"). No Minimum Royalty payment or any portion thereof shall be
payable to GRC with respect to any month in which GRC shall not have introduced
at least 9,000 new GRC Customers to LDDI; provided, however, that if GRC has
introduced an average of at least 9,000 new GRC Customers to LDDI for the two
months comprising the Minimum Royalty Month and the preceding month, LDDI shall
continue to pay the Minimum Royalty with respect to such month. The amount of
Minimum Royalty payable with respect to a Minimum Royalty Month shall be reduced
by the amount of royalty actually paid by LDDI for such month pursuant to
Section 5.1.1 above. The monthly Minimum Royalty, or such portion thereof as
shall be payable after reduction of the amount of royalty actually paid for such
month pursuant to Section 5.1.1, shall be paid simultaneously with the royalty
payments due pursuant to Section 5.1.1.
5.1.6 Notwithstanding the provisions of Section 5.1.1, 5.1.3 and 5.1.4 to
the contrary, however, GRC agrees that LDDI shall only be obligated to pay and
GRC shall only be entitled to receive fifty percent (50%) of the amount of any
royalties payable to GRC under Section 5.1.1 until such time as the total amount
of royalties actually paid to GRC under Section 5.1.1 has reached $250,000.
Thereafter, LDDI shall be obligated to pay and LDDI shall be entitled to receive
the full amount of royalties payable to GRC under Section 5.1.1. Nothing in this
Section 5.1.6 is intended, however, to reduce the amount of any Minimum Royalty
to be paid pursuant to Section 5.1.5.
5.1.7 GRC agrees that notwithstanding anything in Section 5.1 to the
contrary, in any month in which LDDI is not obligated to make a Minimum Royalty
payment under Section 5.1.5 (a "Non-Minimum Royalty Month"), the amount of any
royalty payable under Section 5.1.1 or 5.1.2 above in such month shall be
cumulatively offset to the extent that the total amount of royalties paid to GRC
pursuant to Section 5.1 from the Effective Date to the end of the month
preceding the Non-Minimum Royalty Month exceeds the amount of royalties paid to
GRC under Sections 5.1.1 and 5.1.2 above during such period.
5.2 Stock Option As a material inducement for GRC to enter into this
Agreement, LDDI hereby irrevocably grants the right and option ("Option") to GRC
to purchase at the Option Price (as defined below) that number of shares of LDDI
common stock ("Option Shares") constituting the Referral Percentage (as
calculated in accordance with Section 5.2.2 below) of the Total Shares (as
defined in Section 5.2.1 below) upon the following terms and conditions:
5.2.1 "Total Shares" shall mean the sum of (i) the total number of shares
of LDDI common stock outstanding as of the Determination Date (as defined in
Section 5.2.2) and (ii) any shares then issuable upon conversion of convertible
debt instruments or convertible stock outstanding and exercisable as of the
Determination Date or upon exercise of options or warrants outstanding and
exercisable as of the Determination Date, except for shares issuable under such
instruments where the conversion or exercise price is above the Current Market
Price (as defined in Section 5.2.4(d) below) of LDDI's common stock as of the
Determination Date.
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5.2.2 "Referral Percentage" shall mean the percentage calculated for the
Measurement Period (as defined below), which percentage shall be determined by
dividing (i) the sum of (x) all Net Xxxxxxxx by LDDI to Initial Infomercial
Customers during the Measurement Period, (y) all Net Xxxxxxxx by LDDI to GRC
Customers during the Measurement Period and (z) all compensation, whether cash,
service credits or otherwise, received by LDDI during the Measurement Period
from MCI or any other carrier, arising out of or in connection with any
misappropriation of GRC Customers by MCI or any other carrier, by (ii) the sum
of (x) all Net Xxxxxxxx by LDDI to all of its customers during the Measurement
Period, and (y) all compensation, whether cash, service credits or otherwise,
received by LDDI during the Measurement Period from MCI or any other carrier
arising out of or in connection with any misappropriation of any of LDDI's
customers by MCI or any other carrier. The "Measurement Period" shall be the (6)
full calendar quarters ending immediately prior to the first day of the month
in which the Election Notice described in Section 5.2.3 below is given to LDDI
and commencing not earlier than the end of the calendar quarter ending December
31, 1997 (the "Initial Quarter"), except where an Acceleration Event occur prior
to the elapse of five (5) full calendar quarters after the end of the Initial
Quarter. The date on which the Measurement Period ends is referred to herein as
the "Determination Date", and the date on which the initial Measurement Period
ends is referred herein to as the "Initial Determination Date".
5.2.3 If GRC desires to determine the number of Option Shares as to which
the Option shall be exercisable, GRC Shall deliver a notice (the "Election
Notice") to LDDI in accordance with Section 23 below of its intention to do so.
Within thirty (30) days after receipt of the Election Notice, LDDI shall
calculate the Referral Percentage for a Measurement Period determined in
accordance with Section 5.2.2 above, compute the number of Total Shares in
accordance with Section 5.2.1 above and give notice of such calculation and
computation to GRC in accordance with Section 23 below. Upon receipt of such
notice from LDDI, GRC shall be entitled to exercise the Option with respect to a
number of Option Shares determined by multiplying the Referral Percentage times
the Total Shares. At any time within one year after receipt of such notice from
LDDI, GRC shall be entitled to review LDDI's books and records with respect to
such calculations and computations. If GRC disputes such calculations or
computations, the parties agree to use their best efforts to resolve any
difference. If within 30 days they are unable to do so, then the parties agree
to submit such dispute to arbitration in accordance with Section 18.
5.2.4(a) GRC may exercise its Option by delivering to LDDI written notice
thereof (the "Option Notice") together with frill payment by GRC check of the
exercise price which shall be an amount equal to Two Dollars ($2.00) per share
of common stock ("Exercise Price"). At the option of GRC, in lieu of payment of
the Exercise Price for Option Shares in cash, GRC may request that the Company
issue to it the number of Option Shares determined in accordance with the
following formula:
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NS = OS - [(EP/CMP) x OS]
As used in the formula:
NS = "Net" Option Shares
OS = No. of Option Shares issuable upon exercise of the
Option.
EP = Exercise Price
CMP = Current Market Price as defined in Section 5.2.4(d)
hereof.
