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EXHIBIT 10.3
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this "Agreement"), effective as of October 1,
1999 (the "Effective Date"), is made by and between XXXXXXXXXXXX.XXX INC., a
Delaware corporation, and its permitted successors and assigns (the "Company"),
and XXXXX & XXXXXX, INC., a Delaware corporation ("B&T") and its permitted
successors and assigns.
W I T N E S S E T H:
WHEREAS, the Company has established an Internet site and operates as an
Internet supplier of textbooks ("Textbooks") to students at private high
schools that require their students to purchase their textbooks, students at
colleges and universities and students in distance learning programs located in
the United States (the "Market");
WHEREAS, B&T is engaged in the business of acting as a distributor for a
range of information and entertainment products, including books that are
distributed by B&T to bookstores, schools, and public and university libraries
worldwide;
WHEREAS, the Company and B&T are parties to that certain Equity Investment
and Operating Agreement dated July 10, 1998 (the "Original Investment
Agreement") as amended by the First Amendment to Equity Investment and
Operating Agreement and License Agreement by and between the Company and B&T
dated October 9, 1998 (the "First Amendment"). The Original Investment
Agreement as amended by the First Amendment thereto shall be known as the
"Investment Agreements";
WHEREAS, the Company and B&T have executed the Investment Agreements and
desire to further amend and restate certain provisions thereof as set forth
herein;
WHEREAS, the Company and B&T also are parties to that certain Amended and
Restated Drop Ship Agreement of even date herewith, attached hereto as Exhibit
A (the "Drop Ship Agreement");
WHEREAS, the Company and B&T also are parties to that certain Amended and
Restated Database License Agreement of even date herewith, attached hereto as
Exhibit B (the "License Agreement"),
WHEREAS, the Company and B&T also are parties to that certain Promotional
and Customer Services Agreement of even date herewith attached hereto as
Exhibit C (the "Promotional Agreement", together with the License Agreement and
the Drop Ship Agreement, the "Related Agreements"); and
WHEREAS, B&T has transferred all of its rights and interests as a holder
of equity and equity interests in the Company in a non-cash transfer to its
stockholders and such interests are held by B&T Enterprises, L.L.C., a Delaware
limited liability company ("B&T Enterprises").
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Agreement, the parties, intending to be legally bound, agree
as follows:
ARTICLE 1
SERVICE OBLIGATIONS
Section 1.1 Inventory.
(a) The Company will provide B&T with a written estimate of
titles and estimated quantities of Textbooks required (the "Textbook
Request") on or about April 15th and October 15th of each year (or such
other dates as the Company and B&T shall mutually agree to by written
consent) for the next following semester (each, a "Request Date"). Fifteen
business days after receiving the Textbook Request, B&T will provide the
Company with a written report indicating title availability, current
publisher, suggested list price, if any, and the prices B&T will charge the
Company for such titles. Prices are subject to change upon notice to the
Company by B&T delivered in accordance with Section 5.7. The Company and
B&T shall negotiate in good faith on the quantities presented in the
Textbook Request and the number agreed shall be the "Inventory Amount".
(b) The Company may submit additional requests after the
applicable Request Date (the "Additional Requests"). B&T will use
commercially reasonable efforts to obtain the titles in the Additional
Requests and to fulfill such requests within the time requested by the
Company. Failure by B&T to obtain the items requested pursuant to the
Additional Request shall in no way be deemed to be a default under this
Agreement.
(c) Subject to the availability of Textbooks requested by the
Company, B&T will use commercially reasonable efforts to stock the titles
requested (the "Inventory") in quantities reasonably sufficient to support
the Company's projected sales to the Market. B&T will use reasonable
efforts to maintain adequate inventory of Textbooks to meet the reasonable
forecasted demand of the Company's Market. B&T will use commercially
reasonable efforts to provide the Company with hourly updates, subject to
technical specifications, of the Inventory status of titles so that the
Company's customers may be apprised of available books prior to ordering;
provided that if, at any time, B&T becomes able to deliver such information
to the Company in real-time on a commercially reasonable basis (as mutually
determined by the Company and B&T), B&T agrees to provide that information
to the Company upon mutually agreeable terms and conditions.
Section 1.2 B&T Fulfillment Services. Subject to B&T's continued
performance under this Agreement, the Company agrees to use B&T as its
principal supplier of Textbooks and fulfillment services for its Textbooks that
are drop-shipped to the Company's Market. B&T and the Company have entered into
the Drop Ship Agreement that sets forth the terms under which such drop ship
service shall be performed. B&T reserves the right to not stock or supply
titles ("Rejected Titles")
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contained in the Textbook Request, which in the opinion of B&T, are not
economically feasible to carry in its inventory, subject to the terms and scope
of the letter agreement between the parties dated June 1, 1999, a copy of which
is attached hereto as Exhibit D. The Company may use other sources of supply
for such Rejected Titles that B&T does not stock or supply. Notwithstanding
anything contained herein to the contrary, the Company agrees that it shall not
use any other supplier ("Other Supplier") of Textbooks (other than with respect
to the Rejected Titles), by drop ship service, without giving B&T the right of
first refusal to supply the Textbooks proposed to be supplied by the Other
Supplier on substantially the same terms and conditions proposed by the Other
Supplier.
