Manufacturing, Marketing and Distribution Agreement with Tristar Products, Inc

This Agreement (“Agreement”) is by and between DIRECT SUCCESS LLC #3, a Delaware limited liability company (“Direct Success”), and TRISTAR PRODUCTS, INC., a Pennsylvania corporation (“Tristar”), both of which are sometimes referred to herein as a “party” or the “parties”.

WHEREAS, Direct Success has the right to manufacture, market and sell throughout the World a fishing lure, which Direct Success is currently marketing under the trademark “Banjo” (the “Product”, and when more than one-“Products”); and

WHEREAS, Tristar is in the business, among other things, of manufacturing, advertising, marketing and distributing products in various media, including television, print, and retail; and

WHEREAS, the parties wish to set forth in this Agreement their understanding of the terms, and conditions upon which Direct Success will grant to Tristar certain rights to manufacture, use, distribute, sell, advertise, and promote the Products.

NOW THEREFORE, in consideration of the premises and the mutual promises and undertakings set forth herein, and intending to be legally bound hereby, the parties agree as follows:

1.	Manufacturing, Marketing and Distribution Rights.

1.1. Grant of Rights. Direct Success hereby grants to Tristar the following rights (the “Manufacturing, Marketing and Distribution Rights”), which Tristar may exercise alone or through any one or more of its affiliates:

(a) Generally. The exclusive right, license and privilege during the Term (as hereafter defined) and throughout the World (the “Territory”) to manufacture, use, distribute, sell, advertise, and promote the Products in kit form (defined as any configuration of the Product that contains ten (10) or more fishing lures and related items) and including all improvements, line extensions and modifications thereof approved by Direct Success, however, excluding the parts business (defined as any configuration of the Product that contains less than ten (10) fishing lures or packets of fishing lures of only one size with no limit on hooks, fish eyes, o-rings or weedguards), by any and all means and media, in any and all markets, including but not limited to broadcast, cable, satellite and all other forms of television transmission now existing or hereafter developed, including without limitation, infomercials, commercial spots, promos, television shopping programs such as QVC and HSN, radio, electronic and computer retailing media (such as the Internet), all print media, direct mail solicitation, package inserts, inbound and outbound telemarketing, credit card syndication, CD-ROM, catalog sales, retail sales, and all other channels or means of distribution now existing or hereafter developed.  Tristar agrees to not knowingly sell to any entity whose primary source of revenue is derived through internet advertising and sales except for those who are specifically allowed to do so for Tristar under arrangements satisfactory to Tristar.  Tristar agrees to make federal excise payments due regarding any importation of the Product it may make.

 

(b) Use of Patents. The right to use any U.S. and foreign patents that exist or that may issue on the Products and on like or related matter developed, owned or controlled by Direct Success (collectively referred to as the “Patents”), copies of which has been or will be provided to Tristar if Direct Success can obtain such copies from Wayne Hockmeyer.

(c) Use of Trademarks. The right to use any and all trademarks that Direct Success may own or control with respect to the Products (the “Trademarks”), including the “Banjo” mark, and the right to advertise, promote, market, sell and distribute the Products under or in connection with such other trademarks or identifying names or marks as Tristar may determine subject to the approval of Direct Success which approval will not be unreasonably withheld;

(d) Use of Direct Success’ Artwork. The right to copy and use any and all artwork and promotional materials that Direct Success may own or control with respect to the Products (“Direct Success’s Artwork”), copies of all of which Direct Success shall provide to Tristar for this purpose;

(e) Names, Likenesses and Endorsements.  The right to use the names, likenesses (including, without limitation, photographs, illustrations, films and videotapes), endorsements and testimonials of all endorsers and other persons that Direct Success may own or control with respect to the Products;

(f) Packages. The right to develop such groupings, ensembles, configurations and packaging of the Products and other ancillary goods for sale as Tristar may determine, however the retail packaging must first be submitted to Direct Success for its approval, which approval will not be unreasonable withheld, conditioned or delayed; and

(g) Subdistributors. The right to appoint such subdistributors as Tristar, in its sole judgment, may deem appropriate in order to market and distribute the Products. Notwithstanding the above, Tristar agrees it will not contract with Joe Renosky or C&L Plastics or any of their affiliates or any companies or individuals that previously were engaged by Banjo Buddies or Tristar in the manufacturing of Banjo products prior to the 2001 calendar year.