The "Option Exercise Date" shall be the date the Option Notice is deemed given
under Section 23 hereof. Upon full payment of the Exercise Price, GRC shall have
all rights of a shareholder of LDDI effective as of the Option Exercise Date.
Subject to the rights of GRC to exercise the Option in the case of an
Acceleration Event as set forth in Section 5.2.6(a) below, the Option may be
exercised at any time and from time to time after the end of the fifth full
calendar quarter following the end of the Initial Quarter as to all or any
portion of the Option Shares as to which the Option is then exercisable.
(b) A stock certificate for the number of Option Shares as to which the
Option is exercised by GRC shall be delivered to GRC within thirty (30) days
after the Option Notice and payment has been received by LDDI.
(c) LDDI shall at all times during the period the Option may be exercised,
keep reserved out of its authorized common stock such number of shares of common
stock as shall be issuable upon exercise of the Option.
(d) LDDI shall not be required to issue fractional shares upon exercise of
the Option. If any fraction of a share would, except for the provisions hereof
be issuable on the exercise of the Option (or portion thereof), LDDI shall pay
an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the common stock is traded in the over-the-counter market and not in
the NASDAQ National Market System nor on any national securities exchange, the
average per share closing bid prices of the common stock on the fifteen (15)
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
common stock is traded in the NASDAQ National Market System or on a national
securities exchange, the average for the fifteen (15) consecutive trading days
immediately preceding the date in question of the daily per share closing prices
of the common stock in the NASDAQ National Market System or on the principal
stock exchange on which it is listed, as the case may be. For purposes of clause
(i) above, if trading in the common stock is not reported by NASDAQ, the average
referred to in said clause shall be as reported in the "pink sheets" published
by National Quotation Bureau, Incorporated. The closing price referred to in
clause (ii) above shall be the last reported sale price or, in case no such
reported sale takes place on such day, the avenge of the reported closing bid
and asked prices, in either case, in the NASDAQ National Market System or on the
national securities exchange on which the common stock is then listed.
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(e) The Option shall terminate (i) upon the date which is one (1) year
after the expiration of this Agreement, (ii) upon the occurrence of an
Acceleration Event (as defined in Section 5.2.5) provided the Acceleration
Notice (as defined in Section 5.2.6(a) below) is properly given to GRC, (iii)
upon termination of this Agreement by LDDI due to a material breach of this
Agreement by GRC pursuant to Section 20(d), or (iv) upon the one (1) year
anniversary date of the termination of this Agreement for any other reason other
than pursuant to (i), (ii) or (iii) above, whichever occurs first, and may
thereafter no longer be exercised.
5.2.5 At any time after the initial Determination Date selected by GRC
pursuant to Section 5.2.3 above, and prior to or upon the termination of this
Agreement, GRC shall have the right to calculate the Referral Percentage with
respect to a second Measurement Period (the "Second Measurement Period"),
provided that such Second Measurement Period shall not commence earlier than the
calendar quarter commencing after the end of the Initial Quarter and shall not
be coterminous with the Measurement Period ending with the Initial Determination
Date. The date on which the Second Measurement Period ends is referred to herein
as the Second Determination Date. For purposes of calculating the Referral
Percentage with respect to the Second Measurement Period, the words
"Determination Date" contained in Section 5.2.1 shall be changed to "Second
Determination Date," and for purposes of calculating Total Shares pursuant to
Section 5.2.1, none of the Option Shares determined in accordance with Section
5.2.3 shall be included in such calculation. If the number of Option Shares
determined in accordance with this Section 5.2.5 is greater than the number of
Option Shares determined in accordance with Section 5.2.3, then notwithstanding
any provision in this Section 5.2 to the contrary, the number of Option Shares
as to which the Option shall be exercisable pursuant to Section 5.2.3 shall be
increased by such additional number of Option Shares.
5.2.6(a) At least 30 days prior written notice ("Acceleration Notice") of
any of the following proposed transactions or events ("Acceleration Event")
shall be given by LDDI to GRC: (i) the dissolution or liquidation of LDDI; (ii)
a reorganization, merger or consolidation as a result of which LDDI is not the
surviving corporation or as a result of which the outstanding shares of LDDI
common stock are changed into or exchanged for cash, property or securities not
of LDDI's issue, except for a merger or consolidation of LDDI with a
wholly-owned subsidiary of LDDI or a transaction effected primarily to change
the state of LDDI's incorporation; (iii) the sale or other transfer of all or
substantially all of the assets of LDDI; or (iv) a reorganization, merger or
consolidation in which LDDI is the surviving entity if the shareholders of LDDI
immediately prior to the reorganization, merger or consolidation shall own
(immediately after the reorganization, merger or consolidation) less than fifty
percent (50%) of the shares of LDDI common stock outstanding immediately after
the reorganization, merger or consolidation.
(b) If an Acceleration Event occurs, the Option shall terminate upon the
closing of the Acceleration Event, provided, however, during the period from the
Acceleration Notice to the closing of the Acceleration Event GRC may exercise
the Option as set forth above or, if less than six (6) full calendar quarters
have expired prior to the closing of the Acceleration Event, purchase Option
Shares equal to an "Adjusted Referral Percentage" determined by computing the
Referral Percentage based upon an "Adjusted Measurement Period" defined as The
period (i) commencing
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with the first day of the Initial Quarter and ending with the last day of the
calendar quarter immediately preceding the calendar quarter in which the
Acceleration Event shall have occurred, or (ii) if less than two (2) full
calendar quarters have expired prior to the closing of the Acceleration Event,
commencing with the first day of the first full month following the Effective
Date and ending with the month immediately preceding the month in which the
Acceleration Event shall have occurred.
(c) An Acceleration Event shall also entitle LDDI, in it sole discretion
and upon written notice to GRC, to terminate this Agreement effective as of the
date of the closing of the Acceleration Event provided that the Acceleration
Notice is properly given to GRC; provided, however, that GRC shall be entitled
to receive, on the date of termination, (x) all royalties and other payments due
and payable to GRC through the date of termination and (y) a lump gum royalty
payment in an amount determined by multiplying (a) the average monthly royalty
payment payable to GRC pursuant to Sections 5.1.1 and 5.1.2 above (excluding for
this purpose any Minimum Royalty Payment payable pursuant to Section 5.1.5) for
the three months immediately preceding the first day of the month in which an
Acceleration Event occurs times, (b)(i) 18, if the closing of the Acceleration
Event occurs within six months after the Effective Date, or (ii) 12, if the
closing of the Acceleration Event occurs after 6 months but no later than 12
months after the Effective Date, or (iii) 6, if the closing of the Acceleration
Event occurs after 12 months but no later than 18 months after the Effective
Date, or (iv) 3, if the closing of the Acceleration Event occurs after 18 months
but no later than 24 months after the Effective Date.
