LETTER AGREEMENT October 18, 2006

October 18, 2006

Ronald M. Popeil

RMP Family Trust

Ronco Inventions, LLC

Popeil Inventions, Inc.

RP Productions, Inc.

1672 Waynecrest Drive

Beverly Hills, CA 90210

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 Ronald M. Popeil (“Popeil”), the RMP Family Trust, an Illinois irrevocable trust, Gina Wallman and Martin Lescht 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 Sanders Morris Harris 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:

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 Ronald M. Popeil 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 Ronald M. Popeil and Alan L. Backus 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 Ronald M. Popeil and/or Alan L. Backus. 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.

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 Ronald M. Popeil 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.

(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):

“(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 (25^th) 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):

“(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.”

(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) R. Popeil (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 R. Popeil (or such permitted designee) through personal appearances made pursuant to this Section 6.10 where such sales occur within sixty (60) days after R. Popeil’s (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 R. Popeil 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 R. Popeil or his designees a unit sales commission or payment (and such commission or payment is paid), be counted as sales for which R. Popeil 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 R. Popeil or his permitted designees upon request therefor, but excluding any amounts paid to R. Popeil as an appearance fee, all of which shall be reimbursed to R. Popeil or his permitted designees upon request therefor, but excluding any amounts paid to R. Popeil 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) R. Popeil’s 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 R. Popeil 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 R. Popeil 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 R. Popeil or his permitted designee based on Promoted Sales made during the personal appearances of Ronda Pierson on the QVC Shopping Network prior to the date of this Agreement.

(C) In addition to the above-described appearance fee, R. Popeil 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 R. Popeil pursuant to Section 6.10(B) above) from Promoted Sales.

(D) Purchaser, or RIM, as applicable, shall make all payments to R. Popeil or his designee(s), as applicable, due pursuant to this Section 6.10 not later than the fifteenth (15^th) 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 R. Popeil 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 R. Popeil or his representatives. If any such examination reveals that Purchaser owes R. Popeil or his designee(s) additional amounts under this Section 6.10, Purchaser shall (a) immediately pay R. Popeil or his designee(s) such delinquent amounts; and (b) pay to R. Popeil 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 R. Popeil 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 R. Popeil, upon demand therefor, an amount equal to the actual and documented costs incurred by R. Popeil 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 R. Popeil 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:

“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.

 

(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.

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 & Myers 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 & Myers 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. 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.”

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.

 

(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.

 

(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.

(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)
			61 Moreland Road
			Simi Valley, CA 93065-1662
			Attention: President and Chief Executive Officer
			Facsimile: (805) 433-1033

 

 

(ii)			If to the Lenders:
			Ronald M. Popeil
			1672 Waynecrest Drive
			Beverly Hills, CA 90210
			Facsimile: (310) 273-4483

(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.)

Very truly yours,

Paul M. Kabashima

Interim President and Interim Chief Executive Officer

Paul M. Kabashima

President and Chief Executive Officer

 

[Signatures Continued on Next Page]

 

 

 

By: /s/ Gina Wallman                               

 

Name: Gina Wallman                               

 

Title: Corporate Secretary                      

 

By: /s/ Gina Wallman                              

 

Name: Gina Wallman                              

 

Title: Corporate Secretary                     

 

By: /s/ Gina Wallman                            

 

Name: Gina Wallman                            

 

Title: Corporate Secretary                    

 

By: /s/ Gina Wallman                            

 

Name: Gina Wallman                            

 

Title: Co-Trustee                                   

 

 

 

 

 

 

 

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
March, 2006			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