EXHIBIT
10.2
MASTER AGREEMENT
This Master Agreement (together with all
Exhibits and other attachments hereto, this “
Agreement ”) is entered into as of May 1, 2009, among
P2F Holdings, a California Corporation (“ P2F ,”
“ Purchaser ,” or “ Licensee
”), Adsouth Marketing LLC, a Delaware limited liability
company (“ ASM ” or “ Seller
”), Legacy Formulas LLC, a California limited liability
company (“ Legacy ” or “ Licensor
”), and Vertical Branding, Inc., a Delaware corporation
(“ VBI ” or “ Licensor ”),
with respect to (i) P2F’s purchase from ASM, a wholly owned
subsidiary of VBI, of certain of ASM’s inventory, sales
orders and product purchase orders (collectively, the “
Assets ”), and (ii) the exclusive license, sublicense
or distributorship rights by Legacy and VBI to P2F of rights to
manufacture, market and sell VBI products in specified distribution
channels and territories.
1.
Asset Transfer.
ASM hereby sells, assigns,
transfers and conveys to P2F all of ASM’s rights, title and
interest in and to (a) the inventory attached hereto as Exhibit
A (the “ Inventory ”), (b) the sales orders
included in Exhibit B (the “ Sales Orders
”), and (c) the inventory purchase orders listed in
Exhibit C (the “ Purchase Orders ”).
The Parties shall take any and all necessary and reasonable
actions, and shall otherwise mutually cooperate with respect to,
transfer and vesting of ownership of the Assets in P2F as well as
transition to P2F of the customer accounts listed in the attached
Exhibit D (the “ Seller Accounts
”).
2.
Purchase Price . In consideration of Seller’s transfer
of the Assets to Purchaser, (a) Purchaser shall pay to BFI Business
Finance, Inc., the amount of $77,827.90 on the terms set forth
below (the “ Inventory Payment ”), and (b)
Purchaser shall pay to Seller fifty percent (50%) of
Purchaser’s Net Profit (defined below) on sales of Covered
Product (defined below) pursuant to sales orders, including the
Sales Orders, received by Purchaser or Seller from the date hereof
until May 31, 2009 (the “ Transition Period ”),
provided that such amount shall not exceed $1,000,000 (the "
Transition Earn-Out "). As used herein, the following
terms shall have the meaning set forth below:
Gross Sales means the total invoiced amount of sales;
Net Profit means Net Sales minus (i) Landed Cost of Goods Sold,
(ii) Direct Costs of Fulfillment, and (iii) Included Selling
Expenses;
Net Sales means Gross Sales minus (i) returns, (ii) chargebacks
not to exceed 1.0% of Gross Sales, and (iii) either bad debt or
receivables factoring commissions not to exceed 0.5%, as
applicable;
Landed Cost means the sum of any of the following, as applicable:
(i) first cost of product from manufacturer (which, for purposes of
this Section 2 only, shall be the amounts reflected on Exhibit F
“Royalty Rates”), (ii) freight or shipping from
manufacturer to port or warehouse, (iii) import duties, (iv)
miscellaneous port of entry fees, and (v) inland freight from port
to warehouse;
Direct Costs of Fulfillment
means actual cost of freight and shipping
to customers and either (i) actual costs of fulfillment for sales
orders fulfilled by third party logistics providers, or (ii)
Purchaser’s actual costs of fulfillment in an amount not to
exceed 2% of Net Sales;
Included Selling Expenses
means third-party sales commissions (not
to exceed current rates) and third-party royalties.
The Inventory Payment shall be made
within thirty (30) days of tender of the Inventory by Seller to
Purchaser for pick-up or transfer and Seller’s invoices
thereof. The Transition Earn-Out payments shall be made on Monday
following the week of shipment to third party customers.
3.
