LETTER AGREEMENT October 18, 2006
October
18, 2006
Xxxxxx
X.
Xxxxxx
RMP
Family Trust
Ronco
Inventions, LLC
Popeil
Inventions, Inc.
RP
Productions, Inc.
0000
Xxxxxxxxxx Xxxxx
Xxxxxxx
Xxxxx, XX 00000
Ladies
and Gentlemen:
Ronco
Corporation,
a
Delaware corporation (“Ronco”) and
Ronco
Marketing Corporation, a Delaware corporation and
wholly owned subsidiary of Ronco (“RMC”
and
together with Ronco, the “Company”),
are,
substantially concurrently herewith, entering into a Security and Purchase
Agreement (the “Laurus
Loan Agreement”)
with
Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”),
pursuant to which Laurus will make certain advances to the Company (the
“Laurus
Loan”).
A
condition to the closing of the Laurus Loan is that each of Xxxxxx X. Xxxxxx
(“Popeil”),
the
RMP Family Trust, an Illinois irrevocable trust, Xxxx Xxxxxxx and Xxxxxx Xxxxxx
as co-Trustees (“RMP”),
Ronco
Inventions, LLC, a California limited liability company (“Ronco
Inventions”),
Popeil Inventions, Inc., a Nevada corporation (“Popeil
Inventions”)
and RP
Productions, Inc., a Nevada corporation (“RP,”
and
collectively with Popeil, RMP, Ronco Inventions, Popeil Inventions and RP,
the
“Lenders”)
enter
into the Subordination Agreement in substantially the form attached hereto
as
Exhibit
A
with
Laurus Master Fund, Ltd. (the “Laurus
Subordination Agreement”),
and
the Limited Subordination Agreement in substantially the form attached hereto
as
Exhibit
B with
Xxxxxxx Xxxxxx Xxxxxx Inc., a Texas corporation (“SMH”),
individually and on behalf of the “lenders” (as defined in the Letter Loan
Agreement dated June 9, 2006, among Ronco, SMH and these “lenders”)(the
“SMH
Limited Subordination Agreement”).
In
connection with the Company’s purchase of the Ronco business, RMC issued
promissory notes in the aggregate original principal amount of $16.3 million
to
Ronco Inventions and Popeil Inventions. Pursuant and subject to the terms of
the
Asset Purchase Agreement dated December 10, 2004 among RMC and the Lenders,
as
amended or supplemented (the “Asset
Purchase Agreement”),
the
principal amount of these promissory notes was to be adjusted following the
closing of the Company’s purchase of the Ronco business.
Subject
to the terms of this Letter Agreement (this “Agreement”),
the
Company and each of the Lenders hereby agree as follows:
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1.
Effectiveness.
The
Company and the Lenders agree that this Agreement shall only become effective
upon the closing of the Laurus Loan (the “Laurus
Closing”),
in
which case it shall be deemed effective immediately prior to the “Closing
Date”
(as
defined in the Laurus Loan Agreement) of the Laurus Loan. The Company and the
Lenders further agree that the provisions hereof shall supersede and replace
any
contrary provisions of the Asset Purchase Agreement, the Notes (as defined
herein) and any other document or agreement entered into among them in
connection therewith. Other than as set forth in this Agreement, none of the
Lenders shall be deemed to have waived, amended, modified or changed any
provision of the Asset Purchase Agreement, or its respective rights thereunder,
the Notes or any other document or agreement entered into in connection with
the
Asset Purchase Agreement, as a result of its acceptance of any of the payments
called for hereunder, including, but not limited to, such Lender’s right to
dispute the amounts paid in accordance with the provisions of Section 1.7(D)
of
the Asset Purchase Agreement.
2. Laurus
Subordination Agreement and SMH Limited Subordination Agreement.
Each of
the Lenders agrees to enter into the Laurus Subordination Agreement and the
SMH
Limited Subordination Agreement as of the date hereof. Notwithstanding the
foregoing, the Laurus Subordination Agreement and the SMH Limited Subordination
Agreement shall have no force or effect until immediately prior to the Closing
Date. If any of the Company, Laurus or the Lenders elect to deliver their
respective signature pages to this Agreement, the Laurus Subordination Agreement
or the SMH Limited Subordination Agreement to counsel for the Company to be
held
in escrow pending the Laurus Closing, it is expressly agreed that any of them
may withdraw their respective signature pages from escrow at any time prior
to
the Laurus Closing for any reason in which event this Agreement will be of
no
force or effect.
3. Turkey
Fryer.
(a) The
Company hereby agrees and confirms that it has no rights or interest whatsoever
in or to, or any right to acquire, the Turkey Fryer (as defined in the New
Product Development Agreement dated June 30, 2005 by and between Xxxxxx X.
Xxxxxx and RMC (the “New
Product Development Agreement”))
and
agrees that is not entitled to any compensation or other consideration in
respect of the Turkey Fryer or its confirmation and agreement as expressed
in
this Paragraph 3(a). For the avoidance of doubt, the parties agree that, as
used
in this Paragraph 3, the term “Turkey Fryer” shall include the turkey fryer
product developed by Xxxxxx X. Xxxxxx and Xxxx X. Xxxxxx as previously shown
to
the Company and/or its representatives, in all of its variations and versions,
and together with any pertinent intellectual property and related accessories
or
products, and any similar or derivative products, intellectual property and/or
accessories heretofore or hereafter developed, created or conceived by or under
the direction of Xxxxxx X. Xxxxxx and/or Xxxx X. Xxxxxx. In addition, Lenders
confirm that the Company has no obligation to acquire the Turkey Fryer and
no
liability to any of Lenders in connection with the Turkey Fryer.
2
Lenders
further confirm that, to their knowledge, no Event of Default (as defined in
the
New Product Development Agreement) has occurred under the New Product
Development Agreement during the Pre-Agreement Period (as hereafter defined)
excluding matters that might be construed to constitute an Event of Default,
the
resolution of which is addressed by this Agreement. The Company confirms that,
to its knowledge, no matters that in its judgment constitute an Event of Default
by the Company have occurred under the New Product Development Agreement
excluding matters that might be construed to constitute an Event of Default,
the
resolution of which is addressed by this Agreement.
(b) RMC
hereby grants Xxxxxx X. Xxxxxx a world-wide, perpetual, transferable
royalty-free license to use his name and likeness on the packaging of the Turkey
Fryer, on the Turkey Fryer itself and in connection with the manufacturing,
marketing and sale of the Turkey Fryer.
4. Consulting
Fee.
Subject
to the terms of the Consulting Agreement dated June 30, 2005 between RMC and
Popeil (the “Consulting
Agreement”),
RMC
agrees that the Compensation (as defined in the Consulting Agreement) received
by Popeil pursuant to Section 2(a)(i) of the Consulting Agreement shall be
increased, so that RMC shall pay to Popeil, commencing on the date hereof,
an
additional $3,000 per week (the “Additional
Payments”)
until
all obligations of Ronco and/or RMC under the Notes (as hereafter defined)
have
been paid in full. This obligation to make the Additional Payments shall
continue until the Notes have been paid in full even if the term of the
Consulting Agreement has expired before such time. Lenders confirm that, to
their knowledge, no default has occurred under the Consulting Agreement during
the Pre-Agreement Period (as hereafter defined) excluding matters that might
be
construed to constitute a default, the resolution of which is addressed by
this
Agreement. The Company confirms that, to its knowledge, no matters that in
its
judgment constitute a default by the Company have occurred under the Consulting
Agreement excluding matters that might be construed to constitute a default,
the
resolution of which is addressed by this Agreement.
5. Final
Combined NCOAV.
(a) Pursuant
to the terms of the Asset Purchase Agreement, the Company and the Lenders agree
that the final Combined NCOAV (as defined in the Asset Purchase Agreement)
is
$13,158,180. RMC and the Lenders each waive any Objections (as defined in the
Asset Purchase Agreement) under Section 1.6(D) and Section 1.6(E) of the Asset
Purchase Agreement to the final Combined NCOAV or the related Adjusted
Determination (as defined in the Asset Purchase Agreement). Lenders confirm
that, to their knowledge, no default has occurred under the Asset Purchase
Agreement during the Pre-Agreement Period (as hereafter defined) excluding
matters that might be construed to constitute a default, the resolution of
which
is addressed by this Agreement. The Company confirms that, to its knowledge,
no
matters that in its judgment constitute a default by the Company have occurred
under the Asset Purchase Agreement excluding matters that might be construed
to
constitute a default, the resolution of which is addressed by this Agreement.
3
(b) RMC
and
the Lenders further agree that the principal amount of the Purchase Money
Promissory Note issued to Popeil Inventions on June 30, 2005 (the “Popeil
Inventions Note”)
shall
be adjusted pursuant to Section 1.6 of the Asset Purchase Agreement, so that
the
Adjusted Principal Amount (as defined in the Popeil Inventions Note) shall
be
$12,558,180 as of the Closing (as defined in the Asset Purchase Agreement).
