DIPLOMAT CORPORATION
25 Kay Fries Drive
Stony Point, New York 10980
August 7, 1997
Mr. Robert Selame
268 Newbury Street
Boston, Massachusetts 02116
Dear Mr. Selame:
This will confirm the understanding and agreement (the "Agreement") between
Diplomat Corporation ("Diplomat") and Robert Selame ("Selame") as follows:
1. Diplomat hereby engages Selame (a) to provide consulting services with
regard to new product ideas and concepts in the baby and youth
products area generally, supported by sketches, plans and the like in
a number such that Diplomat might be expected reasonably to select
among them so as to be able to implement between 5 and 10 new ideas
per year during the term hereof and (b) to provide general marketing
consulting services to Diplomat.
2. Selame agrees to act as a consultant to Diplomat with respect to the
matters set forth in paragraph 1.
3. As compensation for services to be provided by Selame hereunder,
Diplomat agrees to pay Selame as follows:
(a) A 3% royalty on all net sales (defined as gross sales less
returns, discounts and the like, whenever occurring) made by
Diplomat of any products implemented or improved (as well as
product line extensions and variations) as a result of the ideas
and concepts presented by Selame pursuant to paragraph 1
("Products"). For purposes of this royalty calculation, a Product
shall be considered "sold" upon the date of payment. If a sale is
made otherwise than at arms length, the net sales for such sale
shall be based on the gross invoice price for corresponding sales
to unaffiliated parties at arm's length. Each royalty payment
made pursuant to Section 3(a) shall be made on the last day of
each month for products sold
Robert Selame Associates, Inc.
August 7, 1997
Page 2
during the preceding month. All late payments under this
agreement shall bear interest at the prime rate. With respect to
sales of Products made in foreign currency, the amount of such
sales shall be converted to United States Dollars at the buying
sight rate for dollars at any internationally recognized bank in
the country of sale on the last business day of the period for
which the royalty is to be calculated.
(b) Non-cancellable options to purchase 150,000 shares of Diplomat
common stock exercisable at a price of $1 7/8 per share (the
public trading price of said shares as of the date this agreement
was reached in principle), to be registered pursuant to a Form
S-8 presently being prepared by Diplomat . Any options not
exercised, shall expire ten years from the date hereof. The
Option shall be exercised by the delivery of written notice from
Selame to Diplomat stating the number of Shares with respect to
which the Option is being exercised and accompanied by payment in
full of the aggregate exercise price ("Aggregate Exercise Price")
of such Option in immediately available funds. Such written
notice shall be delivered to Diplomat at its principal office or
at such other address as may be established by the Board of
Directors (attention: Secretary). Diplomat shall immediately
instruct its transfer agent to make delivery of such Shares. In
the event that the outstanding Shares are hereafter changed by
reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination
or exchange of Shares and the like, or dividends payable in
Shares, an appropriate adjustment shall be made by the Board of
Directors in the number of Shares and price per Share subject to
the Option granted hereunder. If Diplomat shall be reorganized,
consolidated, or merged with another corporation, or if all or
substantially all of the assets of Diplomat or any subsidiary
shall be sold or exchanged, Selame shall at the time of issuance
of the stock under such a corporate event, be entitled to receive
upon the exercise of his Option the same number and kind of
shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the
occurrence of any such corporate event as if he had been,
immediately prior to such event, the holder of the number of
Shares covered by his Option. Any adjustment under this paragraph
in the number of Shares subject to the Option shall apply
proportionately to only the
Robert Selame Associates, Inc.
August 7, 1997
Page 3
unexercised portion of any Option granted hereunder. If fractions
of a Share would result from any such adjustment, the adjustment
shall be revised to the next higher whole number of Shares.
(c) Options to purchase 100,000 shares shall be exercisable
immediately and options to purchase the remaining 50,000 shares
shall be exercisable in blocks of 10,000 shares, one such block
for each $1,000,000 by which the net sales of Products exceed
$2,000,000.
(d) Diplomat shall also reimburse Selame for all reasonable
out-of-pocket expenses incurred by Selame at the request of, or
with the permission of, Diplomat in connection with the services
provided hereunder.
4. The term of Agreement shall commence as of the date hereof and shall
expire on July 31, 1998 and royalties payable pursuant to Section 3(a)
hereof shall survive termination of the Agreement.