License or Distributor
Relationships . Licensor
is a licensee or otherwise has rights with respect to products
(“ Third Party Products ”) under the agreements
set forth in Exhibit E attached hereto (“ Third
Party License Agreements ”). The licensors under
such Third Party License Agreements are referred to herein as
“Third Party Licensors.” Licensor also designs,
manufactures and distributes its own products (“
Licensor’s Products ”) which are also identified
in Exhibit E. Licensor further has certain rights and obligations
from and to producers and spokespeople (“
Producers/Talent ”) in connection with the sale of
Third Party Products and Licensor’s Products and pursuant to
the production and talent agreements also listed in Exhibit E (the
“ Production and Talent Agreements ”). Licensor
and Licensee hereby agree as follows with respect to Third Party
Products and Licensor’s Products.
3.1
General Grant .
(a)
Licensor hereby grants to Licensee the
exclusive right to market and/or distribute and sell, in the Sales
Territory (as defined below) and to the Accounts (as hereafter
defined) Seller’s current portfolio of consumer products
(including Third Party Products and Licensor’s Products)
listed on Exhibit F attached hereto (the “ Initial
Products ”), and such other products as shall be added to
the list from time to time (such added products, along with the
Initial Products, the “ Covered Products ”),
together with the use of all intellectual property associated with
Covered Products (including trademarks, patents, copyrights,
marketing materials and other collateral materials), all on the
terms and conditions set forth in this Agreement and subject, in
each instance, to any limitations to any of the foregoing rights as
may exist in the Third Party License Agreements or Production and
Talent Agreements listed in Exhibit E. Licensee shall be
entitled to market, distribute and/or sell the Covered Products on
a wholesale basis to (i) national and regional mass, specialty,
discount, convenience, drugstore and catalog retailers and chains
(including the Seller Accounts), and any other brick and mortar
retailer, including sales by retailers through their websites
provided shipped to retailers on a bulk basis (Licensee will refer
“pick and Pack” orders to Licensor), for resale in the
Sales Territory, and (ii) to TK Max in England and Winters in
Canada (collectively, the “ Accounts ”);
provided that, for the avoidance of doubt, the Accounts shall not
include (x) home shopping channels and networks and (y) any
limitation on the Accounts existing in the Third Party License
Agreements. As used herein, “ Sales Territory
” shall mean (i) with respect to Licensor’s Products,
the United States and its territories and possessions, and (ii)
with respect to Third Party Products, the United States, and to the
extent permitted in the Third Party License Agreements, its
territories and possessions.
(b)
Licensor hereby grants to Licensee the
non-exclusive right to manufacture and have manufactured anywhere
in the world the Covered Products, together with the use of all
intellectual property associated with Covered Products (including
trademarks, patents, copyrights, marketing materials an other
collateral materials) for the purpose of marketing,
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selling and/or distributing such Covered
Products pursuant to Section 3.1(a) above, all on the terms and
conditions set forth in this Agreement and subject to any
limitations with respect to the foregoing contained in the Third
Party License Agreements.
(c)
Exhibit E sets forth for each Third Party License Agreement the
relationship between Licensor and Licensee with respect to such
Third Party License Agreement (i.e., whether as a licensee,
sublicense, distributor or otherwise). Except as expressly
set forth in a writing signed by Licensee, Licensee does not assume
any of Licensor’s obligations or liabilities of Licensor
under or in connection with any of the Third Party License
Agreements or Production and Talent Agreements, but Licensee agrees
to, and agrees to cause any of its assigns, sublicensees, agents or
distributors permitted under Section 3.1(d) below, at all times
comply with the terms and conditions of the Third Party License
Agreements relating to Licensee’s rights and obligations
under this Agreement and over which Licensee has
control.
(d)
Unless prohibited under the applicable
Third Party License Agreement, and subject to Licensor’s
prior approval not to be unreasonably withheld or delayed, the
rights granted to Licensee shall include the right to grant
sublicenses or other rights to manufacture, sell and/or distribute
the Covered Product to third parties; provided, that sales made by
third parties shall be subject to the Royalties as if sold by
Licensee; and provided, further that such parties agree in writing
to be bound by the applicable terms and conditions of this
Agreement.
(e)
Except as expressly provided otherwise in
this Agreement, as between the Parties, Licensor or its Third Party
Licensors shall own and retain all right, title and interest in and
to the Covered Products, including any and all intellectual
property rights therein and thereto.
3.2
Licensor’s Third Party License
Agreements and Production and Talent Agreements
.