RMC
and the Lenders further acknowledge and agree that the amount outstanding under
the Popeil Inventions Note as of the date hereof may be greater or less than
the
Adjusted Principal Amount, reflecting accrued interest since the Closing Date
and other amounts becoming due since such date, as well as payments made by
RMC
under the Popeil Inventions Note since the Closing Date. Lenders
confirm that, to their knowledge, no Event of Default (as defined in the Popeil
Inventions Note) has occurred under the Popeil Inventions Note during the
Pre-Agreement Period (as hereafter defined) excluding matters that might be
construed to constitute an Event of Default, the resolution of which is
addressed by this Agreement. The Company confirms that, to its knowledge, no
matters that in its judgment constitute an Event of Default by the Company
have
occurred under the Popeil Inventions Note excluding matters that might be
construed to constitute an Event of Default, the resolution of which is
addressed by this Agreement.
(c) RMC
and
the Lenders further agree that the principal amount of the Purchase Money
Promissory Note issued to Ronco Inventions on June 30, 2005 (the “Ronco
Inventions Note”)
shall
be adjusted pursuant to Section 1.6 of the Asset Purchase Agreement, so that
the
Adjusted Principal Amount (as defined in the Ronco Inventions Note) shall be
$600,000 as of the Closing (as defined in the Asset Purchase Agreement). RMC
and
the Lenders further acknowledge and agree that the amount outstanding under
the
Ronco Inventions Note as of the date hereof may be greater or less than the
Adjusted Principal Amount, reflecting accrued interest since the Closing Date
and other amounts becoming due since such date, as well as payments made by
RMC
under the Ronco Inventions Note since the Closing Date. Lenders confirm that,
to
their knowledge, no Event of Default (as defined in the Ronco Inventions Note)
has occurred under the Ronco Inventions Note during the Pre-Agreement Period
(as
hereafter defined) excluding matters that might be construed to constitute
an
Event of Default, the resolution of which is addressed by this Agreement. The
Company confirms that, to its knowledge, no matters that in its judgment
constitute an Event of Default by the Company have occurred under the Ronco
Inventions Note excluding matters that might be construed to constitute an
Event
of Default, the resolution of which is addressed by this Agreement.
6.
Amendments
to Asset Purchase Agreement.
(a) RMC
and
the Lenders agree that Section 1.7(A) of the Asset Purchase Agreement shall
be
amended and restated in its entirety to read as follows (with such Section
1.7(A) as so amended replacing the corresponding excerpted Section attached
as
Exhibit A to each of the Notes):
4
“(A)
For
so long as any amounts remain outstanding under the Notes, Purchaser shall
make
per unit quality control payments ("QC Payments") earned by Sellers for each
product as set forth below in this Section 1.7, regardless of whether or how
such products are ultimately distributed (e.g., whether through retail sales,
distribution of product samples, direct sales and/or web site sales, among
other
distribution methods). The QC Payments shall be made to the Sellers' Designee,
who shall distribute such payments on a pro rata basis as set forth on Schedule
1.5(A) to the applicable Sellers for application to amounts outstanding under
the Notes in accordance with such Notes. The Sellers will earn the QC Payments
set forth on the QC Payment Schedule each time a unit of one of the products
listed on the QC Payment Schedule below is manufactured. For purposes of
determining the QC Payments earned pursuant to this Section 1.7, a product
will
be deemed to be manufactured no later than five (5) business days after such
product is made available for Purchaser or any of Purchaser's Affiliates or
designees to take immediate possession. Purchaser will make all QC Payments
hereunder on a monthly basis in arrears on or before the twenty-fifth
(25th)
day of
each calendar month as such QC Payments are earned for the preceding calendar
month. All QC Payments shall be non-refundable. None of the Sellers shall be
deemed to have waived, amended, modified or changed any provision of this
Agreement, or its respective rights hereunder, the Notes or any other document
or agreement entered into in connection with this Agreement, as a result of
its
acceptance of any of the payments called for in this Section 1.7(A), including,
but not limited to, such Seller's right to dispute the amounts paid under this
Section 1.7(A) in accordance with the provisions of Section 1.7(D).”
(b) Section
1.7(B) of the Asset Purchase Agreement is hereby amended in its entirety to
read
as follows (with such Section 1.7(B) as so amended replacing the corresponding
excerpted Section attached as Exhibit A to each of the Notes):
“(B) Purchaser
shall provide the Sellers’ Designee, as representative for the Sellers, with a
monthly report detailing the number of each of the products listed below that
are manufactured (as such term is used above) during the immediately preceding
month. Each such report shall be accompanied by all relevant supporting
documentation, including, without limitation, the purchase orders and shipping
documents relating to the products manufactured for the applicable month. Each
such report shall be delivered to the Sellers’ Designee not later than
concurrently with the payment to be delivered to the Sellers’ Designee pursuant
to Section 1.7(A) above for the month to which the report
pertains.”
(c) Section
1.7(D) of the Asset Purchase Agreement is hereby amended in its entirety to
read
as follows (with such Section 1.7(D) as so amended replacing the corresponding
excerpted Section attached as Exhibit A to each of the Notes):
5
“(D) Purchaser’s
records that relate to the subject matter of this Section
1.7
may be
examined from time to time by any Seller or its representatives, as many times
as Seller elects in its discretion, during reasonable business hours. Sellers
shall give Purchaser not less than seven (7) days’ prior notice of each request,
or substantially related requests, to examine Purchaser’s records pursuant
hereto. Purchaser will provide reasonable cooperation and assistance to Sellers
in connection with any such examination as reasonable requested by Sellers.
Sellers shall also be permitted to contact Purchaser’s manufacturers directly
for the sole purpose of verifying Purchaser’s QC Payment obligations, and
Purchaser shall, upon request of any Seller, authorize and direct its
manufacturers to provide information to Sellers as they may reasonable request
for purposes of such verification. Sellers shall provide Purchaser with timely
written notification of any such direct communications with any such
manufacturers of Purchaser. Seller shall retain any information that it learns
as a result of such examination of Purchaser in confidence and shall not
disclose such information to any third parties (except Seller’s representatives
whom Seller shall inform of this confidentiality obligation) or use such
information for any purpose except for the purpose of verifying Purchaser’s QC
Payment obligations and in connection with the arbitral or judicial resolution
of any issue arising between Sellers and Purchaser. Seller shall be liable
for
any breach of this provision by its representatives. If any such examination
reveals that Purchaser owes Sellers additional QC Payments, Purchaser shall:
(a)
immediately pay the Sellers’ Designee for distribution to Sellers on a pro rata
basis such delinquent amounts, which payments shall be applied by the applicable
Sellers against outstanding amounts owed to such Sellers under their respective
Notes in accordance with such Notes; and (b) pay to the Sellers’ Designee for
distribution to Sellers interest on the overdue amounts calculated at a rate
equal to the lesser of 10% per annum or the maximum rate allowed by applicable
Legal Rules, which payments shall also be applied against outstanding amounts
owed to such Sellers under such Notes in accordance therewith. Notwithstanding
anything herein to the contrary, (i) if the actual aggregate amount of QC
Payments made by Purchaser to Sellers for any monthly period are less than
ninety percent (90%) of those amounts owed for the period, Purchaser shall
pay
to the Sellers’ Designee, upon demand therefor, for distribution to Sellers on a
pro rata basis an amount equal to the out-of-pocket costs of the relevant
examination incurred by Sellers. Notwithstanding the foregoing, Purchaser shall
have the right to dispute the results of Sellers’ examination pursuant to the
procedures set forth in Section
11.10.”
6
(d) Sections
6.10(B), (C), (D) and (E) of the Asset Purchase Agreement are hereby
respectively amended in their entirety to read as follows:
“(B) X.
Xxxxxx
(or his permitted designee) shall be entitled to receive as an appearance fee
an
amount equal to 50% of the Gross Profits (as defined in this Section
6.10(B))
from
sales (“Promoted
Sales”)
of any
products promoted by X. Xxxxxx (or such permitted designee) through personal
appearances made pursuant to this Section
6.10
where
such sales occur within sixty (60) days after X. Xxxxxx’x (or his permitted
designee’s) personal appearance, including, without limitation, with respect to
such products promoted on the QVC Shopping Network, from direct sales of such
products on the QVC Shopping Network and from sales of such products on QVC’s
website and/or through QVC retail stores; provided, that sales of products
promoted by a spokesperson or spokespersons other than X. Xxxxxx or his
permitted designees, which sales occur during the time that such spokesperson
or
spokespersons are “on the air,” shall not, to the extent that such sales result
in an obligation of the QVC Shopping Network or Purchaser to pay such
spokesperson or spokespersons other than X. Xxxxxx or his designees a unit
sales
commission or payment (and such commission or payment is paid), be counted
as
sales for which X. Xxxxxx or his designees is entitled to receive fees pursuant
to this Section
6.10.