Section 1.3 Material Changes. If the Company materially changes
its method of sourcing Textbooks to the detriment of B&T or if B&T's ability to
source Textbooks materially changes to the detriment of the Company, then the
parties reserve the right to re-negotiate the terms of this Agreement and the
Related Agreements.
Section 1.4 Pricing. B&T and the Company shall determine the
prices at which B&T will sell Textbooks to the Company in accordance with
Schedule 1.4 attached hereto. The parties by mutual written agreement may
update Schedule 1.4 from time to time in accordance with Section 5.9 of this
Agreement.
Section 1.5 Limited Exclusive.
(a) Until March 8, 2001 (the "Initial Period"), and during any
Renewal Period (as defined below), B&T agrees that it will not provide drop
ship services to a Competitor of the Company. A "Competitor" shall be
defined as a person or entity that, in the reasonable opinion of the Board
of Directors of the Company, has as its principal business activities, the
sale of textbooks at discounted prices, via the Internet to the Company's
Market. Notwithstanding the foregoing, this Limited Exclusive shall not
apply to, and shall not limit B&T's ability to drop ship to companies
("Excluded Companies"), or their customers, whose principal business
activity is the sale of books, goods or services of professional
disciplines (including, without limitation, legal, business and medical,
even if such items, including textbooks, are shipped to the Company's
Customers). B&T may sell, through its drop ship services, to retailers
(other than to the Company's Competitors) engaged in the sale of books and
textbooks via the Internet and to customers of B&T as of July 10, 1998 (the
"Existing Customers") even though such Existing Customers may now or in the
future be considered a Competitor of the Company. B&T will continue to
offer this Limited Exclusive to the Company, and the Company shall continue
to use B&T as its principal supplier of Textbooks as set forth herein,
provided that the parties mutually agree in writing as to the Inventory
Amount for a semester. If the parties so agree, the terms contained in
this Section 1.5(a) shall be extended to cover a period that is six months
from the date of such determination (a "Renewal Period"). If the parties
fail to agree upon the Inventory Amount for a particular semester, the
terms of this Section 1.5(a) shall automatically expire at the end of the
later of the Initial Period or any Renewal Period. This Section 1.5(a)
describes the Company's "Limited Exclusive."
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(b) The expiration or termination of the Limited Exclusive
shall not terminate or affect any other agreement or obligations between
the parties.
(c) B&T covenants with the Company that in the event that B&T
offers its drop ship services to Excluded Companies that B&T will not
exclude the Company from services it may provide to any such Excluded
Companies.
ARTICLE 2
CONFIDENTIALITY.
Section 2.1 The parties acknowledge that each may be exposed to
confidential information and trade secrets relating to the other party's
business under this Agreement, including, but not limited to, the terms of this
Agreement, quantities of products, dollar volumes, revenues of products,
wholesale prices and similar information. The parties agree that, during the
term of this Agreement, and for a period of two (2) years after the Termination
Date (as defined below), neither party will disclose to any third party any
confidential information without the prior written consent of the other party,
except to employees, agents, auditors, contractors, directors and similar
entities as long as such third parties agree to be bound by the confidentiality
provisions hereof. Except as expressly provided herein, neither party will use,
disclose or transfer the trade secrets of the other party so long as such
information constitutes a trade secret under applicable law. The
confidentiality obligations between the parties will not apply to any
information (a) which is in the public domain or which becomes part of the
public domain through no fault of the receiving party; (b) which is known to
the receiving party prior to the disclosure thereof by the disclosing party (as
established by documentary evidence); (c) which is lawfully received by the
receiving party from a third party who provided such information without breach
of any separate confidentiality obligation owed to the disclosing party; or (d)
which is independently developed by personnel having no access to the
disclosing party's confidential information (as established by documentary
evidence). Notwithstanding the foregoing, the parties agree that either party
may describe the terms, and include a copy, of this Agreement and the exhibits
hereto in any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
ARTICLE 3
LIMITATION OF WARRANTIES
Section 3.1 NOTWITHSTANDING ANYTHING CONTAINED HEREIN OR IN ANY
RELATED DOCUMENT, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR
ANY INDIRECT, CONSEQUENTIAL, PUNITIVE OR INCIDENTAL DAMAGES ARISING OUT OF THIS
AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
Section 3.2 The provisions of this Article 3 shall survive the
termination or expiration of this Agreement.