(a)
To the extent the rights granted to
Licensee herein arise out of rights conveyed to Licensor under
Third Party License Agreements or Production and Talent Agreements,
Licensor shall continue to comply with each such Third Party
License Agreement and Production and Talent Agreements and shall
use commercially reasonable efforts to renew (or cause the renewal
of) all of the terms in such Third Party License Agreements or
Production and Talent Agreements with respect to the Accounts so as
to coincide with the Initial Term (as defined below) or Renewal
Term (as defined below) of this Agreement to the extent possible
(unless Licensee consents in writing that such term need not be
renewed). Licensor shall provide to Licensee within seven (7)
days after the date on which any periodic royalty is payable to
each Third Party Licensor and each Talent proof that Licensor has
paid all royalties and other amounts payable by Licensor to the
Third Party Licensors and Talent/Producers. Licensor will
also provide to Licensee each month or quarterly (per terms of
applicable agreements) copies of all reports submitted to the Third
Party Licensors and reports detailing Licensor’s sales of
Covered Products. Licensor shall immediately provide to Licensee
copies of any notices received by Licensor from any party who is
party to the Third Party License Agreements or Production and
Talent Agreements and shall promptly cure any breaches of such
Third Party License Agreements or Production and Talent Agreements
by Licensor. Licensee shall have the right,
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but not the obligation, to pay on
Licensor’s behalf, any unpaid royalties or other amounts owed
to the Third Party Licensors and Talent/Producers and all such
payments, plus a 4% penalty on the amount to be paid, shall be
deducted from the next amounts owed by Licensee to Licensor under
this Agreement (or, if this Agreement expires or is terminated,
shall be immediately repaid to Licensee by Licensor).
Licensee shall notify Licensor in writing in advance of
Licensee’s intent to make such payments on behalf of Licensor
and in the event Licensor notifies Licensee that there exists a
bona fide dispute with regard to such payment, Licensee will
refrain from making such payment and Licensee and Licensor will
cooperate in good faith with respect to resolution of such
underlying payment dispute.
(b)
Certain of the Third Party License
Agreements require the consent of the Third Party Licensor or
notice to the Third Party Licensor with respect to this Agreement.
Certain of the Third Party License Agreements also contain
provisions that Licensee does not wish to be (and/or should not be)
bound by or comply with.
(i)
Within ten (10) days after the date of
this Agreement, Licensor shall send notices of this Agreement to
all Third Party Licensors to whom notice must be sent or Licensee
desires to be sent. Such notice shall be subject to
Licensee’s approval, which shall not be unreasonably withheld
or delayed.
(ii)
Licensee desires that certain Third Party
Licensors, as indicated in Exhibit E, execute documents in favor of
Licensee that will provide consent to this Agreement, clearly limit
Licensee’s responsibility and obligations to the Third Party
Licensors under such Third Party License Agreements and other terms
(the “ Third Party License Amendments ”).
Licensor and Licensee shall work in good faith to
obtain such Third Party License Amendments as soon as reasonably
possible after the execution of this Agreement. If any Third
Party License Amendment is not executed within thirty (30) days of
this Agreement, Licensee shall have the right to remove from this
Agreement the applicable Third Party Products and any associated
rights and/or obligations under this Agreement relating to such
removed Third Party Products, and the Annual Guaranteed Royalty (as
defined below) shall be reduced as set forth in Section 3.4.
3.3
Advance .
(a)
Licensee shall, upon execution of this
Agreement, advance to Licensor the amount of $1,000,000 as an
advance on Licensor Royalties (defined below) payable pursuant to
this Agreement as hereinafter set forth (the “ Advance
”). Licensor agrees to use a portion of the Advance to
make payments to certain of Licensor’s creditors as set forth
in Exhibit G (the “ Creditor Payments ”).
(b)
Until recouped in full, Licensee shall be
entitled to credit against the Licensor Royalties for the Advance
as follows:
(i)
for sales of Covered Products occurring
through September 30, 2009, the credit shall be twenty percent
(20%) of the Licensor Royalties payable with respect to such
sales;
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(ii)
for sales of Covered Products occurring
after September 30, 2009 but on or before December 31, 2009, the
credit shall be twenty five percent (25%) of the Licensor Royalties
payable with respect to such sales; and
(iii)
for sales of Covered Products occurring
after December 31, 2009, the credit shall be thirty seven and one
half percent (37.5%) of the Licensor Royalties payable with respect
to such sales.