As used
herein, “Gross Profits” means gross sales less landed cost of goods sold
less, if applicable, direct costs associated with personal appearances
(including transportation and lodging costs and any costs of food or other
products used in such appearances, all of which shall be reimbursed to X. Xxxxxx
or his permitted designees upon request therefor, but excluding any amounts
paid
to X. Xxxxxx as an appearance fee, all of which shall be reimbursed to X. Xxxxxx
or his permitted designees upon request therefor, but excluding any amounts
paid
to X. Xxxxxx as an appearance fee pursuant to this Section 6.10(B)) less any
commissions payable to Coordinated Strategic Alliances in connection with the
applicable personal appearance. For the avoidance of doubt, it is agreed and
understood that (i) Gross Profits shall not be reduced by or otherwise reflect
any allocation of overhead or general or administrative expenses of any kind
and
(ii) X. Xxxxxx’x entitlement to Gross Profits pursuant to this Section 6.10(B)
is independent of his right (or that of his designees or transferees) to receive
revenues or profits from the sale of products promoted by X. Xxxxxx or any
of
his designees or transferees other than on behalf of or at the request of
Purchaser or RIM (whether with respect to products that Purchaser has declined
to acquire pursuant to the Product Development Agreement, products the rights
to
which have been acquired by X. Xxxxxx pursuant to the Product Development
Agreement upon an event of default under the Notes, or otherwise). For the
purpose of clarification, nothing herein shall obligate the Company to make
payments of Gross Profits to X. Xxxxxx or his permitted designee based on
Promoted Sales made during the personal appearances of Xxxxx Xxxxxxx on the
QVC
Shopping Network prior to the date of this Agreement.
7
(C) In
addition to the above-described appearance fee, X. Xxxxxx shall be entitled
to
receive the remaining 50% of the Gross Profits from Promoted Sales until such
payments (i.e., the payments pursuant to this Section 6.10(C)) total $400,000
in
the aggregate (such amount, the “Estimated Interest Differential”). Thereafter,
Purchaser or RIM, as applicable, shall be entitled to receive the remaining
50%
of Gross Profits (i.e., the other 50% of Gross Profits not payable to X. Xxxxxx
pursuant to Section 6.10(B) above) from Promoted Sales.
(D) Purchaser,
or RIM, as applicable, shall make all payments to X. Xxxxxx or his designee(s),
as applicable, due pursuant to this Section 6.10 not later than the fifteenth
(15th)
calendar day following Purchaser’s or RIM’s receipt of payment for the
applicable products from Promoted Sales. Each such payment shall be accompanied
by a detailed statement setting forth Purchaser’s or RIM’s calculation of the
applicable Gross Profits and the payment due to X. Xxxxxx or his designee(s).
Purchaser or RIM, as applicable, shall prepare and maintain for a period of
at
least three (3) years after the due date for the payment to which the records
relate accurate, complete and reasonably detailed records in order to
substantiate the amounts payable under this Section 6.10.
(E) Purchaser’s
records that relate to the subject matter of this Section 6.10 may be examined
from time to time in Los Angeles, California, on at least seven (7) days’ prior
notice and during normal business hours by X. Xxxxxx or his representatives.
If
any such examination reveals that Purchaser owes X. Xxxxxx or his designee(s)
additional amounts under this Section 6.10, Purchaser shall (a) immediately
pay
X. Xxxxxx or his designee(s) such delinquent amounts; and (b) pay to X. Xxxxxx
or his designee(s) interest on the overdue amounts calculated at a rate equal
to
the lesser of 10% per annum or the maximum rate allowed by applicable Legal
Rules. Notwithstanding anything herein to the contrary, if the actual aggregate
amounts paid by Purchaser or RIM to X. Xxxxxx or his designee(s) over any period
of three consecutive months (without duplication) are less than ninety percent
(90%) of those amounts owed for such period, Purchaser shall pay to X. Xxxxxx,
upon demand therefor, an amount equal to the actual and documented costs
incurred by X. Xxxxxx or his designee(s) in connection with such examination.
Notwithstanding the foregoing, Purchaser shall have the right to dispute the
results of the examination by X. Xxxxxx or his representatives pursuant to
the
procedures set forth in Section
11.10.”
(e) RMC
and
the Lenders agree that Sections 4.11 and 7.3 (H) of the Asset Purchase Agreement
shall be deleted.
(f) RMC
and
the Lenders agree that QC Payments made by RMC in respect of products
manufactured for marketing and sale through retail distribution channels since
June 30, 2005, shall be applied to amounts outstanding under the Ronco
Inventions Note and the Popeil Inventions Note.
(g) Section
11.10 of the Asset Purchase Agreement shall be amended in its entirety to read
as follows:
8
“11.10.
Dispute Resolution.
Any
dispute arising out of or relating to this Agreement, or any Exhibit or Schedule
hereto or any other agreement, instrument or certificate delivered pursuant
to
this Agreement, or the breach, termination or validity hereof or thereof,
including any dispute based in whole or in part on tort or other non-contractual
principles of law, or relating to or arising out of the transactions
contemplated by this Agreement or any other agreement, instrument or certificate
delivered pursuant to this Agreement, shall be resolved in the following
manner:
(A) Any
Party
may give written notice to the other Parties of any dispute which has arisen.
Any other Party may give notice within five (5) Business Days of receipt of
the
first notice of any additional dispute(s), all to the end that the Parties
may
be reasonably aware of the matters in dispute.
(B) All
disputes shall be fully and finally resolved by binding arbitration conducted
in
Los Angeles, California. The arbitration shall be administered by Judicial
Arbitration and Mediation Services (“JAMS”)
in its
Los Angeles County office. The arbitrator shall be a retired superior court
judge of the State of California affiliated with JAMS and shall be selected
as
follows. The parties will request that JAMS provide a list of available
arbitrators satisfying the requirements of the immediately preceding sentence.
Each side to the dispute will confidentially rank in descending order of
desirability (from most desirable to least desirable) each person on such list.
The person on such list with the highest composite ranking by both sides will
be
selected as the arbitrator. The arbitration hearing on the merits of the dispute
will be conducted within 45 days of the selection of the arbitrator, and the
ruling of the arbitrator on the dispute shall be rendered within 30 days
thereafter, unless good cause is shown as to why such ruling must be delayed
beyond such time (in which case the ruling shall be rendered as soon as
practicable following the selection of the arbitrator). Any action brought
to
enforce the provisions of this Section 11.10 shall be brought in the Los Angeles
County Superior Court. Judgment upon the award rendered by the arbitrator may
be
entered in any court having jurisdiction thereof. The arbitrator shall not
have
any power to alter, amend, modify or change any of the terms of this Agreement
nor to grant any remedy which is either prohibited by the terms of this
Agreement or not available in a court of law. Costs and reasonable attorneys’
fees shall be awarded to the defendant in any arbitration pursuant hereto,
in
any action brought to enforce the provisions of this Section 11.10, and in
any
other arbitral or judicial action to which the Sellers and Purchaser are parties
that arises out of or relates to this Agreement, or any Exhibit or Schedule
hereto or any other agreement, instrument or certificate delivered pursuant
to
this Agreement, unless the plaintiff is the prevailing party in such
arbitration, enforcement action or other proceeding. If the prevailing party
in
such arbitration, enforcement action or other proceeding is the plaintiff,
each
Party shall bear its own costs and attorneys’ fees. Nothing in this Section
11.10 shall preclude either party from bringing a court action seeking an order
for or with respect to a writ of attachment, constructive trust or other
provisional remedy or an equitable remedy such as injunctive relief, specific
performance or any other equitable remedy that may be applicable under the
circumstances.
9
(C) The
dispute resolution proceedings contemplated by this provision shall be as
confidential and private as permitted by law. To that end, the Parties shall not
disclose the existence, content or results of any claims hereunder or
proceedings conducted in accordance with this provision, and materials submitted
in connection with such proceedings shall not be admissible in any other
proceeding; provided,
however,
that
this confidentiality provision shall not prevent a petition to vacate or enforce
an arbitral award, shall not prevent the Purchaser from filing this document
with the Securities and Exchange Commission if in the good faith judgment of
Purchaser’s counsel such document is required to be filed, and shall not bar
disclosures required by law. The Parties agree that any decision or award
resulting from proceedings in accordance with this dispute resolution provision
shall have no preclusive effect in any other matter involving third
parties.”
(h) The
Company’s statement of unpaid QC Payments due to the Lenders pursuant to the
Asset Purchase Agreement (and giving effect to the amendments herein) for the
period of June 30, 2005 through July 31, 2006 is $1,427,301.40 as set forth
on
Exhibit
C
hereto,
and $1,250,000.00 of such unpaid amount shall be paid by RMC in immediately
available funds to the Lenders on the Closing Date. RMC shall pay an additional
amount of $400,000.00 to the Lenders within thirty (30) days of the Closing
Date, which amount reflects the parties’ current good faith estimate of the
remaining unpaid QC Payment obligations owed to the Lenders for the period
from
June 30, 2005 through the Closing Date (i.e.,
after
giving effect to the $1,250,000 to be paid to the Lenders on the Closing Date).
The full amount of the unpaid QC Payments due to the Lenders for the period
from
June 30, 2005 through the Closing Date (the “Pre-Agreement
Period”)
shall
be subject to confirmation by the parties based on the relevant documentation.
Notwithstanding the foregoing, unless the Lenders have otherwise agreed in
writing, RMC shall make the $400,000 payment described above regardless of
whether the actual amount of the unpaid QC Payments for the Pre-Agreement Period
has then been confirmed and agreed by the parties, it being understood and
agreed that if the actual aggregate amount due for such period is (x) less
than
$1,650,000, then the amount of the overpayment for such period shall be retained
by the Lenders and applied to any QC Payment obligations of the Company arising
after the Pre-Agreement Period or (y) greater than $1,650,000, then the amount
of the underpayment for such period shall be paid to the Lenders not later
than
three (3) days after the amount of such underpayment has been agreed to by
the
parties or determined pursuant to the dispute resolution procedures set forth
in
the Asset Purchase Agreement.