5.2.7 In case the Company shall (a) pay a dividend in common stock or any
other security or make a distribution in common stock or any other security, (b)
subdivide its outstanding common stock, (c) combine its outstanding common stock
into a smaller number of shares of common stock, or (d) issue by
reclassification of its common stock other securities of the Company, the number
and kind of Option Shares purchasable upon exercise of the Option immediately
prior thereto shall be adjusted so that GRC shall be entitled to receive the
kind and number of Option Shares or other securities of the Company which it
would have owned or would have been entitled to receive immediately after the
happening of any of the events described above had the Option been exercised
immediately prior to the happening of such event or any record date with respect
thereto, all without any change in the aggregate exercise price applicable to
the unexercised portion of the Option, but with a corresponding adjustment in
the exercise price per share. Any adjustment made pursuant to this Section 5.2.7
shall become effective immediately after the effective date of such event.
5.2.8 LDDI agrees that GRC shall have the registration rights set forth in
the Registration Rights Certificate attached hereto as Exhibit A with respect to
the Option Shares. Such registration rights shall survive the termination of
this Agreement as provided in the Registration Rights Certificate.
5.3 Sale of Customer Base. In the event LDDI sells all or any portion of a
customer base consisting, in whole or in part, of GRC Customers, and provided
such sale does not constitute an Acceleration Event, GRC shall be entitled to
receive fifty percent (50%) of the net proceeds (as defined below) relating to
the sale of GRC Customer Accounts included in such customer base
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received by LDDI from such sale. In such event Net Xxxxxxxx by LDDI to the GRC
Customers included in such customer base shall be excluded from all of the Net
Xxxxxxxx by LDDI used in calculating the Referral Percentage referred to in
Section 5.2 above. As used in this Section 5.3, net proceeds shall mean the
total amount of cash or other consideration received by LDDI less all
transaction costs, including, without limitation, sales commissions, finder's
fees and attorneys' fees, but excluding any income taxes, incurred by LDDI.
6. Exclusivity. GRC agrees that for a period of one (1) year following the
Effective Date, it will not market or distribute any long distance
telecommunication services of any third party pursuant to an infomercial
or any other direct response channel. LDDI agrees that for a period of one
(1) year following the Effective Date, or, if shorter than such one (1)
year period, until such time, if any, that GRC markets and distributes any
long distance telecommunication services of any third party as otherwise
permitted by this Section 6, LDDI shall not market or distribute its long
distance telecommunication services pursuant to an infomercial or any
other direct response channel which is produced or provided by any person
or entity other than GRC. Notwithstanding the first sentence of this
Section 6 to the contrary, however; if during such one (1) year period,
GRC receives a bona fide offer from any third party provider of long
distance telecommunication services to market or distribute its long
distance services and GRC desires to accept such offer, GRC shall provide
LDDI in writing with all of the relevant terms and conditions of such
offer and LDDI shall have a period of thirty (30) days following receipt
of such terms and conditions to elect, by written notice to GRC, to enter
into an agreement with GRC to market or distribute LDDI's long distance
telecommunication services on the same terms and conditions as set forth
in the offer, in which event GRC shall not be permitted to accept the
offer of such third party. If, however, LDDI does not elect within the
thirty (30) day period to enter into such an agreement with GRC, then GRC
shall be permitted to enter into an agreement with the third party to
market or distribute such third party's long distance telecommunication
services on the terms and conditions set forth in the written notice to
LDDI.
7. Right to Appoint Member of LDDI's Board of Directors. During the term of
this Agreement, GRC shall have the right to nominate one person to serve
on the Board of Directors of LDDI. If such person is either Xxxx Xxxxx,
Xxxx Xxxxxx or Xxxxx Xxxxx, he may be nominated by GRC at any time after
the Effective Date and LDDI shall thereupon use its best efforts to elect
him to the LDDI Board. If such person is someone other than Messrs. Guthy,
Renker or Xxxxx, he may be nominated at any time after GRC has introduced
at least a total of 100,000 GRC Customers to LDDI after the Effective Date
and, provided that he is reasonably acceptable to LDDI, LDDI shall
thereupon use its best efforts to elect such person to the LDDI Board.
Upon election to the LDDI Board, such individual may serve on the LDDI
Board until the last to occur of (i) the date on which this Agreement
terminates or (ii) the date on which the number of shares of the Company's
Common Stock owned by GRC (including shares issuable upon exercise of
options held by GRC) constitutes less than five percent (5%) of the total
number of shares of the Company's Common Stock outstanding (including
shares issuable upon exercise of all options and warrants then
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outstanding and exercisable) and LDDI agrees to take all necessary action
to keep such individual on the Board.
8. Grant of Rights.
8.1 Exclusivity. LDDI hereby licenses to GRC on a royalty-free basis the
exclusive worldwide right to market and distribute the LDDI Products and New
Infomercial (to include, if any, revisions and/or new versions of the New
Infomercial) through all direct response channels, including, without limitation
television and "shop at home" television programming, retail, outbound and
international, such license to be contingent on GRC's ensuring that all
telecommunications business so generated is directed to LDDI.
8.2 Non-Exclusivity. LDDI hereby licenses to GRC on a royalty-free basis
the nonexclusive worldwide right to market and distribute the LDDI Products
through 800/900 numbers, database marketing, Internet/on-line, retail, print
media, outbound telemarketing, package inserts, catalogs, direct sales, radio,
credit card syndication, direct mail and seminars, such license to be contingent
on GRC's ensuring that all telecommunications business so generated is directed
to LDDI.