3.4
Royalties .
(a)
Royalty Rates . Licensee shall pay a royalty to Licensor on sales
of the Initial Products according to the rate schedule included in
Exhibit F and on any future Covered Products at a rate to be
negotiated in good faith by Licensor and Licensee (the “
Royalty Rates ”). The portion of the Royalties
payable hereunder that arise pursuant to the Third Party License
Agreements and the Production and Talent Agreements shall be based
on the same royalty rates (without markup) applicable to Licensor
under such agreements for sales of applicable Covered Products to
the Accounts (the “ Pass-Through Royalty Rates
”). The rates applicable to the portion of the
Royalties to be retained by Licensor are hereafter referred to as
the “ Licensor Royalty Rates .”
(b)
Licensor Royalties
. The portion of the Royalties to be
retained by Licensor with respect to Licensee’s sales of
Covered Products shall be calculated by multiplying
Licensee’s Net Sales of a particular Covered Product by the
Licensor Royalty Rate applicable to such product (the “
Licensor Royalties ”). Licensor Royalties shall
be paid monthly within twenty five (25) days after the end of the
month in which Licensee ships Covered Product to customers.
Because Licensee will pay royalties based on shipped Covered
Products and not based on collections from customers, such Licensor
Royalty payments shall be reconciled to Net Sales as necessary and
any overpayments or underpayments of Licensor Royalties shall be
reconciled at the end of each calendar quarter and any overpayments
or underpayments shall be repaid by the party who received or made
the overpayment or underpayment. Any overpayments by Licensee
at Licensee’s option may be deducted from the next Licensor
Royalties payable to Licensor.
(c)
Pass-Through Royalties
. The portion of the Royalties to be paid
under Third Party License Agreements and/or Production and Talent
Agreements with respect to Licensee’s sales of Covered
Products (the “ Pass-Through Royalties ”) shall
be calculated on the same basis on which Licensor is required to
pay such Pass-Through Royalties. Pass-Through Royalties shall
be paid by Licensee to Licensor on the same schedule as Licensor
Royalties and Licensor agrees to remit such amounts to the
applicable third-party payee not later than ten (10) days after
receipt of Pass-Through Royalties from Licensee.
(d)
Reporting . Each payment of Licensor Royalties and
Pass-Through Royalties (collectively, the “ Royalties
”) shall be accompanied by a report setting forth in
reasonable detail a calculation of the amount of the Royalty being
paid and any offsets and other reconciliations made. Licensee
shall cooperate with Licensor to provide sufficient information
relating to sales of Covered Products so as to allow Licensor to
provide the necessary corresponding reporting information to the
Third Party Licensors or Talent/Producers. The
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method of payment shall be by check or
wire transfer as directed from time to time in writing by Licensor.
All Royalties shall be paid in U.S. Dollars.
(e)
Annual Guarantee
. For each year of the Initial Term
(as defined below) and Renewal Term (as defined below) (if there is
a Renewal Term), Licensee shall pay Licensor an annual guaranteed
minimum Licensor Royalty (the “ Annual Guaranteed
Royalty ”). Subject to reduction as set forth
in this Agreement, the Annual Guaranteed Royalty for the first
Contract Year (as defined below) of the Initial Term shall be
$2,800,000 (the “ Year 1 Minimum Royalty ”) and
each subsequent Contract Year’s Annual Guaranteed Royalty
(each subsequent year ending on June 30) shall be equal to eight
percent (8%) of eight times (8X) Licensor’s Direct Response
Sales (as defined below) of Covered Products remaining under this
Agreement for the six (6) months prior to the commencement of the
next subsequent Contract Year, provided that the Annual Guaranteed
Royalty for the fourth Contract Year shall not be less than
$2,800,000. As used herein, (i) “ Direct Response
Sales ” means sales made directly to consumers from
television, internet, print, and radio advertising or any other
form of direct response media excluding, for the avoidance of
doubt, shopping networks and channels, but including shipping and
processing charges, (ii) the first “Contract Year”
means initially, the period beginning on the date hereof and ending
June 30, 2010, and each subsequent Contract Year means the
subsequent twelve (12) month period ending on June 30.