7. Effect
of Default/Acceleration of Indebtedness.
The
Company and the Lenders agree that if an “Event of Default” (as defined in the
Popeil Inventions Note or the Ronco Inventions Note, which are together referred
to as the “Notes”)
should
occur under the Notes, the applicable Lender shall be permitted to accelerate
and immediately declare as due and payable all amounts due to such Lender under
the applicable Note in accordance with the provisions thereof. Notwithstanding
such declaration, the Lender shall only be permitted to take action to collect
such amounts if so permitted by the Laurus Subordination Agreement and the
SMH
Limited Subordination Agreement.
10
8. Personal
Appearances on Direct Response Television.
Section
6.10 of the Asset Purchase Agreement requires the Company to make certain
payments to Popeil or his permitted designee if Popeil or his permitted designee
makes certain personal appearances on direct response television, including
the
QVC Shopping Network. The Company’s statement of amounts owing to Popeil at
present is $79,091.56 (the “Estimated
Outstanding QVC Amounts”),
which
amount shall be subject to verification by Popeil pursuant to the Asset Purchase
Agreement.
For
purposes of verifying the amount due, the Parties shall apply the methodology
for computing Promoted Sales, as set forth in Section 6.10(B) of the Asset
Purchase Agreement as amended by this Agreement. The Company shall pay Popeil
the Estimated Outstanding QVC Amounts within thirty (30) days of the date hereof
regardless of whether the parties have confirmed and agree that such amount
is
the amount owed to Popeil pursuant to the Asset Purchase Agreement, it being
understood and agreed that if the actual amount due to Popeil is (x) less than
the Estimated Outstanding QVC Amounts, Popeil shall, within three (3) business
days following the final determination of (or agreement by the parties
regarding) the actual amount due to Popeil, refund to the Company the amount
by
which the Estimated Outstanding QVC Amounts exceeds the actual amount due to
Popeil or (y) greater than the Estimated Outstanding QVC Amounts, then the
Company shall, within three (3) business days following the final determination
of (or agreement by the parties regarding) the actual amount due to Popeil,
pay
Popeil the amount by which the actual amount due to Popeil exceeds the Estimated
Outstanding QVC Amounts.
9. O’Melveny
& Xxxxx Fees and Expenses.
Within
thirty (30) days after the Laurus Closing, the Company shall reimburse Lenders
the amount of $44,703.50, which Lenders paid to O’Melveny & Xxxxx for
services rendered to Lenders through July 31, 2006 with respect to the Laurus
Subordination Agreement. The Company shall also reimburse Lenders, within thirty
(30) days after receipt of the invoice, for any additional amounts paid for
reasonable legal fees related to the Laurus Subordination Agreement and SMH
Limited Subordination Agreement incurred after such date.
10. Warrant.
Within
thirty (30) days after the date hereof, the Company shall issue Lenders a
warrant to purchase 200,000 shares of Company’s common stock. Such warrant shall
have a term of five (5) years and an exercise price, payable in cash, equal
to
the average bid price for the Company’s common stock, as quoted on the OTC
Bulletin Board, for the 30 trading days immediately prior to the Laurus Closing.
The warrant shall also contain such other terms as the Company, in its
reasonable discretion, shall determine are reasonable and customary. The Lenders
agree to provide customary investment representations in connection with the
issuance of the warrant. The Company shall use its commercially reasonable
efforts to include the shares underlying such warrant in its registration
statement that has already been filed with the Securities and Exchange
Commission (“SEC”) and to use its commercially reasonable efforts to cause such
registration statement to be declared effective as soon as possible. If the
Company is unable to include the shares underlying the warrant in such existing
registration statement, the Company shall include such shares in the next
registration statement it files with the SEC, the terms of which permit the
Company to include shares of the Lender. The Company shall also use its
commercially reasonable efforts to qualify the shares of common stock underlying
the warrant for sale in the State of California.
11
11. Name
Change of Certain Lender Entities. The
Company is not allowed to use the legal name of “Ronco Corporation” in
California because of the existence of an entity named “Ronco Inc.” previously
registered in California that is owned or controlled by one or more of the
Lenders. Ronco currently conducts business under the name of “Fi-Tek VII” in
California. Fi-Tek VII (the predecessor to Ronco) desires to amend its
qualification to do business in the State of California to reflect the name
Ronco Corporation. Lenders agree to promptly change the name of “Ronco
Inc.” to a name that does not conflict with the name “Ronco
Corporation.”
12. Potential
Reimbursement of Certain Payments.
Following the June 30, 2005 closing of the Asset Purchase Agreement, the Company
mistakenly paid many bills on behalf of Lenders and the predecessor entities
without the authority of the Lenders to do so. Popeil will review these
disbursements on a case by case basis, at his convenience, and determine what
amounts, if any, he will reimburse the Company. The determination of these
reimbursement amounts will be made solely on the basis of Popeil’s good faith
business judgment. The reimbursement, if any, may be made as a reduction, at
maturity, of any amounts owing under the Popeil Inventions Note or the Ronco
Inventions Note.
13. Purchase
Orders and Shipping Documents.
Within
fourteen (14) days after the Laurus Closing, the Company shall provide Lenders
with copies of purchase orders and shipping documents with respect to all
products manufactured by the Company between June 30, 2005 and July 31,
2006.
14. Certain
Limitations on Use of “No Default” Representations.
In the
event litigation is brought by or on behalf of the Company, any investor in
the
Company, any creditor of the Company other than Laurus, or by SMH, against
Lenders, the representations made by Lenders in Paragraphs 3(a), 4, 5(a), 5(b)
and 5(c) hereof to the effect that, to their knowledge they are not aware of
any
defaults or Events of Default by the Company under certain agreements, would
be
inoperative and in all events would not bar, estop or be evidence against any
defense, offset or counterclaim brought or alleged by the Lenders in such
proceeding of any nature.
15. No
Present Intention to Initiate Legal Action.
The
Company has no present intention of any kind to initiate any litigation,
arbitration or other proceedings whatsoever against or involving the Lenders
or
any of them.
16. Filing
of Agreement and SMH Limited Subordination Agreement with SEC.
Promptly
following the Laurus Closing, the Company shall file this Agreement and the
SMH
Limited Subordination Agreement with the Securities and Exchange Commission
as
“material contracts.”
12
17. Miscellaneous.
(a) Waiver
and Amendment.
Neither this Agreement nor any term hereof may be amended, waived, discharged
or
terminated other than by a written instrument referencing this Agreement and
signed by each of the parties hereto. No waiver, forbearance or failure by
any
party of its right to enforce any provision of this Agreement shall constitute
a
waiver or estoppel of such party's right to enforce any other provision of
this
Agreement or a continuing waiver by such party of compliance with any
provision.
(b) Headings.
The
headings herein are for convenience only, do not constitute a part of this
Agreement, and shall not be deemed to limit or affect any of the provisions
hereof.
(c) Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed to be original, but all of which together shall constitute one and the
same instrument.
(d) Interpretation.
Nothing in this Agreement shall be interpreted or construed as creating,
expressly or by implication, a partnership, joint venture, agency relationship
or employment relationship between the parties or any of their respective
officers, directors, agents, employees or representatives.
(e) Successors
and Assigns.
This Agreement shall not be assigned or assignable by any party without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld. This Agreement shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators
of
the parties.
(f) Governing
Law.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of California, without regard to principles of
conflict of laws.
(g)
Entire
Understanding.
This
Agreement, including the exhibits attached hereto and the documents referred
to
herein, constitute the full and entire understanding and agreement among
the
parties with regard to the subjects hereof and thereof. No party shall
be liable
or bound to any other party in any manner with regard to the subjects hereof
or
thereof by any warranties, representations or covenants except as specifically
set forth herein or therein.
(h) Authority.
Each
party has full authority for the execution and delivery and performance of
the
Agreement.
(i) Representation
by Counsel.
Each
party represents and agrees with the other, that it has been represented by
independent counsel of its own choosing, that it has had the full right and
opportunity to consult with such counsel that it availed itself of this right
and opportunity, that such party or its authorized officers have carefully
read
and fully understand this Agreement in its entirety that each is fully aware
of
the contents thereof and its meaning, intent and legal effect, and that such
party or its authorized officer is competent to execute this Agreement and
has
executed this Agreement free from coercion, duress or undue
influence.
13
(j)
Telecopy
Execution and Delivery.
A
facsimile, telecopy or other reproduction of this Agreement may be executed
by
one or more parties hereto and delivered by such party by facsimile or any
similar electronic transmission device pursuant to which the signature of or
on
behalf of such party can be seen. Such execution and delivery shall be
considered valid, binding and effective for all purposes. At the request of
any
party hereto, all parties hereto agree to execute and deliver an original of
this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
(k)
Dispute
Resolution. Any
dispute arising out of or relating to this Agreement, or any Exhibit hereto
or
any other agreement or certificate delivered pursuant to this Agreement, or
the
breach, termination or validity hereof or thereof, including any dispute based
in whole or in part on tort or other non-contractual principles of law, or
relating to or arising out of the transactions contemplated by this Agreement
or
any other agreement, instrument or certificate delivered pursuant to this
Agreement, shall be resolved in the following manner:
(i)
Any
party may give written notice to the other parties of any dispute which has
arisen. Any other party may give notice within five (5) business days of receipt
of the first notice of any additional dispute(s), all to the end that the
parties may be reasonably aware of the matters in dispute.