9. Audit. At any time within two (2) years after a payment is made hereunder,
GRC shall have the reasonable right to examine LDDI's books and records
relating to the subject matter of this Agreement. This examination shall
be conducted (i) after providing LDDI at least thirty (30) days prior
written notice of its election to examine the applicable books and records
(including, without limitation LDDI's financial books and records), (ii)
during the normal business hours at the place where the applicable books
and records are maintained, (iii) except as provided below, at GRC's sole
cost and expense, and (iv) not more tan two (2) times per year. if GRC
disputes any amount paid to it under this Agreement, the parties shall use
good faith efforts to resolve such dispute. if despite such efforts, the
parties are unable to resolve this dispute within thirty (30) days
following notice of such dispute from GRC, the parties shall mutually
select an independent auditor to resolve such dispute. If the parties are
unable to agree on such an independent auditor within ten (10) days
following the expiration of such 30-day period, the independent auditor
shall be selected by arbitration in accordance with Section 17 hereof. If
it is determined by the independent auditor that LDDI has underpaid GRC by
an amount exceeding five percent (5%) for any six month period during the
term, then LDDI shall immediately pay the underpayment plus interest from
the date the underpaid amount was due at a rate equal to the then prime
rate of interest as reported in the Wall Street Journal, and in addition
LDDI shall pay the costs of such examination, including the costs of the
independent auditor (but such costs will not include travel, living and
other personal expenses of GRC). Any such determination shall not be
deemed a breach of this Agreement unless LDDI fails to pay the agreed upon
underpayment and accrued interest thereon within ten (10) business days
following a determination of such amount.
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10. Indemnity. LDDI agrees to indemnity and hold harmless GRC, its
shareholders, directors, officers, employees, agents and representatives
against any and all claims, liabilities, losses or damages, including
reasonable attorneys' fees (collectively, "Losses"), which arise from (i)
LDDI' s breach of any of its representations, warranties, covenants or
agreements in this Agreement or (ii) any statements or claims with respect
to LDDI Services or Other Activities made by GRC in connection with the
marketing and distribution of the LDDI Services or Other Activities
provided that such statements had been approved in advance, by LDDI. GRC
agrees to indemnify and hold harmless LDDI, its shareholders, directors,
officers, employees, agents and representatives against all Losses which
arise from GRC's breach of any of its representations, warranties,
covenants or agreements in this Agreement.
11. Representations and Warranties.
11.1 LDDI Representations and Warranties. LDDI represents and warrants to
GRC that (a) LDDI has not entered into any oral or written contract which would
impair the rights granted to GRC hereunder or limit the effectiveness of this
Agreement, nor is LDDI aware of any claims or actions which may limit or impair
any of the rights granted to GRC hereunder, (b) LDDI shall not create, produce
or sell any direct response programming during the term of this Agreement,
except as set forth in Schedule 7 attached hereto, (c) LDDI has entered into
valid and binding reseller agreements with AT&T and MCI, which agreements are in
force and effect and LDDI is not in material default under such agreements;
(d) the full exercise of the rights granted GRC hereunder will not violate or
infringe upon any intellectual property rights or any other right of AT&T or MCI
or, to LDDI's knowledge, any intellectual property rights or any other right of
any other third party, (e) the grant of the Option pursuant to Section 5.2 above
and the issuance of the Option Shares underlying the Option has been duly
authorized by all necessary corporate and/or shareholder action of LDDI and (f)
LDDI is authorized to conduct business as a long distance telephone reseller by
the U.S. Public Utilities Commission and has obtained certificates and all
necessary approvals from and filed tariffs in all states in which it is
currently conducting business.
11.2 GRC Representations and Warranties. GRC represents and warrants to
LDDI that (a) to GRC's knowledge, the marketing, distribution and/or sale of the
LDDI Products pursuant to the New Infomercial or otherwise by GRC is not
restricted or prohibited by any Federal, state or local law or NIMA Guideline,
and (b) GRC shall not, without the approval of LDDI, make any changes to the New
Infomercial after the date hereof which in any way affect the terms and
conditions upon which LDDI shall be obligated to perform LDDI Services for New
Infomercial Customers.
11.3 Mutual Representations and Warranties. Each party represents and
warrants to the other that (a) it has no knowledge of any pending or threatened
claims which would impair or diminish any of the rights it has granted to the
other herein; (b) it has the absolute and unrestricted right and power and
authority to enter in this Agreement and perform its obligations hereunder; (c)
the execution and delivery of this Agreement and the performance of its
obligations hereunder will not result in a breach of, or a violation of any law,
rules, regulations or governmental decrees applicable to such party; (d) this
Agreement constitutes the legal, valid and binding obligation of
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each such party, enforceable against such party in accordance with its terms;
(e) neither the execution and delivery of this Agreement nor the consummation or
performance of the terms and obligations contained herein does or will, directly
or indirectly, contravene or conflict with any provision of the Articles of
Incorporation or Bylaws of such party or result in a default, violation or
breach of any provision of any contract or agreement of such party; and (f) the
execution and delivery of this Agreement has been duly authorized and approved
by all necessary corporate action of each party.
11.4 Survival. The representations and warranties set forth in this
Section 11 shall survive the execution and delivery of this Agreement.
12. Customer List. GRC shall compile a list of names and addresses of all
customers ordering the LDDI Products. GRC shall have exclusive ownership
and rights to this Customer List; provided, however, that GRC agrees to
provide, at LDDI's expense, a current copy of such list to LDDI upon
LDDI's reasonable request at any time and from time to time during the
term of this Agreement. LDDI agrees not to sell, rent or otherwise
transfer or disclose such customer list to any third party, without the
prior written consent of GRC. GRC agrees not to sell, rent, or otherwise
transfer or disclose the Customer List to LDDI's competitors without
LDDI's prior written consent.
13. Control. Subject to the terms of this Agreement, LDDI shall own and
maintain all rights in and to the LDDI Products. However, for the purposes
of this Agreement and during the term of this Agreement, LDDI hereby
licenses to GRC on a royalty fee basis, pursuant to Section 8 of this
Agreement, (i) the LDDI Products, including without limitation,
trademarks, patents and copyrights associated therewith, solely in order
for GRC to fulfill its obligations herein during the term of this
Agreement. Subject to this Agreement, GRC shall own and maintain all
rights in and to the New Infomercial, including, without limitation, all
associated marketing and distribution rights and trademarks, copyrights
and other intellectual property rights with respect to the New
Infomercial.