1.2. Non-Compete.  During the term of this Agreement, and except as may otherwise be permitted by this Agreement, Direct Success shall not in the Territory, directly or indirectly, either alone or in participation with any other person or entity, engage in or be involved with manufacturing, marketing or distributing the Product or any other fishing lure except as it may be sold in 2 parts configuration (and Direct Success may sell complete kits to customer who order parts and requests as part of the order one or a few kits), and Direct Success will use its best efforts to prevent any other individuals or entities from so manufacturing, marketing or distributing the Product. Notwithstanding the above, Tristar agrees to sell basic kits to Direct Success to be used in its fulfillment of part sales orders to individuals for $15.00 each or its direct costs plus $6.00, whichever is larger, plus freight and any applicable sales taxes. No royalty to Direct Success will be owned on these sales.

 

During the term of this Agreement and for two years thereafter, provided that:

(i) the advance for the Media Test (referenced in Section 1.8) from Tristar to Direct Success is timely repaid, and

(ii) the Media Test is successful (as such term is defined in Section 1.8) or Tristar gives notice to Direct Success that it intends to go forward with this Agreement norwithstanding the results of the Media Test,

and except as may otherwise be permitted by this Agreement, Tristar and its chief executive officer shall not in the Territory, directly or indirectly, either alone or in participation with any other person or entity including Joe Renosky and/or C&L Plastics, engage in or be involved with manufacturing, marketing or distributing the Product or any other fishing lure.  To the knowledge of Tristar’s chief executive officer, no principal or officer of Tristar has any affiliation at the present time with Joe Renosky.

1.3. Minimum Sales Requirements. Tristar shall not have any minimum sales requirement under this Agreement. However, extensions of the Term of this Agreement are subject to Tristar’s meeting certain minimum quarterly royalty payments, as described in Seciton 8 hereof.

1.4. Prices.  Tristar, with Direct Success’ approval (to the extent permissible under law), which shall not be unreasonably withheld, shall have the right to sell and distribute the Products at such price ranges, and on such terms and conditions, as Tristar may establish.  In no case will Tristar sell the Products at or below cost without first offering to Direct Success the opportunity for Direct Success to purchase the Products at such price.

1.5. Quality Control. Tristar shall adhere to any reasonable requests and directions of Direct Success relating to the maintenance of the quality of the Products manufactured, and the Trademark applied to such Products, pursuant to the terms of this Success and resin made in the United States and acceptable to Direct Success in all Banjo products.  Tristar agrees not to make any changes to the Product or kit form without approval from Direct Success (not to be unreasonably withheld).

1.6. Third Party Contract Manufacturer. Tristar intends and is authorized to manufacture the Products by contract with a third party manufacturer.  Tristar will use its best efforts to use Medex in China as its manufacturer.  Tristar agrees to get approval (not to be unreasonably withheld) from Direct Success prior to any change in any product manufacturer.  Tristar further agrees that it will not impose restrictions on or encumber Eagle Claw, Mustad, or Medex with any agreements that would prevent them from supplying hooks or Products to Direct Success or Banjo Buddies at any time.

 

1.7. Royaties Due to Third Parties.  Direct Success represents that the only individuals or entities to whom compensation may be owing from Tristar’s sales of the Product are Banjo Buddies (as modified in 2005), Script to Screen, Inc., and Babe Winkleman, who collectively are owned no more than 7.75% of the adjusted gross sales of the Products. The exact amount owing to each is as stated in separate written agreements, copies of which have been provided to Tristar.  Direct Success assigns its rights in and to these contracts to Tristar and Tristar assumes those obligations thereunder of Direct Success which arise as a consequence of activities which take place after the date of this Agreement. Direct Success represents that as of the date of this Agreement, there is no default by any of thes parties to the aforesaid contracts.  Tristar agrees to provide supporting report documentation and make timely payments of the aforesaid royalties on a monthly basis directly to Direct Success who in turn shall forward reports and make the payments to the parties entitled to the royalties.  Tristar reaffirms and agrees that in the event it retains a third party to independently market at the Product in the United States, the applicable royalty due the Third Parties notes above will be calculated and paid by Tristar as if the sales were made by Tristar on the higher amount sold to (i) the ultimate seler to the consumer if sold by direct response television or direct response print, or (ii) the ultimate seller to the brick and mortar retail entity, cataloger, home shopping network or other end marketer.  Deliquent royalty payments due to Direct Success that are intended to be paid by Direct Success to Banjo Buddies shall bear interest at 10% per annum for a period of one year and 18% thereafter.