(ii)
All
disputes shall be fully and finally resolved by binding arbitration conducted
in
Los Angeles, California. The arbitration shall be administered by Judicial
Arbitration and Mediation Services ("JAMS") in its Los Angeles County office.
The arbitrator shall be a retired superior court judge of the State of
California affiliated with JAMS and shall be selected as follows. The parties
will request that JAMS provide a list of available arbitrators satisfying the
requirements of the immediately preceding sentence. Each side to the dispute
will confidentially rank in descending order of desirability (from most
desirable to least desirable) each person on such list. The person on such
list
with the highest composite ranking by both sides will be selected as the
arbitrator. The arbitration hearing on the merits of the dispute will be
conducted within 45 days of the selection of the arbitrator, and the ruling
of
the arbitrator on the dispute shall be rendered within 30 days thereafter,
unless good cause is shown as to why such ruling must be delayed beyond such
time (in which case the ruling shall be rendered as soon as practicable
following the selection of the arbitrator). Any action brought to enforce the
provisions of this Paragraph 17(k) shall be brought in the Los Angeles County
Superior Court. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitrator shall not
have
any power to alter, amend, modify or change any of the terms of this Agreement
nor to grant any remedy which is either prohibited by the terms of this
Agreement or not available in a court of law. Costs and reasonable attorneys’
fees shall be awarded to the defendant in any arbitration pursuant hereto,
in
any action brought to enforce the provisions of this Section 17(k), and in
any
other arbitral or judicial action to which the Sellers and Purchaser are parties
that arises out of or relates to this Agreement, or any Exhibit or Schedule
hereto or any other agreement, instrument or certificate delivered pursuant
to
this Agreement, unless the plaintiff is the prevailing party in such
arbitration, enforcement action or other proceeding. If the prevailing party
in
such arbitration, enforcement action or other proceeding is the plaintiff,
each
Party shall bear its own costs and attorneys’ fees. Nothing in this Paragraph
17(k) shall preclude either party from bringing a court action seeking an order
for or with respect to a writ of attachment, constructive trust or other
provisional remedy or an equitable remedy such as injunctive relief, specific
performance or any other equitable remedy that may be applicable under the
circumstances.
14
(iii)
The
dispute resolution proceedings contemplated by this provision shall be as
confidential and private as permitted by law. To that end, the parties shall
not
disclose the existence, content or results of any claims hereunder or
proceedings conducted in accordance with this provision, and materials submitted
in connection with such proceedings shall not be admissible in any other
proceeding; provided, however, that this confidentiality provision shall not
prevent a petition to vacate or enforce an arbitral award, shall not prevent
the
Company from filing this document with the Securities and Exchange Commission
if
in the good faith judgment of the Company’s counsel such document is required to
be filed, and shall not bar disclosures required by law. The parties agree
that
any decision or award resulting from proceedings in accordance with this dispute
resolution provision shall have no preclusive effect in any other matter
involving third parties.
(l)
Specific
Performance.
Each of the parties hereto acknowledges and agrees that the other parties hereto
would be damaged irreparably in the event any of the covenants or agreements
provided in this Agreement is not performed in accordance with its specific
terms or otherwise is breached. Accordingly, each of the parties agrees that
the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of such covenant or agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter.
(m)
Notices.
All
notices, requests, demands and other communications under this Agreement shall
be in writing addressed to the respective parties at the addresses stated below
or to such other changed addresses the parties may have fixed by notice as
provided herein and shall be deemed to have been delivered upon receipt:
|
(i)
|
If
to Ronco or RMC:
|
||
|
Ronco
Corporation or Ronco Marketing Corporation (as applicable)
|
|||
|
00
Xxxxxxxx Xxxx
|
|||
|
Xxxx
Xxxxxx, XX 00000-0000
|
|||
|
Attention:
President and Chief Executive Officer
|
|||
|
Facsimile:
(000) 000-0000
|
|||
15
|
(ii)
|
If
to the Lenders:
|
||
|
Xxxxxx
X. Xxxxxx
|
|||
|
0000
Xxxxxxxxxx Xxxxx
|
|||
|
Xxxxxxx
Xxxxx, XX 00000
|
|||
|
Facsimile:
(000) 000-0000
|
|||
(n)
Severability.
In the
event that any provision or any part of any provision of this Agreement shall
be
void or unenforceable for any reason whatsoever, then such provision shall
be
stricken and of no force and effect and the parties to this Agreement shall
use
their respective best efforts to replace such stricken provision with a
comparable valid provision that best achieves the overall intentions of the
parties with respect to this Agreement. The remaining provisions of this
Agreement shall continue in full force and effect, and to the extent required,
shall be modified to preserve their validity.
(The
remainder of this page is left intentionally blank.)
16
Very
truly yours,
RONCO
CORPORATION
a
Delaware corporation
/s/
Xxxx
Xxxxxxxxx
Xxxx
X.
Xxxxxxxxx
Interim
President and Interim Chief Executive Officer
RONCO
MARKETING CORPORATION
a
Delaware corporation
/s/
Xxxx
Xxxxxxxxx
Xxxx
X.
Xxxxxxxxx
President
and Chief Executive Officer
[Signatures
Continued on Next Page]
17
ACKNOWLEDGED
AND AGREED BY:
RONCO
INVENTIONS, LLC
a
California limited liability company
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Corporate
Secretary
POPEL
INVENTIONS, INC.
a
Nevada corporation
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Corporate
Secretary
RP
PRODUCTIONS, INC.
a
Nevada corporation
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Corporate
Secretary
RMP
FAMILY TRUST
an
Illinois irrevocable Trust
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Co-Trustee
XXXXXX
X. XXXXXX
an
individual
/s/
Xxxxxx X.
Xxxxxx
18
EXHIBIT
A
LAURUS
SUBORDINATION AGREEMENT
SUBORDINATION
AGREEMENT
This
Subordination Agreement (this “Agreement”) is entered into as of the ____ day of
October, 2006, by and among Xxxxxx X. Xxxxxx (“Popeil”), the RMP Family Trust,
an Illinois irrevocable trust (“RMP”), Ronco Inventions, LLC, a California
limited liability company (“Ronco Inventions”), Popeil Inventions, Inc., a
Nevada corporation (“Popeil Inventions”) and RP Productions, Inc., a Nevada
corporation (“RP,”” and, collectively with Popeil, RMP, Ronco Inventions and
Popeil Inventions, the “Subordinated Lenders” and each, a “Subordinated
Lender”), and Laurus Master Fund, Ltd. (the “Senior Lender”). Unless otherwise
defined herein, capitalized terms used herein shall have the meaning provided
such terms in the Security Agreement referred to below.
BACKGROUND
WHEREAS,
it is a condition to the Senior Lender’s making an investment in RONCO
Corporation, a Delaware corporation and certain of its subsidiaries pursuant
to,
and in accordance with, (i) that certain Security and Purchase Agreement
dated
as of the date hereof by and between the Ronco Corporation certain of its
subsidiaries and Laurus (as amended, modified or supplemented from time
to time
in accordance with this Agreement, the "Security Agreement") and (ii) the
Ancillary Agreements referred to in the Security Agreement that the Subordinated
Lenders enter into this Agreement.
WHEREAS,
the Subordinated Lenders have made or will make loans to the
Company.
NOW,
THEREFORE, each Subordinated Lender and the Senior Lender agree as
follows:
TERMS
1. All
Obligations of any Company and/or any of its Subsidiaries to the Senior
Lender
under the Security Agreement whether direct or indirect, absolute or contingent
or now or hereafter existing, or due or to become due are referred to as
“Senior
Liabilities”. Any and all loans made by the Subordinated Lenders to any Company
and/or any of its Subsidiaries, together with all other obligations (whether
monetary or otherwise) of any Company and/or any of its Subsidiaries to
any
Subordinated Lender (in each case, including any interest, fees or penalties
related thereto), including but not limited to the agreements described
on
Exhibit
A
hereto,
howsoever created, arising or evidenced, whether direct or indirect, absolute
or
contingent or now or hereafter existing, or due or to become due are referred
to
as “Junior Liabilities”. It is expressly understood and agreed that the term
“Senior Liabilities”, as used in this Agreement, shall include, without
limitation, any and all interest, fees and penalties accruing on any of the
Senior Liabilities after the commencement of any proceedings referred to
in
paragraph 4 of this Agreement, notwithstanding any provision or rule of
law
which might restrict the rights of the Senior Lender, as against any Company,
its Subsidiaries or anyone else, to collect such interest, fees or penalties,
as
the case may be. It is further expressly understood and agreed that the
term
“Junior Liabilities”, as used in this Agreement, shall not include any
obligation on the part of Ronco Corporation, a Delaware corporation (“Ronco”) or
Ronco Marketing Corporation, a Delaware corporation (“RMC”) to acquire the
Turkey Fryer (as defined in the New Product Development Agreement dated
June 30,
2005 by and between Xxxxxx X. Xxxxxx and RMC (the “Turkey Fryer”)).