14. Compliance with Rules and Regulations. LDDI shall comply with all laws,
rules, and regulations of any governmental agency having jurisdiction over
LDDI's performance of the LDDI Services, services provided by LDDI
relating to Other Activities and its other obligations hereunder. LDDI
will be solely responsible for maintaining any and all licenses and
governmental approvals which may be required for the provision of the LDDI
Services, services provided by LDDI relating to Other Activities and the
performance of its obligations hereunder. LDDI shall indemnify and hold
GRC harmless from any Losses, including without limitation, any fines,
penalties, and related expenses incurred by GRC as a result of LDDI's
failure to comply with the laws, rules, and regulations of any
governmental agency having jurisdiction over the performance of the LDDI
Services, services provided by LDDI relating to Other Activities and its
obligations hereunder.
15. insurance. if GRC determines that test marketing for the New Infomercial
is successful, then GRC shall secure media liability insurance customarily
maintained by infomercial
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distributors. if GRC obtains media liability insurance, LDDI shall obtain
appropriate general commercial and project liability insurance with policy
limits of not less than one million dollars ($1,000,000) per occurrence
and two million dollars ($2,000,000) in the aggregate on terms customarily
maintained by companies engaged in similar businesses. The parties agree
that (i) the deductible on any insurance policy acquired hereunder shall
not exceed ten thousand dollars ($10,000), (ii) the other party shall be
named as an additional insured on the applicable insurance policies, (iii)
the insurance policies shall be endorsed to provide no less than ten (10)
days notice to all named insureds if any insurance benefit decreases or is
canceled, and (iv) all insurance tall have no less than an "B+" rating (or
equivalent thereof) as reported in the Best Guide. Each party shall
provide the other with a copy of such insurance policy naming the other
party as an additional named insured.
16. Independent Contractors; No Joint Venture. GRC and LDDI agree they are
dealing with the other as independent contractors, and not as joint
venturers or partners. This Agreement is not intended to create any joint
venture or partnership arrangement between the parties. Each party shall
be responsible for the timely payment of all taxes and all withholdings,
deductions and payments required by law with respect to its own operations
and employees and shall indemnify and hold the other party harmless with
respect to any Losses (as defined in Section 10 above) with respect to
such liabilities.
17. Governing Law. The validity of this Agreement, its construction,
interpretation, and enforcement and the rights of the parties hereto shall
be determined under, governed by and construed in accordance with the laws
of the State of California.
18. Arbitration. The parties hereby stipulate and agree that any and all
disputes between them arising out of or otherwise related to this
Agreement shall be governed exclusively by the Federal Arbitration Act, as
amended, and shall be submitted for resolution to mandatory, exclusive and
binding arbitration in Orange County, California before a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The party initiating arbitration shall
first provide the responding party written notice (the "Notice") of the
initiating party's intention to arbitrate, a brief statement of the nature
of the dispute and a list of proposed arbitrators. The Notice shall be
sent and deemed given in accordance with Section 23. The parties shall
then mutually select an arbitrator. if the parties fail to agree to an
arbitrator within thirty (30) days following the delivery of the Notice in
accordance with Section 23, an arbitrator shall be selected in the manner
provided by the American Arbitration Association. The parties agree to be
bound by any final decision rendered by the arbitrator, which final
decision may be enforced in any court of competent jurisdiction. The
parties hereby consent to the exercise of personal jurisdiction over them
by such courts and the propriety of venue of such courts for the purpose
of carrying out this provision and they waive any objection that they
would otherwise have to the same. The parties agree that the arbitrator
shall have no power or authority to make awards of punitive damages. The
parties further agree that the arbitrator shall have the power to dispense
equitable relief.
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Either party may, without inconsistency with this Agreement, seek from a
court any interim or provisional relief that is necessary to protect the right
or property of that party, until the arbitration award is rendered or the
controversy is otherwise resolved. The arbitrator shall render a single written
decision setting forth an award, to the extent applicable, and state with
reasonable specificity the reasons for the decision reached. The parties hereby
further stipulate that each party (as determined by the arbitrator) shall pay
the fees and expenses of the Arbitrator. The Arbitrator shall award fees to the
prevailing party, or, in the event no party is clearly prevailing, in a manner
deemed equitable by the Arbitrator. This Section shall survive the termination
of this Agreement. Unless prohibited by applicable law, any arbitration under
this Agreement must be commenced within one (1) year after the conduct or event
giving rise to the dispute. An arbitration shall be deemed commenced upon
effective delivery of the Notice. The parties acknowledge, understand and agree
that in the event of a dispute under this Agreement between the parties, both
parties have waived any right to a jury trial and a judicial resolution of the
dispute.
19. Fiduciary No fiduciary duty obligations between the parties shall be
created as a result of this Agreement.
20. Termination. This Agreement shall terminate earlier than the expiration of
the term (a) upon the mutual written agreement of the parties hereto; (b)
upon written notice from a party to the other party if the other party has
become insolvent, is unable to pay its debts as they become due, becomes
the subject of any bankruptcy proceeding or action (which is not dismissed
within thirty (30) days following the commencement of such action) or the
appointment of a trustee or receiver for all or substantially all of the
assets of the other party; (c) by LDDI, upon thirty (30) days written
notice to GRC, upon the occurrence of an Acceleration Event; (d) upon a
material breach by a party of any covenant or agreement contained in this
Agreement, at the election of the non-breaching party, if such material
breach is not cured within thirty (30) days after written notice from the
non-breaching party, specifying in reasonable detail such breach; provided
however it is agreed that the election of a party to so terminate this
Agreement upon a breach by the other party of this Agreement is not an
exclusive remedy by a party for a breach of this Agreement and each party
shall be entitled to any other remedies available to it under this
Agreement or at law or in equity. Upon termination of this Agreement for
any reason, each party shall be entitled to receive from the other party
all royalty payments and other amounts owed to such party for the period
through the date of termination. Except as provided in Section 5.2.4(e), a
termination of this Agreement shall not terminate the Option granted to
GRC pursuant to Section 5.2 hereof; provided, however that if this
Agreement is terminated pursuant to subsections (c) or (d) above prior to
the end of the fifth calendar quarter following the end of the Initial
Quarter, then for purposes of calculating the Referral Percentage as
described in Section 5.2.2, the percentage shall be determined by dividing
(i) the sum of (x) all Net Xxxxxxxx by LDDI to initial Infomercial
Customers during the period ending on the termination date, (y) all Net
Xxxxxxxx by LDDI to GRC Customers during the period ending on the
termination date and (z) all compensation, whether cash, service credits
or otherwise, received by LDDI from MCI or any other carrier during the
period ending on the termination date arising out of or in connection with
any misappropriation of GRC Customers by MCI or any other
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carrier, by (ii) the sum of all (x) Net Xxxxxxxx by LDDI to all of its
customers during the period ending on the termination date and (y) all
compensation, whether cash, service credits or otherwise, received by LDDI
from MCI or any other carrier during the period ending on the termination
date arising out of or in connection with any misappropriation of LDDI's
Customers by MCI or any other carrier.