5. Selame hereby agrees, for himself and on behalf of his employees and
agents not to disclose any information or materials provided hereunder
to Diplomat by Selame or by Diplomat to Selame, without the express
written consent of Diplomat unless such information is in the public
domain or otherwise becomes public through no fault of Selame.
6. Diplomat and Selame are not, and shall not be deemed to be, partners,
joint venturers withe each other or agents of each other.
7. This Agreement is binding upon and is for the benefit of the parties
hereto and their respective successors, legal representatives, heirs
and permitted assigns. This Agreement is personal in nature and the
rights hereunder cannot be assigned, nor can the duties hereunder be
delegated, without the prior written consent of the parties hereto.
This Agreement shall not be amended or modified except by a written
agreement executed by the parties hereto.
8. This Agreement supersedes any other oral or written agreements and
understandings heretofore made relating to the subject matter hereof
and contains the entire agreement of the parties relating to the
subject matter hereof.
Robert Selame Associates, Inc.
August 7, 1997
Page 4
9. Diplomat and Selame hereby warrant to each other that they have full
authority to enter into this Agreement and that they are not subject
to any restrictions which would prevent them from performing this
Agreement.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its conflict of
laws principles. The parties agree that any legal suit, action or
proceeding arising out of or relating to this Agreement may be
instituted in the state or federal court in the State of New York.
11. Diplomat represents and warrants to, and agrees with, Selame that the
manufacture, assembly, labeling, marketing, sale and delivery of
Licensed Products and all material and documentation relating thereto
shall (i) comply with the highest specifications and quality
requirements, (ii) be free from defects in material and workmanship,
(iii) be fit for their intended use, (iv) be of good merchantable
quality, and (v) comply with all applicable federal, state and local
laws, rules, regulations and executive orders. Diplomat shall maintain
at all times product liability insurance covering its operations
relating to Licensed Products in an amount of coverage at least equal
to the total amount of product liability coverage generally maintained
by Diplomat from time to time, but in no event less than $1 million
per occurrence and $2 million in the aggregate.
12. Diplomat, and its successors and assigns (each, an "Indemnifying
Party"), each hereby indemnify and agree to hold harmless the Selame
and its representatives, shareholders, officers, directors, agents and
employees and their affiliates (each, an "Indemnified Party"), against
any liability, damage, loss, fine, penalty, claim, cost or expense
(including reasonable costs of investigation and settlement and
attorneys', accountants' and other experts' fees and expenses) arising
out of any action or inaction in connection with the sale or marketing
of Products, an Indemnifying Party's sale or marketing of Products and
related materials, or the incorrectness or breach of any
representation, warranty or covenant made by any Indemnifying Party to
any Indemnified Party. An Indemnified Party shall give an Indemnifying
Party prompt notice of its receipt of any claim which is subject to
indemnification hereunder, provided, however, that the failure to give
such notice shall not affect any Indemnifying Party's obligation
hereunder except to the extent that the Indemnifying Party was
materially prejudiced by an Indemnified Party's failure to give such
notice.
Robert Selame Associates, Inc.
August 7, 1997
Page 5
13. Diplomat shall keep full and complete records with respect to its
design, manufacture, inspection, testing, marketing and sale of
Products. Diplomat shall provide Selame with monthly reports along
with each royalty payment of the number of Products manufactured each
month and the amount of Products sold each month. At Selame's request,
Diplomat shall allow Selame and/or his representatives to inspect such
records, or to inspect any manufacturing facility, at all reasonable
times and otherwise make available to Selame all information as Selame
may reasonably request relating to Diplomat's design, manufacture and
marketing of Products and the performance of its obligations
hereunder. Diplomat shall keep Selame reasonably informed of, and
shall coordinate with Selame, its distribution and marketing plans for
Products. Selame's rights to receive information and inspect the
design, manufacturing and marketing of the Products, and any active
review, or inspection, shall in no way impose any liability on Selame
or reduce the responsibilities of Diplomat for the quality and
appearance of Products or relieve Diplomat from any of its obligations
hereunder or otherwise.
14. Any disputes arising between the Parties hereunder shall be submitted
to arbitration before the American Arbitration Association in New
York, New York, by one arbitrator pursuant to the American Arbitration
Association's rules for expedited proceedings.
If the foregoing correctly sets forth our understanding and agreement,
please so indicate in the space provided below. We very much look forward to
working with you.
DIPLOMAT CORPORATION
By:________________________________
Jonathan Rosenberg
President
By:______________________________
Robert Selame
Date: August ____, 1997