2. Except
as
expressly otherwise provided in this Agreement or as the Senior Lender
may
otherwise expressly consent in writing, the payment of the Junior Liabilities
shall be postponed and subordinated in right of payment and priority to
the
payment in full of all Senior Liabilities. Furthermore, and except as expressly
otherwise provided in this Agreement or as the Senior Lender may otherwise
expressly consent in writing, whether directly or indirectly, no payments
or
other distributions whatsoever in respect of any Junior Liabilities shall
be
made (whether at stated maturity, by acceleration or otherwise), nor shall
any
property or assets of any Company or any of its Subsidiaries be applied
to the
purchase or other acquisition or retirement of any Junior Liability until
such
time as the Senior Liabilities have been indefeasibly paid in full.
Notwithstanding anything to the contrary contained in this Paragraph 2
or
elsewhere in this Agreement, any Company and its Subsidiaries may make
payment
for regularly scheduled principal, interest or other obligations, as the
case
may be, to the Subordinated Lenders with respect to the Junior Liabilities,
so
long as (i) no Event of Default (as defined in the Security Agreement or
any
Ancillary Agreement) has occurred and is continuing at the time of any
such
payment and (ii) the amount of such regularly scheduled principal payments
and
the rate of interest, in each case, with respect to the Junior Liabilities
is
not increased from that in effect on the date hereof.
3. Each
Subordinated Lender hereby subordinates all claims, security interests,
and any
other rights or remedies of any kind or nature whatsoever it may have against,
or with respect to, any of the assets of any Company and/or any of its
Subsidiaries (the “Subordinated Lender Liens”), to the security interests
granted by any Company and/or any of its Subsidiaries to the Senior Lender
in
respect of the Senior Liabilities. The Senior Lender shall not owe any
duty to
any Subordinated Lender as a result of or in connection with any Subordinated
Lender Liens, including without limitation any marshalling of assets or
protection of the rights or interests of any Subordinated Lender. The Senior
Lender shall have the exclusive right to manage, perform and enforce the
underlying terms of the Security Agreement, the Ancillary Agreements and
each
other document, instrument and agreement executed from time to time in
connection therewith (collectively, the “Security Agreements”) relating to the
assets of any Company and its Subsidiaries and to exercise and enforce
its
rights according to its discretion. Each Subordinated Lender waives all
rights
to affect the method or challenge the appropriateness of any action taken
by the
Senior Lender in connection with the Senior Lender’s enforcement of its rights
under the Security Agreements. Only the Senior Lender shall have the right
to
restrict or permit, approve or disapprove the sale, transfer or other
disposition of the assets of any Company or any of its Subsidiaries. As
between
the Senior Lender and each Subordinated Lender, the terms of this Agreement
shall govern even if all or part of the Senior Lender’s liens are avoided,
disallowed, set aside or otherwise invalidated. Notwithstanding the foregoing,
it is expressly understood and agreed that this Paragraph 3 shall not apply
to
Xxxxxx X. Xxxxxx’x use of his name and likeness on the packaging of the Turkey
Fryer, on the Turkey Fryer itself and in the direct marketing of the Turkey
Fryer. Senior Lender specifically acknowledges that neither Company nor
any of
its Subsidiaries shall have any interest in the Turkey Fryer.
-2-
4. In
the
event of any dissolution, winding up, liquidation, readjustment, reorganization
or other similar proceedings relating to any Company and/or any of its
Subsidiaries or to its creditors, as such, or to its property (whether
voluntary
or involuntary, partial or complete, and whether in bankruptcy, insolvency
or
receivership, or upon an assignment for the benefit of creditors, or any
other
marshalling of the assets and liabilities of any Company and/or any of
its
Subsidiaries, or any sale of all or substantially all of the assets of
any
Company and/or any of its Subsidiaries, or otherwise), the Senior Liabilities
shall first be paid in full before any Subordinated Lender shall be entitled
to
receive and to retain any payment, distribution, other rights or benefits
in
respect of any Junior Liability. In order to enable the Senior Lender to
enforce
its rights hereunder in any such action or proceeding, the Senior Lender
is
hereby irrevocably authorized and empowered in its discretion as attorney
in
fact for each Subordinated Lender to make and present for and on behalf
of such
Subordinated Lender such proofs of claims against any Company and/or its
Subsidiaries as Laurus may deem expedient or proper and to vote such proofs
of
claims in any such proceeding and to receive and collect any and all dividends
or other payments or disbursements made thereon in whatever form the same
may be
paid or issued and to apply same on account of any the Senior Liabilities.
In
the event, prior to indefeasible payment in full of the Senior Liabilities,
any
Subordinated Lender shall receive any payment in respect of the Junior
Liabilities and/or in connection with the enforcement of such Subordinated
Lender’s rights and remedies against any Company and/or any of its Subsidiaries,
whether arising in connection with the Junior Liabilities or otherwise,
then
such Subordinated Lender shall forthwith deliver, or cause to be delivered,
the
same to the Senior Lender in precisely the form held by such Subordinated
Lender
(except for any necessary endorsement) and until so delivered the same
shall be
held in trust by such Subordinated Lender as the property of the Senior
Lender.
5. Each
Subordinated Lender will xxxx its/his books and records so as to clearly
indicate that its/his respective Junior Liabilities are subordinated in
accordance with the terms of this Agreement. Each Subordinated Lender will
execute such further documents or instruments and take such further action
as
the Senior Lender may reasonably request from time to time to carry out
the
intent of this Agreement.
6. Each
Subordinated Lender hereby waives all diligence in collection or protection
of
or realization upon the Senior Liabilities or any security for the Senior
Liabilities.
-3-
7. Until
such time as the Senior Liabilities have been indefeasibly paid in full,
no
Subordinated Lender will without the prior written consent of the Senior
Lender:
(a) attempt to enforce or collect any Junior Liability or any rights in
respect
of any Junior Liability or any other rights or remedies of any kind or
nature
whatsoever against any Company and/or any of its Subsidiaries whether in
respect
of the Junior Liabilities or otherwise; unless, in each case (i) an event
of
default shall have occurred and be continuing under any one or more agreements
between and among such Subordinated Lender, any Company and/or any of its
Subsidiaries which would entitle such Subordinated Lender to take such
action (a
“Subordinated Lender Default”), (ii) such Subordinated Lender shall have
provided Senior Lender written notice of the occurrence of such Subordinated
Lender Default, (iii) such Subordinated Lender shall have provided Senior
Lender
at least thirty (30) days prior written notice of its intention to take
any such
action and (iv) a period of at least one hundred and eighty (180) days
shall
have elapsed after the occurrence of the breach or non-performance giving
rise
to the Subordinated Lender Default; or (b) commence, or join with any other
creditor in commencing, any bankruptcy, reorganization or insolvency proceedings
with respect to any Company and/or any of its Subsidiaries. Notwithstanding
the
foregoing, it is expressly understood and agreed that this Paragraph 7
shall not
apply to Xxxxxx X. Xxxxxx’x use of his name and likeness on the packaging of the
Turkey Fryer, on the Turkey Fryer itself and in the direct marketing of
the
Turkey Fryer. For the purpose of clarification, and notwithstanding any
contrary
provision herein, if any Company and/or any of its Subsidiaries fails to
fully
and timely perform any of its obligations to any one or more Subordinate
Lenders, such Subordinate Lender(s) shall be permitted, without delay,
to notify
such Company and/or its Subsidiaries of such failure to perform and, after
any
applicable cure periods, to notify such Company and/or its Subsidiaries
of the
occurrence of any event of default arising by virtue of such
non-performance.
8. The
Senior Lender may, from time to time, at its sole discretion and without
notice
to any Subordinated Lender, take any or all of the following actions: (a)
retain
or obtain a security interest in any property to secure any of the Senior
Liabilities; (b) retain or obtain the primary or secondary obligation of
any
other obligor or obligors with respect to any of the Senior Liabilities;
(c)
extend or renew for one or more periods (whether or not longer than the
original
period), alter, increase or exchange any of the Senior Liabilities, or
release
or compromise any obligation of any nature of any obligor with respect
to any of
the Senior Liabilities; and (d) release its security interest in, or surrender,
release or permit any substitution or exchange for, all or any part of
any
property securing any of the Senior Liabilities, or extend or renew for
one or
more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor
with
respect to any such property. Notwithstanding the foregoing, it is expressly
understood and agreed that this Paragraph 8 shall not apply to Xxxxxx X.
Xxxxxx’x use of his name and likeness on the packaging of the Turkey Fryer, on
the Turkey Fryer itself and in the direct marketing of the Turkey
Fryer.