1.8. Purchase of Existing Inventory. Tristar shall purchase from Direct Success the existing inventory of completed kits of the Product (between $5,000 and 58,000), as well as 25,000 + Big Fish kits, and 22,000+ VHS videos, all of which are currently completed and in Tennassee, at cost plus 10% as well as its hook inventory and work in progress that is at Medex in China, on the following terms and understanding.

On execution of this Agreement, Tristar will advance $100,000 to Direct Success.  This money may, at Tristar’s discretion, be paid by Tristar directly to Direct Success’ media agents for the purpose of purchasing television media time for the Commercial (the “Media Test”).  Direct Success will run the Media Test for the Commercial for two-three consecutive weeks for a total of $100,000 in media, to commence no later than May 9, 2005.  For this Media Test, the Commercial will be run, fulfillment completed, calls handled, ect. With the current vendors that Direct Success has been using, with any profits or losses accruing to the account of Direct Success, not Tristar.  Direct Success will provide to Tristar all reports it receives from the media buyer and fulfillment house during and at the conclusion of the Media Test.

The Media Test will be deemed successful is the Commercial results in sales of 2 to 1, meaning that gross receipts are twice the cost of media.  If the Commercial is successful, or if within 20 days following Tristar’s receipt of the full results of the completed Media Test Tristar gives notice to Direct Success in writing that it intends to go forward with this Agreement notwithstanding the results of the Media Test, Tristar will purchase all of the aforesaid inventory that remains.  If the Commercial is not successful, and if Tristar does not provide the aforesaid notice to Direct Success, this Agreement will be deemed terminated, and neither Tristar nor Direct Success shall have any further obligation hereunder, one to the other, except that Direct Success will repay the advance plus interest at the rate of 8% per annum from the date of money is advanced, to be repaid first from the net proceeds of the Media Test, but if the amount is insufficient the balance will be repaid to Tristar in full, with all accured interest, 30 days following the last day of the Media Test.

 

1.9. Tristar’s Transfer of Ownership of Prior Footage to Direct Success. Tristar hereby conveys to Direct Success such ownership and title to any existing footage of the Product as Tristar may have, and which may presently be in the possession of Script to Screen, Inc.  The previsions of this section will survive the termination of this Agreement.

2.	Royalty to Direct Success.

2.1. Amount of Royalty. Tristar shall pay Direct Success monthly a royalty equal to the fixed amount stated below, which varies based on the list wholesale price before freight charged by Tristar to the customer, on Tristar’s receipts from sales of the Product (collected invoices) through all channels of trade except through customers in the United States calling in on a toll free telephone number in direct response to airing of the infomercial (for which there will be no royalty paid to Direct Success, but the profits, if any, derived thereform will be split equally-see Section 3.4).  If Tristar includes freight for shipment of the Product to the customer in the wholesale price, the list wholesale price will be adjusted downward to reflect such cost.

List Wholesale Price Charged Customer	Amount of Royalty
Under $18.00	$4.00
$18.00 and above	$5.00

In the computation of the royalty, Tristar will take no deductions for returned Products, but may resale such returned Products without further payment of royalties thereon to Direct Success.  Tristar reaffirms and agrees that in the event it retains a third party to independently market the Product in the United States, the applicable royalty due Direct Success will be calculated and paid by Tristar as if the sales were made by Tristar on the higher amount sold to (i) the ultimate seller to the consumer if sold by direct response television or direct response print, or (ii) the ultimate seller to the brick and motar retail entity, cataloger, home shopping network or other end marketer.