(f)
Adjustment of Annual Guarantee in
Absence of Third Party License Amendment . If any Third Party Product is removed from
this Agreement pursuant to Section 3.2(b), the Annual Guaranteed
Royalty for the first Contract Year shall be reduced by the amount
set forth in Exhibit H for such Third Party Product.
(g)
Adjustment of Annual Guarantee for
Terminated Third Party License . If any Third Party License Agreement is
terminated or expires or Licensee’s rights with respect to
such Third Party License Agreement is otherwise terminated other
than pursuant to Section 3.2(b) and other than by any breach of
this Agreement by Licensee (a “ Terminated Third Party
License ”), the Annual Guaranteed Royalty for the
Contract Year in which such event occurs shall be reduced
proportionately as follows:
(i)
determine Licensee’s sales of the
Covered Product licensed under such Terminated Third Party License
during the six (6) full month period prior to such termination and
annualize it (i.e., multiply such amount by two (2));
then
(ii)
divide such amount by the total sales of
Covered Products during the six (6) full month period prior to such
termination on an annualized basis to determine the percentage of
total sales represented by such Covered Product; then
(iii)
multiply that percentage to the Annual
Guaranteed Royalty for such year to determine the proportionate
annual amount by which the Annual Guaranteed Royalty should be
reduced; then
(iv)
multiply that amount by a fraction, the
numerator of which is the number of remaining months in such
Contract Year and the denominator of which is 12 to
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determine the proportionate amount of
such annual amount applicable to the remainder of the Contract
Year.
(h)
Payment of Annual Guaranteed
Royalty . Should the
amount of Licensor Royalties paid or to be paid by Licensee during
any quarter of a Contract Year be less than (i) twenty-five (25%)
of the Annual Guaranteed Royalty, plus (ii) the amount by which
Licensor Royalties paid in each previous quarter of the applicable
License year exceeded twenty-five percent (25%) of the Annual
Guaranteed Royalty, then Licensee shall pay the amount of such
shortfall within fifteen (15) calendar days after the end of such
quarter; provided that, should this provision result in
payment by Licensee of more than the Annual Guaranteed Royalty,
Licensee shall be entitled to deduct such amount from the Licensor
Royalties otherwise payable to Licensor for the last month of any
Contract Year. For purposes of this Section 3.4(h), the first
quarter shall be deemed to include the period commencing on
the Effective Date and ending on September 30, 2009.
(i)
Maintenance of Third Party License
Agreements . Certain of
the Third Party License Agreements require Licensor to meet minimum
periodic thresholds (the “ Minimum 3PLA Thresholds
”) in order to maintain certain or any rights under such
agreements (the “ Affected Rights ”). If
sales of the applicable Third Party Product by Licensor (other than
to the Accounts) and Licensee (to the Accounts) are not sufficient
to meet the Minimum 3PLA Thresholds, then Licensor and Licensee
shall meet and confer to determine whether or not to retain the
Affected Rights and:
(1)
If Licensor and Licensee both desire to
retain such Affected Rights, then Licensor and Licensee shall
jointly make up for any Minimum 3PLA Threshold shortfall in
proportion to the relative sales of such applicable Covered Product
made by Licensor and Licensee during the six month period
immediately prior to the end of the applicable threshold period in
question (e.g., if Licensor’s sales were $100,000 and
Licensee’s sales were $50,000, then Licensor shall pay 2/3rds
of the applicable shortfall).
(2)
If only Licensee desires to retain such
Affected Rights and Licensor does not, then Licensee shall pay the
shortfall and such Affected Rights shall remain a part of this
Agreement except that Licensee shall be entitled to a credit
against the next Licensor Royalties due with respect to such
Covered Product for the share otherwise payable by Licensor under
Clause 1 above and such credit shall be included for purposes of
determining whether the Annual Guaranteed Royalty has been
met.
(3)
If only Licensor desires to retain such
Affected Rights and Licensee d