-4-
9. The
Senior Lender may, from time to time, whether before or after any discontinuance
of this Agreement, without notice to any Subordinated Lender, assign or
transfer
any or all of the Senior Liabilities or any interest in the Senior Liabilities;
and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer of the Senior Liabilities, such Senior Liabilities
shall
be and remain Senior Liabilities for the purposes of this Agreement, and
every
immediate and successive assignee or transferee of any of the Senior Liabilities
or of any interest in the Senior Liabilities shall, to the extent of the
interest of such assignee or transferee in the Senior Liabilities, be entitled
to the benefits of this Agreement to the same extent as if such assignee
or
transferee were the Senior Lender, as applicable; provided, however, that,
unless the Senior Lender shall otherwise consent in writing, the Senior
Lender
shall have an unimpaired right, prior and superior to that of any such
assignee
or transferee, to enforce this Agreement, for the benefit of the Senior
Lender,
as to those of the Senior Liabilities which the Senior Lender has not assigned
or transferred.
10. The
Senior Lender shall not be prejudiced in its rights under this Agreement
by any
act or failure to act of any Subordinated Lender, or any noncompliance
of any
Subordinated Lender with any agreement or obligation, regardless of any
knowledge thereof which the Senior Lender may have or with which the Senior
Lender may be charged; and no action of the Senior Lender permitted under
this
Agreement shall in any way affect or impair the rights of the Senior Lender
and
the obligations of any Subordinated Lender under this Agreement.
11. No
delay
on the part of the Senior Lender in the exercise of any right or remedy
shall
operate as a waiver of such right or remedy, and no single or partial exercise
by the Senior Lender of any right or remedy shall preclude other or further
exercise of such right or remedy or the exercise of any other right or
remedy;
nor shall any modification or waiver of any of the provisions of this Agreement
be binding upon the Senior Lender except as expressly set forth in a writing
duly signed and delivered on behalf of the Senior Lender. For the purposes
of
this Agreement, Senior Liabilities shall have the meaning set forth in
Section 1
above, notwithstanding any right or power of any Subordinated Lender or
anyone
else to assert any claim or defense as to the invalidity or unenforceability
of
any such obligation, and no such claim or defense shall affect or impair
the
agreements and obligations of any Subordinated Lender under this
Agreement.
12. This
Agreement shall continue in full force and effect after the filing of any
petition (“Petition”)
by or
against any Company and/or any of its Subsidiaries under the United States
Bankruptcy Code (the “Code”)
and
all converted or succeeding cases in respect thereof. All references herein
to
any Company and/or Subsidiary shall be deemed to apply to any Company and
such
Subsidiary as debtor-in-possession and to a trustee for any Company and/or
such
Subsidiary. If any Company or any of its Subsidiaries shall become subject
to a
proceeding under the Code, and if the Senior Lender shall desire to permit
the
use of cash collateral or to provide post-Petition financing from the Senior
Lender to any Company or any such Subsidiary under the Code, each Subordinated
Lender agrees as follows: (1) adequate notice to such Subordinated Lender
shall
be deemed to have been provided for such consent or post-Petition financing
if
such Subordinated Lender receives notice thereof three (3) business days
(or
such shorter notice as is given to the Senior Lender) prior to the earlier
of
(a) any hearing on a request to approve such post-petition financing or
(b) the
date of entry of an order approving same and (2) no objection will be raised
by
any Subordinated Lender to any such use of cash collateral or such post-Petition
financing from the Senior Lender.
-5-
13. This
Agreement shall be binding upon each Subordinated Lender and upon the heirs,
legal representatives, successors and assigns of each Subordinated Lender
and
the successors and assigns of any Subordinated Lender.
14. This
Agreement shall be construed in accordance with and governed by the laws
of New
York without regard to conflict of laws provisions. Wherever possible each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement
shall be prohibited by or invalid under such law, such provision shall
be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
of this
Agreement.
[signature
page follows]
-6-
IN
WITNESS WHEREOF, this Agreement has been made and delivered this __ day
of
October, 2006.
|
RONCO
INVENTIONS, LLC,
a
California limited liability company
By:
________________________________
Name:
______________________________
Title:
_______________________________
POPEIL INVENTIONS, INC. a
Nevada corporation
By:
________________________________
Name:
______________________________
Title:
_______________________________
RP
PRODUCTIONS, INC.
a
Nevada corporation
By:
________________________________
Name:
______________________________
Title:
_______________________________
|
-7-
|
RMP
FAMILY TRUST, an Illinois irrevocable trust
By:
________________________________
Name:
______________________________
Title:
_______________________________
____________________________________
XXXXXX
X. XXXXXX
LAURUS
MASTER FUND, LTD.
By:
_______________________________
Name:
Title:
|
Acknowledged and Agreed to by:
RONCO
CORPORATION
By:________________________
Name:
Xxxx Xxxxxxxxx
Title:
Interim President and Interim Chief Executive Officer
RONCO
MARKETING CORP.
By:________________________
Name:
Xxxx Xxxxxxxxx
Title:
Interim President and Interim Chief Executive Officer
-8-
EXHIBIT
A
|
·
|
Asset
Purchase Agreement dated December 10, 2004 among Ronco Marketing
Corporation, Ronco Inventions, LLC, Popeil Inventions, Inc.,
RP
Productions, Inc., RMP Family Trust and Xxxxxx X.
Xxxxxx;
|
|
·
|
Addendum
to APA dated December 10, 2004 among Ronco Marketing Corporation,
Xxxxxx
X. Xxxxxx, Xxxxx Inventions, LLC and Popeil Inventions,
Inc;
|
|
·
|
Amendment
and Agreement dated June 16, 2005 among Ronco Marketing Corporation,
Ronco
Inventions, LLC, Popeil Inventions, Inc., RP Productions, Inc.,
RMP Family
Trust, Xxxxxx X. Popeil, Adams, Xxxxxx & Landau LLP and Xxxxx X.
Xxxxx;
|
|
·
|
Assignment
and Assumption Agreement dated June 28, 2005 between Ronco Inc.
and Ronco
Marketing Corporation;
|
|
·
|
Second
Amendment and Agreement dated June 29, 2005 among Ronco Marketing
Corporation, Ronco Inventions, LLC, Popeil Inventions, Inc.,
RP
Productions, Inc., RMP Family Trust, Xxxxxx X. Popeil, Adams,
Xxxxxx &
Landau LLP and Xxxxx X. Xxxxx;
|
|
·
|
Promissory
Note dated June 30, 2005 between Ronco Marketing Corporation
and Popeil
Inventions, Inc;
|
|
·
|
Promissory
Note dated June 30, 2005 between Ronco Marketing Corporation
and Ronco
Inventions, LLC;
|
|
·
|
Consulting
and Advisory Services Agreement dated June 30, 2005 between Ronco
Marketing Corporation and Xxxxxx X.
Xxxxxx;
|
|
·
|
Amendment
No. 1 to Consulting and Advisory Services Agreement between Ronco
Marketing Corporation and Xxxxxx X.
Xxxxxx;
|
|
·
|
Trademark
Co-Existence Agreement dated June 30, 2005 between Ronco Marketing
Corporation and Xxxxxx X. Xxxxxx;
|
|
·
|
New
Product Development Agreement dated June 30, 2005 by and among
Xxxxxx X.
Xxxxxx, Xxxx X. Xxxxxx and Xxxxx Marketing
Corporation;
|
|
·
|
Transition
Services Agreement dated June 30, 2005 among Ronco Inventions,
LLC, Popeil
Inventions, Inc., RP Productions, Inc. and Ronco Marketing
Corporation;
|
|
·
|
Assignment
and Assumption Agreement dated June 30, 2005 among Ronco Inventions,
LLC,
Popeil Inventions, Inc., RP Productions, Inc., Xxxxxx X. Xxxxxx
and Xxxxx
Marketing Corporation.
|
-9-
EXHIBIT
B
SMH
LIMITED SUBORDINATION AGREEMENT
LIMITED
SUBORDINATION AGREEMENT
Limited
Subordination Agreement (this “Agreement”)
dated
October __, 2006, among RONCO CORPORATION, a Delaware corporation, and RONCO
MARKETING CORPORATION, a California corporation (together, “Borrower”);
RONCO
INVENTIONS, LLC, a California limited liability company, POPEIL INVENTIONS,
INC., a Nevada corporation, RP PRODUCTIONS, INC., a Nevada corporation, RMP
FAMILY TRUST, an Illinois irrevocable trust, and XXXXXX X. XXXXXX, a resident
of
California (individually and collectively, if more than one, “Subordinate
Lender”);
and
XXXXXXX XXXXXX XXXXXX INC., a Texas corporation (“SMH”),
individually and on behalf of the Lenders (as defined in the Letter Loan
Agreement dated June 9, 2006, among the Borrower, SMH, and the Lenders)
(“Lender”).
RECITALS
A. Borrower
is now or may in the future become indebted to Subordinate Lender (any and
all
existing and future indebtedness of Borrower to Subordinate Lender, the
“Subordinate
Debt”).
B. Lender
is
a party to an Intercreditor and Subordination Agreement of even date herewith
(the “Laurus-SMH
Subordination Agreement”)
with
Laurus Master Fund, Ltd., a Cayman Islands company (“Senior
Lender”),
pursuant to which Lender has agreed to subordinate the Priority Debt (as
hereinafter defined) to the Senior Liabilities (as defined in the Laurus-SMH
Subordination Agreement) as provided in Laurus-SMH Subordination
Agreement.