2.2. Reporting and Remittances: Review of Tristar’s Books.  All royalties shall be paid to Direct Success within 30 days of the close of the calendar month.  Tristar agrees to pay Direct Success interest at a per annum rate of 7%, compounded annually, on any payments made after the 30 days period.  Each payment made by Tristar to Direct Success shall be accompanied by an accounting statement setting forth the calculation of the amount of royalty shown thereby to be due to Direct Success for such period.  Direct Success shall  have the right to review the books and records of Tristar that pertain to the sale of the Products on a 14 day advance notice, provided the days of the audit are business days, and at reasonable intervals but not to exceed one time  in each calendar year, and provided further that the date selected does not conflict with vacation schedules or year-end auditing being conducted by Tristar’s own auditors.  Direct Success may be accompanied during the audit by a certified public accountant representing Banjo Buddies.  If the review reveals a shortage in the amount due to Direct Success for a twelve month period that is in excess of 5% of its entitlement, then Tristar will pay the actual, out-of-pocket third party costs of the audit.  In all cases, Tristar will promptly pay any shortfall revealed by the audit.

 

2.3. Reports from Service Providers.  Tristar shall direct its media buyer, telemarketing company, and all fulfillment houses to send to Direct Success copies of all the reports that it sends to Tristar as and when such reports are sent to Tristar, or otherwise to allow Direct Success the same electronic access to the information as is allowed to Tristar.  Each month Tristar will also provide third party documentation of shipments to all retail vendors or distributors, retail accounts receivable agings and sales registers showing units sold and the dollar amounts of each sales invoice issued, to the extent that this information is in Tristar’s possession.  Further, Tristar agrees to reconcile and provide monthly to Direct Success the number of kits purchased to the number sold or in inventory through all distribution channels.  Tristar agress to provide documentation from the Product manufacturer of its purchases each month.

3.	Television Direct Response Advertising

3.1. Assignment of Rights to Existing Commercial.  Direct Success represents to Tristar that it has produced and is presently airing a long form television commercial (“Commercial”) which describes, displays and promotes the benefits to be derived from the use of the Product and offers the Product for sale to the general public.  This Commercial is owned by Direct Success, however some of the footage belongs to Banjo Buddies or Wayne Hockmeyer, and Direct Success is not restricted in the locations at which the Commercial may be aired or in the length of time during which it can be used, provided it meets certain minimum royalty payments to Banjo Buddies.

Direct Success will provide to Tristar master tapes of Commercial and grants to Tristar and its designees the right to use the Commercial anywhere within the Territory for the promotion of the Products.  Direct Success represents that claims made about the Product in the Commercial have been documented and substantiated, and that the Commercial is in compliance with all applicable laws and regulations relating to the advertising and sale of the Product in the United States.  Direct Success shall provide to Tristar all such documentation and substantiation as Tristar shall request, to the extent such information is in Direct Success’ possession.

3.2. Editing and Dubbing Existing Commercial.  Tristar is granted the right to edit and dub the Commercial in such manner and at such studio or facility as may be determined by Tristar in its sole judgment, but any creative changes must first be submitted to Direct Success for its approval, which approval will not be unreasonably withheld, conditioned or delayed.

3.3. No Royalties Due to Producer or Talent. Direct Success represents to Tristar that neither the product of the Commercial (Script to Screen, Inc.) nor the talent appearing therein are entitled to royalties from the sales that Tristar may make with respect to the Products, except as in provided in Seciton 1.7 of this Agreement.

3.4. Profits Split from Commercial Sales.  Tristar will split equally with Direct Success any profits that it earns from annual calendar year sales of the Products through the Commercial.  Tristar will use its own discretion to determine when any such profits will be distributed, but will split profits no less often than 60 days following the end of each calendar year.  It is envisioned by Tristar that there will be no or very little profits from the airing of the Commercial as it is the present intention of Tristar to air the Commercial at or below break-even in order to generate retail sales of the Product.  The definition of the Profits as it relates to this section only is Gross Receipts in response to television sales including Upsells and internet sales, less direct product costs, actual returns and bad debts, sales taxes collected, payments to media buyers whose commissions are not to exceed 10% fulfillment centers including freight, payments to telemarketing centers, payment of legal costs associated with allegations of product failures, substantiation of claims made about the products, or issues related to compliance with rules and regulations pertaining to sales of the Products, and royalties referred to in Section 1.7.