21. Entire Agreement; Amendment; Waiver; Assignment. This Agreement contains
the entire understanding of the parties wit respect to the subject matter
hereof and supersedes in their entirety after the date of this Agreement
all prior agreements and understandings between the parties with respect
to the subject matter hereof whether oral or written, including the
Initial Agreement, which shall have no further force or effect except as
otherwise provided herein. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or
not similar, nor shall any waiver constitute a continuing waiver. This
Agreement shall be binding upon the parties hereto and their respective
successors and permitted assigns. The rights and obligations of a party
may not be assigned without the prior written consent of the other party.
Each party has executed this Agreement without reliance upon any promise,
representation or warranty other than those expressly set forth herein.
Each party acknowledges that (i) it has carefully read this Agreement;
(ii) it has had the assistance of counsel of its choosing (and such other
professionals and advisors as it has deemed necessary) in the review and
execution hereof; (iii) the meaning and effect of the various terms and
provisions hereof have been fully explained to it by such counsel; (iv) it
has conducted such investigation, review and analysis as has been
necessary to understand the provisions of this Agreement and the
transactions contemplated hereby; and (v) it has executed this Agreement
of its own free will.
22. Recitals. The recital clauses to this Agreement are hereby incorporated
and made a part of this Agreement.
23. Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be validly given or made to
another party if given by personal delivery, telex, facsimile, telegram,
or if deposited in the United State mail, certified or registered, postage
prepaid, return receipt requested. If such notice, demand or other
communication is given by personal delivery, telex, facsimile or telegram,
service shall be conclusively deemed made at the time of receipt. If such
notice, demand or other communication is given by mail, such notice shall
be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the party to whom such
notice, demand or other communication is to be given as hereinafter set
forth:
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If to the Company: Long Distance Direct Holdings, Inc.
Xxx Xxxx Xxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
Attention: President
Facsimile: (000) 000-0000
If to GRC: Xxxxx-Xxxxxx Corporation
2nd Floor, 0000 Xxxxx Xxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Bennet Van xx Xxxx
Facsimile: (000) 000-0000
The parties hereto may change the address at which they are to receive notices
hereunder by notice in writing in the foregoing manner given to the other.
24. Counterparts. This Agreement may be executed in any number of counterparts
each of which, when executed and delivered, shall be deemed to be an
original and all of which, when taken together, shall constitute one and
the same Agreement.
25. Delivery by Facsimile Transmission. Delivery of an executed counterpart of
this Agreement or any exhibit attached hereto by telefacsimile
transmission shall be equally as effective as delivery of an executed hard
copy of the same. Any party delivering an executed counterpart of this
Agreement or any exhibit attached hereto by telefacsimile transmission
shall also deliver an executed hard copy of the same, but the failure by
such party to deliver an executed hard copy shall not affect the validity,
enforceability and binding effect of this Agreement or such exhibit.
IN WITNESS WHEREOF, each of the parties hereto have caused their
duly-authorized officers to execute this Agreement as of the day and year first
above written.
XXXXX-XXXXXX CORPORATION
By: /s/ Xxxxx X. Xxxxx
-------------------------------------
Its: Product Distributor
LONG DISTANCE DIRECT HOLDINGS, INC.
By: /s/ Xxxxxx Xxxxxxx
-------------------------------------
Its: President
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SCHEDULE 1-A
LDDI and GRC agree that the "negative" amount owed by LDDI to GRC through August
31, 1997 pursuant to the terms of the Initial Agreement is $290,00O. if LDDI and
GRC mutually determine that this "negative" amount owed by LDDI is misstated,
the parties will adjust the amounts due and owing to GRC to reflect the true
amount. The parties agree that the $290,000 owed to GRC shall be paid in monthly
installments of $48,333 commencing on the first day of October, 1997 and
continuing on the first day of each month thereafter until the entire amount has
been paid in full.
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SCHEDULE 4
1. Profits (which shall be defined as GRC's gross receipts from LDDI product
sales less actual costs inclusive of a seven percent (7%) overhead fee)
associated with the New Infomercial will be split 50/50 between the
parties. GRC will continue to receive its 2% royalty on all revenue
attributable to GRC-recruited sales agents (as referenced in Paragraph 3
below) from the New Infomercial. LDDI shall fully fund the "negative"
associated with the New Infomercial as referenced in Paragraph 3 below. In
addition, GRC shall have the option to purchase, at a price of $2.00 per
share, one (1) share of LDDI Common Stock for each $666.66 of Net Receipts
(as defined in the Distribution Agreement to which this Schedule 4 is
attached) received by LDDI during the term of the Agreement from long
distance telephone xxxxxxxx to New Infomercial Customers (as defined in
the Distribution Agreement to which this Schedule 4 is attached).
2. GRC agrees to purchase not less than eight million dollars ($8,000,000) in
media if LDDI so requests, so long as LDDI provides GRC the advance
referenced in Paragraph 3 below covering the estimated "negative;" GRC
will provide LDDI access to GRC's P.I. media consistent with access
provided GRC-owned products. GRC will continue to finance LDDI product
purchases if LDDI so requests. GRC will also continue to fund inventory at
a level sufficient to match the sales anticipated from the planned media
buy. GRC's product financing will be recouped as part of the "negative"
solely funded by LDDI.
3. LDDI will continue to solely fund the "negative" associated with the New
Infomercial; LDDI will continue to provide GRC a two week advance payment,
made via wire transfer, covering the estimated "negative." The "negative"
will consist of all costs incurred by GRC in airing the New Infomercial
and distributing the LDDI product along with an overhead fee equal to 7%
of GRC's sales. GRC will continue to receive a 2% royalty on all LDDI
revenue received by LDDI from all sales agents purchasing the LDDI product
plus all revenue received by LDDI from people who respond to the New
Infomercial by purchasing the LDDI product or people who choose not to
purchase the LDDI product during their initial call but are ultimately
"closed" by LDDI. GRC will charge LDDI its actual media costs without the
addition of a media handling fee (including providing LDDI with GRTV time
at no less than a 1.7-to-1 media ratio) incurred instead of the twelve
percent (12%) media buying commission GRC is presently charging LDDI.