C. Subordinate
Lender is a party to a Subordination Agreement of even date herewith (the
“Laurus-Popeil
Subordination Agreement”)
with
the Senior Lender, pursuant to which the Subordinate Lender has agreed to
subordinate the Subordinate Debt to the Senior Liabilities (as defined in
the
Laurus-SMH Subordination Agreement) as provided in the Laurus-Popeil
Subordination Agreement.
D. To
induce
Lender to grant financial assistance to Borrower by way of new credit or
advances or otherwise Borrower and Subordinate Lender hereby agree to certain
terms of subordination as set forth herein.
E. Subordinate
Lender has a direct financial interest in Borrower and will be benefited
by
Lender’s granting such financial assistance to Borrower.
F. The
parties have entered into this Agreement in order to set forth the terms
of the
subordination required by Lender.
AGREEMENTS
1. Limited
Subordination.
The
Subordinate Debt is and shall be subordinated and junior in right of payment
to
all existing and future indebtedness of Borrower to Lender, including, without
limitation, principal, interest accrued and to accrue thereon, and costs
and
attorneys’ fees associated therewith (the “Priority
Debt”),
to the
extent that Borrower receives and disburses the proceeds of Policy No. 81
070
567 issued by the Xxxx Xxxxxxx Life Insurance Company on the life of Xxxxxx
X.
Xxxxxx and any supplementary contracts issued in connection therewith (the
“Policy”),
but
only to the extent of such proceeds. Such agreed subordination shall be without
prejudice to Lender’s right to assert that any and all obligations of Borrower
on the Subordinate Debt are also subordinate to the Priority Debt pursuant
to
applicable law and without prejudice to Subordinate Lender’s right to challenge
such assertion.
2. Payments
to Subordinate Lender. So
long
as Borrower is not in default under any of the documents evidencing, securing,
or otherwise governing the Priority Debt (collectively, the “Loan
Documents”),
nothing herein shall prohibit Subordinate Lender from receiving and accepting
payments on the Subordinate Debt. However, in the event of a default by Borrower
under any of the Loan Documents, including, without limitation, any breach
of
the various financial covenants set forth therein, Borrower shall not make
any
payment upon any portion of the Subordinate Debt with the proceeds of the
Policy.
3. Turnover
of Payments.
In the
event of a default by Borrower under the Loan Documents and following notice
of
such default to Subordinate Lender, Lender shall have the right to compel
Subordinate Lender to turnover to Lender any payments made to Subordinate
Lender
following notice of such default by or on behalf of Borrower on the Subordinate
Debt with the proceeds of the Policy until the Priority Debt has been paid
in
full. Borrower agrees to provide notice to Subordinate Lender when any payment
to Subordinate Lender represents proceeds from the Policy. Provision of such
notice is not a condition to Lender’s right to compel turnover of funds required
to be turned over to it pursuant to this Paragraph 3.
4. Insolvency
or Liquidation Proceedings. In
connection with any insolvency or liquidation proceedings relating to Borrower
or the Priority Debt, this Agreement shall remain in full force and effect
and
Lender. The parties hereto shall not file any proofs of claim, objections,
pleadings, or other papers, or take any other actions, that are or would
be
inconsistent with the system of priorities set forth in this
Agreement.
5. Laurus
Subordination Agreement. This
Agreement is intended to set forth limited subordination rights as between
Lender and Subordinate Lender with respect to the Priority Debt and the
Subordinate Debt and is subject to the subordination of both the Priority
Debt
and the Subordinate Debt to the Senior Liabilities as defined and set forth
in
each of the Laurus-SMH Subordination Agreement and the Laurus-Popeil
Subordination Agreement.
6. Continuing
Agreement.
This
Agreement shall in all respects be a continuing agreement, and this Agreement
and the agreements and obligations of the parties hereto shall remain in
full
force and effect until the Priority Debt has been paid in full.
7 Assignment.
This
Agreement shall extend to and bind the respective heirs, personal
representatives, successors and assigns of the parties hereto, and the covenants
of Borrower and Subordinate Lender set forth herein respecting subordination
shall extend to, include, and be enforceable by any transferee or endorsee
to
whom Lender may transfer all or any portion of the Priority Debt.
8 Governing
Law. This
Agreement shall be governed by the laws of the State of Texas, without regard
to
that state’s choice of law rules, and Borrower and Subordinate Lender consent to
the jurisdiction of the courts of the State of Texas.
9. Lender
Discretion.
Nothing
in this Agreement shall be construed as requiring Lender to grant any financial
assistance to Borrower or as limiting or precluding Lender from the exercise
of
Lender’s independent judgment and discretion in connection with Lender’s
financial arrangements with Borrower.
2
10. WAIVER
OF JURY TRIAL THE
PARTIES HERETO HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT, OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,
OR TO ANY ACTS OR OMISSIONS OF LENDER IN CONNECTION THEREWITH.
11. No
Rights to Turkey Fryer.
Lender
acknowledges that it has no interest in the “Turkey Fryer,” as defined in the
New Product Development Agreement dated June 30, 2005 by and between Xxxxxx
X.
Xxxxxx and Xxxxx Marketing Corporation, a Delaware corporation (“RMC”).
12. No
Present Intention to Initiate Legal Action.
Lender
has no present intention of any kind to initiate any litigation, arbitration,
or
other proceedings whatsoever against or involving Subordinate Lender or any
of
them.
13. Arbitration;
Attorneys’ Fees.
Lender
agrees that it will, and it will cause SMH’s subsidiaries, affiliates,
directors, officers, shareholders and employees to, arbitrate any dispute
or
controversy of any kind or nature that it or any of them has or may have
with or
involving any Subordinate Lender that relates to this Agreement or to the
transactions contemplated hereby, solely and exclusively in the manner
prescribed by Section 11.10 of the Asset Purchase Agreement dated December
10,
2004, as amended or supplemented, among RMC and Subordinate Lender, it being
understood and agreed that, with respect to any such dispute, Lender shall
be
bound by and observe the terms of such Section 11.10. Without limiting the
foregoing, Lender agrees that the defendant in any such dispute shall be
awarded
costs and attorneys’ fees as provided by such Section 11.10, unless the
plaintiff is the prevailing party in such dispute. If the prevailing party
in
such dispute is the plaintiff, each party shall bear its own costs and
attorneys’ fees.
In
Witness Whereof,
the
parties have executed this Agreement as of the day and year first above
written.
[Signatures
on Next Page]
3
|
BORROWER
RONCO
CORPORATION,
a
Delaware corporation
By
____________________________________
_________________________________
Its
____________________________
RONCO
MARKETING CORPORATION,
A
Delaware corporation
By
____________________________________
_________________________________
Its
____________________________
LENDER:
XXXXXXX
XXXXXX XXXXXX INC,
a
Texas corporation, individually and on behalf
of
the Lenders
By
____________________________________
_________________________________
Its
____________________________
|
SUBORDINATE
LENDER:
RONCO
INVENTIONS, LLC,
a
California limited liability company
By
____________________________________
_________________________________
Its
____________________________
RONCO
INVENTIONS, INC.
a
Nevada corporation
By
____________________________________
_________________________________
Its
____________________________
RP
PRODUCTIONS, INC.
a
Nevada corporation,
By
____________________________________
_________________________________
Its
____________________________
RMP
FAMILY TRUST, an Illinois irrevocable trust
By
____________________________________
_________________________________
Its
____________________________
____________________________________
XXXXXX
X. XXXXXX
|
4
EXHIBIT
C
CALCULATION
OF RETAIL AND INTERNATIONAL QC PAYMENTS
JUNE
30, 2005 - JULY 31, 2006
|
Month
|
QC
Amount Earned
|
|||
|
July,
2005
|
$
|
236,024.00
|
||
|
August,
2005
|
490,582.00
|
|||
|
September,
2005
|
556,800.25
|
|||
|
Oct.
1 -16, 2005
|
313,238.00
|
|||
|
Oct.
17 - 31,2005
|
247,865.00
|
|||
|
November,
2005
|
48,312.00
|
|||
|
December,
2005
|
111,213.00
|
|||
|
January,
2006
|
126,840.00
|
|||
|
February,
2006
|
55,040.00
|
|||
|
Xxxxx,
0000
|
59,652.00
|
|||
|
April,
2006
|
109,350.50
|
|||
|
May,
2006
|
9,280.00
|
|||
|
June,
2006
|
125,874.00
|
|||
|
July,
2006
|
173,618.50
|
|||
|
Total
QC Payments Earned 7/1/2005 - 7/31/2006
|
$
|
2,663,689.25
|
||
|
Less
Payments Made By Ronco:
|
||||
|
8/24/2005
|
261,296.00
|
|||
|
9/12/2005
|
455,459.00
|
|||
|
9/15/2005
|
0.00
|
|||
|
10/20/2005
|
150,000.00
|
|||
|
10/28/2005
|
150,000.00
|
|||
|
11/4/2005
|
197,000.00
|
|||
|
11/15/2005
|
22,632.85
|
|||
|
Total
QC Payments made by Ronco 7/1/2005 - 7/31/2006
|
$
|
1,236,387.85
|
||
|
QC
Payments Owing through 7/31/2006
|
$
|
1,427,301.40
|
||