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ARTICLE 4
FINANCIAL STATEMENTS
Section 4.1 The Company agrees to furnish its quarterly financial
statements to B&T within 45 days of the end of each of its first three fiscal
quarters each year and to furnish its annual financial statements to B&T within
90 days of the end of each fiscal year.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Entire Agreement. This Agreement, including the
exhibits and schedules attached hereto, amends and replaces Sections 1.2, 5.1
and 6.3 through 6.15 of the Investment Agreements, and constitutes the sole and
entire agreement of the parties with respect to the subject matter hereof.
Except as amended hereby, the terms, provisions, conditions and agreements of
the Investment Agreements are hereby ratified and confirmed and shall remain in
full force and effect. Section 6.2 of the Original Investment Agreement
related to arbitration is incorporated herein by this reference.
Section 5.2 Publicity. All general notices, releases, statements
and communications to employees, suppliers, distributors and customers of a
party and to the general public and the press relating to the transactions
covered by this Agreement or the Related Agreements shall be made by such party
hereto only at such times and in such manner as may be mutually agreed upon by
the Company and B&T, except as may be required by any applicable law and
regulation. Either party may describe the terms, and include a copy, of this
Agreement and the exhibits hereto in any filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended.
Section 5.3 Expenses. Each party hereto shall be solely
responsible for its respective expenses in connection with the negotiation,
preparation and performance of this Agreement (including, without limitation,
all legal and accounting expenses).
Section 5.4 Parties in Interest. All obligations and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and permitted
assigns of the parties hereto, whether so expressed or not. Except as
otherwise expressly provided herein, nothing in this Agreement is intended to
confer upon any other person or entity any rights or remedies hereunder.
Section 5.5 Further Assurances. B&T affirms the Limited
Exclusive granted to the Company pursuant to the Original Investment Agreement
and offers the further assurances set forth in Schedule 5.5 attached hereto.
Section 5.6 Condition Precedent. The Company shall have delivered
to B&T Enterprises the outstanding Warrants due to B&T pursuant to the Series B
Preferred Stock notes and offering.
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Section 5.7 Notices. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed effectively
given and received upon delivery in person, or one business day after delivery
by national overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or three business days after deposit
via certified or registered mail, return receipt requested, in each case
addressed as follows:
(a) if to the Company: XxxxxxxXxxxx.xxx Inc.
0000 Xxxxxx Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attention: Xx. Xxxx X. Xxxx
Telephone: (000) 000-0000
with a copy to: Xxxx Xxxxxxx
0000 Xxxxxxxxxxxxx Xxxxx
00xx Xxxxx
XxXxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
(b) if to B&T: Xxxxx & Xxxxxx, Inc.
Five XxxxXxxxxx Xxxxx
Xxxxx 000
0000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx,
Executive Vice President
Fax: (000) 000-0000
with copy to: Dow, Xxxxxx & Xxxxxxxxx, PLLC
0000 Xxx Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
or, in any such case, at such other address or addresses as shall have
been furnished in writing by such party to the others.
Section 5.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THAT STATE'S PROVISIONS OF CONFLICT OF LAWS.
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Section 5.9 Counterparts. This Agreement may be executed in one
or more counterparts by facsimile or original signature, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 5.10 No Waivers; Amendments. No failure or delay on the
part of any party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to any party at law or in equity or otherwise. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Company and B&T.
Section 5.11 Severability. If any provision of this Agreement
shall be declared void or unenforceable by a judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be affected thereby.
Section 5.12 Gender. All pronouns and all variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person or persons, thing or entity may require.
Section 5.13 Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 5.14 Termination. Except as provided in Section 1.5(a),
this Agreement shall expire on October 1, 2002; provided that this Agreement
shall be automatically extended for an additional year if either party shall
not have provided the other party with 180 days written notice of its intention
to allow this Agreement to expire. The earlier to occur of October 1, 2002 or
the expiration of this Agreement as described in the foregoing sentence shall
be referred to as the "Termination Date". In addition, either the Company or
B&T may terminate this Agreement upon 30 days written notice in the event that
the other party (the "Defaulting Party") materially defaults under this
Agreement (an "Event of Default") and such Defaulting Party has not cured such
Event of Default within 30 days. The written notice shall specify in
reasonable detail the facts supporting the declaration of an Event of Default.
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Section 5.15 Assignment. Neither party hereto shall assign its rights
or obligations hereunder without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld or delayed; provided,
however, that the Company may assign its rights and obligations hereunder and
under the Related Agreements to CollegeOps LLC, a Delaware limited liability
company and wholly-owned subsidiary of the Company. Unless otherwise provided
in a writing signed by the Company and B&T, such assignment shall not relieve
the Company of any of its obligations hereunder or under the Related Agreements.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
The Company: B&T:
XXXXXXXXXXXX.XXX INC. XXXXX & XXXXXX, INC.
By: /s/ Xxxx X. Xxxx By: /s/ Xxxxx X. Xxxxxxx
---------------------------- ----------------------------
Name: Xxxx X. Xxxx Name: Xxxxx X. Xxxxxxx
Title: Chief Executive Officer Title: Executive Vice President
SIGNATURE PAGE TO OPERATING AGREEMENT