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LONG DISTANCE DIRECT HOLDINGS, INC.
REGISTRATION RIGHTS CERTIFICATE
1. Definitions.
(a) The term "Company" shall mean Long Distance Direct
Holdings, Inc., a Nevada corporation.
(b) The term "Distribution Agreement" shall mean the
Distribution Agreement between the Company and the Holder dated as of October 1,
1997.
(c) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any similar federal statute then in effect, and a
reference to a particular section thereof or rule thereunder shall be deemed to
include a reference to the comparable section or rule, if any, of any such
similar federal statute.
(d) The term "Holder" shall mean Xxxxx-Xxxxxx Corporation, a
Delaware corporation, or any permitted transferee of the Option or any
Registrable Securities.
(e) The term "Option" shall mean the option granted by the
Company to the Holder pursuant to the Distribution Agreement.
(f) The term "person" shall mean an individual, partnership,
corporation, trust, unincorporated organization or other entity.
(g) The term "Registrable Securities" shall mean shares of
Common Stock of the Company issuable upon exercise of the Option. As to any
particular Registrable Securities, once issued, such shares shall cease to be
Registrable Securities when (i) such shares shall have been registered under the
Securities Act, the registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and such shares
shall have been disposed of pursuant to such effective registration statement,
(ii) such shares shall have been disposed of pursuant to Rule 144 (or any
similar provision relating to the disposition of securities then in force) under
the Securities Act, (iii) such shares shall have been otherwise transferred, new
certificates or other evidences of ownership for them not bearing a legend
restricting further transfer and not subject to any stop-transfer order or other
restrictions on transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification of
such shares under the Securities Act or any state securities laws then in force
or (iv) such shares shall cease to be outstanding.
Exhibit A
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(h) The term "Registration Expenses" shall mean all expenses
incident to the Company's performance of or compliance with this Certificate,
including, without limitation, all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees and
expenses, fees and expenses of compliance with securities or blue sky laws
(including, without limitation, reasonable fees and disbursements of counsel for
the underwriters in connection with blue sky qualification of the Registrable
Securities), rating agency fees, printing expenses, messenger and delivery
expenses, the fees and expenses incurred in connection with the listing of the
shares to be registered on each securities exchange on which similar securities
issued by the Company are then listed, fees and disbursements of counsel for the
Company and all independent certified public accountants (including the expenses
of any annual audit, special audit or "cold comfort" letters required by or
incident to such performance and compliance), securities acts liability
insurance (if the Company so desires or if the underwriters so desire), the fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, the reasonable fees and expenses of any special experts retained by
the Company in connection with such registration, and fees and expenses of other
persons retained by the Company (but not including any underwriting discounts or
commissions attributable to the sale of Registrable Securities by the Holder).
(i) The term "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act or the Exchange Act.
(j) The term "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute then in effect, and a reference
to a particular section thereof or rule thereunder shall be deemed to include a
reference to the comparable section or rule, if any, of any such similar federal
statute.
(k) The term "Shares" shall mean shares of Common Stock of the
Company issued upon exercise of the Option.
2. Sale or Transfer of Shares; Legend.
(a) The Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or (ii) the
Company first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion
shall be required for a transfer made in accordance with Rule 144 under the
Securities Act.
(c) Each certificate representing the Shares shall bear a
legend substantially in the following form:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL SUCH SHARES
ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
3. Demand Registration.
(a) The Company agrees to prepare and file with the SEC a
registration statement under the Securities Act covering the public resale by
the Holder of Registrable Securities (together with all supplements and
amendments, the "Registration Statement") within sixty (60) days following
written notice from GRC, provided that GRC may not give such written notice
until after the Determination Date (as defined in the Distribution Agreement) or
the Second Determination Date (as defined in the Distribution Agreement), as the
case may be, and the Company shall use its best efforts to cause such
Registration Statement to become effective as soon as possible thereafter, all
in accordance with the provisions of this Agreement.
(b) if the Holder does not intend to distribute the
Registrable Securities by means of an underwriting, the Company may, if it is
then eligible to do so, effect the registration of the Registrable Securities on
Form S-3 or any comparable or successor form or forms if such form is available
for use by the Company pursuant to and in accordance with the Securities Act.
The Company agrees to file all reports and supplements required to be filed by
the Company under Section 13(a) of the Exchange Act.
(c) The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to Section 10.3 of
this Agreement.
(d) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) of this Section 3.
4. Failure to Register.
In the event that the Company fails to file a registration
statement within the time specified in Section 3 (the "Registration Filing
Deadline"), Optionee shall have the irrevocable right and option to purchase, at
the same price as the exercise price of the shares issuable upon exercise of the
Option (the "Option Price"), a number of shares of the Company's Common Stock
equal to one percent (1%) of the number of Shares as to which the Company has
failed to file a registration statement as provided in this Certificate. In
addition, for each period of thirty (30) days after the Registration Filing
Deadline that the Company fails to file a registration statement, Optionee shall
have the irrevocable right and option to purchase, at the Option Price, an
additional number of shares of the Company's Common Stock equal to one percent
(1%) of the number of
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Shares as to which the Company has failed to file a registration statement. The
option granted under this Section 4 shall be exercisable upon the same terms and
conditions as the Option and the shares issuable upon exercise of such Option
shall be deemed to be Shares issued under the Option for purposes of this
Agreement.
5. Registration Procedures. In the case of each registration
pursuant to this Certificate, the Company shall:
(a) Furnish to Holder a copy of the prospectus included in
such registration statement in conformity with the requirements of the
Securities Act and such other documents as Holder may reasonably request in
order to facilitate the disposition of the Registrable Securities covered by
such registration statement.
(b) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by Holder,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify as a foreign corporation or as a dealer in
securities or to file a general consent to service of process in any such states
or jurisdictions in which it has not already done so and except as may be
required by the Securities Act.
(c) Notify Holder at any tune when a prospectus is required to
be delivered under the Securities Act of the happening of any event as a result
of which the prospectus, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing.
(d) Notify Holder promptly after the Company shall receive
notice that any registration statement, supplement or amendment has become
effective, any registration statement is required to be amended or supplemented,
or any stop order with respect thereto has been issued.
(e) At its expense, the Company will use its best efforts to
keep such registration statement effective for a period of two (2) years after
the date of termination of the Distribution Agreement or the sale of all of the
Registrable Securities covered thereby, whichever occurs first; provided, that
if the Company fails to file a Registration Statement with the SEC within the
time set forth in Section 3 above, the Company shall maintain the effectiveness
of such Registration Statement for an additional period of time after the date
of termination of the Distribution Agreement equal to the period of time between
the date by which the Company agreed to file such registration statement and the
date it was actually filed; and provided, further that the Company shall not be
obligated to maintain the effectiveness of any registration statement with
respect to any Registrable Securities issuable upon exercise of the Option
granted by the Company to the Holder that have not been purchased prior to the
expiration of the Option. The Company agrees to prepare and file with the SEC
such amendments and supplements, including post-effective
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amendments, to a registration statement as may be necessary to keep such
registration statement effective for the applicable period.
6. Information by Holder. Holder shall furnish in writing to the
Company such information regarding Holder and the distribution of the
Registrable Securities proposed by Holder as the Company may request in writing
and as shall be required in connection with any registration referred to in this
Certificate. The Company's obligations under this Certificate are conditioned
upon compliance by Holder with the provisions of this Certificate.
7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers, directors and constituent partners, legal
counsel for the Holders, and each person controlling such Holder, with respect
to which registration of Registrable Securities has been effected pursuant to
this Certificate, and each underwriter engaged by the Holder, if any, and each
person who controls any such underwriter, against all claims, losses, damages or
liabilities (or actions in respect thereof) to the extent such claims, losses,
damages or liabilities arise out of or are based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus or
other document (including any related registration statement) incident to any
such registration, or are based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration; and the Company will reimburse each such Holder, each such
underwriter and each person who controls any such Holder or underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained in this Section 7 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); and provided, further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter engaged by the Holder, or person controlling the Holder
and stated to be for use in such prospectus or other documents.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which registration is being effected pursuant to this Certificate, indemnify the
Company, each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such registration statement, each person who controls the Company or
such underwriter within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and constituent partners and each person
controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such
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registration statement, prospectus or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such Holder of any rule or regulation promulgated under the Securities Act
applicable to such Holder and relating to action or inaction required of such
Holder in connection with any such registration; and will reimburse the Company,
such Holders, such directors, officers, partners, persons, law and accounting
firms, underwriters or control persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use in such registration statement, prospectus or other
document; provided, however, that the indemnity contained in this Section 7
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if settlement is effected without the consent of the Holder
(which consent shall not unreasonably be withheld); and provided, further, that
in no event shall any indemnity under this Section 7(b) exceed the gross
proceeds from the sale of shares covered by such prospectus received by the
Holder.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein within a reasonable amount of time, if such
failure is prejudicial to the Indemnifying Party of its obligations under this
Certificate, shall relieve the Indemnifying Party of any liability to the
Indemnified Party under this Section 7, but not of any obligation rising apart
from this Certificate. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have reasonably concluded that
there may be one or more legal defenses available to such Indemnified Party
which are different from or additional to those available to the Indemnifying
Party, or that such claim or litigation involves or reasonably could have a
material adverse effect upon matters beyond the scope of the indemnity agreement
provided in this Certificate, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and such
Indemnifying Party shall reimburse such Indemnified Party and any person
controlling such Indemnified Party for that portion of the fees and expenses of
any counsel retained by the Indemnified Party which are reasonably related to
the matters covered by the indemnity agreement provided in this Section 7.
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8. Transfer of Registration Rights; Survival of Registration Rights.
The rights to cause the Company to register securities granted by the Company
under this Certificate to the Holder may be assigned by any Holder to a
transferee or assignee of any Registrable Securities; provided, however, that
the Company must be given written notice prior to the time of said transfer,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such registration fights are being assigned.
The rights to cause the Company to register securities granted by the Company
under this Certificate to the Holder shall survive the termination of the
Distribution Agreement for a period of eighteen (18) months.
9. Adjustments Affecting Securities. The Company will not take any
action or permit any change to occur, with respect to the Shares or the
Registrable Securities that would affect adversely the ability of the Holders to
include the Registrable Securities in a registration undertaken pursuant to this
Certificate or the marketability of the Shares or the Registrable Securities in
any registration. If, and as often as, there is any change in the Common Stock
of the Company by way of a stock split, stock dividend, combination or
reclassification; or through a merger, consolidation or reorganization, or by
any other means, appropriate adjustment shall be made in the provisions hereof
so that the rights and privileges granted hereby shall continue with respect to
the Shares and the Registrable Securities.
10. Miscellaneous.
(a) This Certificate shall be governed in all respects by the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
(b) Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
(c) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by United States first-class
mail, postage prepaid, sent by facsimile or delivered personally by hand or
nationally recognized courier addressed (a) if to the Holder, at 0000 Xxxxx
Xxxx, Xxxxxx Xxxxx, Xxxxx Xxxxxx, Xxxxxxxxxx 00000 - Facsimile (000) 000-0000,
or at such other address or facsimile number as such Holder or permitted
assignee shall have furnished to the Company in writing, or (b) if to the
Company, at Xxx Xxxx Xxxx Xxxxx, Xxxxx Xxxxx, Xxx Xxxx 00000 - Facsimile (914)
620-1889, or at such other address or facsimile number as the Company shall have
furnished to the Holder in writing. All such notices and other written
communications shall be effective on the date of mailing, facsimile transfer or
delivery.
(d) The titles of the sections and subsections of this
Certificate are for convenience of reference only and are not to be considered
in construing or interpreting this Certificate.
(e) No supplement, modification or amendment of this
Certificate shall be binding unless executed in writing by the parties hereto.
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The Company and the Holder have caused this Registration Rights
Certificate to be duly executed as of October 1, 1997.
COMPANY:
LONG DISTANCE DIRECT HOLDINGS, INC.
By: /s/ Xxxxxx Xxxxxxx
-------------------------------------
Its: President
HOLDER:
XXXXX-XXXXXX CORPORATION
By: /s/ Xxxxx X. Xxxxx
-------------------------------------
Its: Product Distributor
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