xxxxxxxxxx.xxx
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Phone: (000) 000-0000 Fax: (000) 000-0000
July 25, 1999
Xxxxx.xxx Inc.
000 XxXxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
Re: Xxxxx.xxx INC./ xxxxxxxxxx.xxx. INC.
STOCK EXCHANGE AND MARKETING AGREEMENT
Ladies and Gentlemen:
This letter agreement (the "Agreement") between xxxxxxxxxx.xxx,
Inc., a Delaware corporation ("Musicmaker") and Xxxxx.xxx Inc., a Delaware
corporation ("Tunes") sets forth certain agreements that the parties hereto
have reached and outlines the terms that are expected to be provided in
certain definitive agreements that the parties hereto intend to enter into
with respect to the transactions described below. Subject to the (i) approval
by the board of directors of each of Musicmaker and Tunes and (ii)
Musicmaker's receipt of a consent to the issuance of the "Musicmaker Shares,"
as defined below, from Xxxxxx, Xxxxx Xxxxx, Incorporated pursuant to Section
5(vi) of that certain Underwriting Agreement dated as of July 6, 1999, this
Agreement and the transactions contemplated herein will represent binding
legal obligations of the parties requiring the parties to negotiate in good
faith to execute and deliver definitive agreements on the terms outlined
herein. This agreement is being signed by senior executive officers of each
of the parties hereto, and each of the obligations of the parties hereto is
expressly subject to the satisfaction of the conditions subsequent to this
Agreement raised in (i) and (ii) above. Each of the parties will with all
reasonable speed seek the completion of the conditions raised in (i) and (ii)
and will notify the other party when such conditions have been reasonably
satisfied. The transactions contemplated herein are collectively referred to
herein as the "Transactions."
Musicmaker and Tunes hereby propose and agree to the following Transactions:
I. STOCK EXCHANGE AGREEMENT. Musicmaker and Tunes shall enter into an
agreement embodying the terms detailed below (the "Stock Exchange Agreement").
A. ISSUANCE OF THE TUNES SHARES. As consideration of or and in exchange for
the "Musicmaker Shares" (defined below), Tunes shall:
(i) issue to Musicmaker 357,143 shares of Xxxxx.xxx Inc. common
stock, par value $.01 per share, calculated on a post-stock-split basis, in
an amount equivalent in value to approximately $5,000,000, each such share
priced at $14 per share, the midpoint of the pricing range contained in
Tunes' July 20, 1999 filing of a registration statement with the Securities
and Exchange Commission on Form S-1 (the "Tunes Shares"). The tunes Shares
shall be issued to Musicmaker upon the consummation of the Stock Exchange
Agreement. Issuance of the Tunes Shares shall not be contingent upon the
completion of the IPO. In the event that the IPO is delayed or postponed,
Tunes shall notify Musicmaker immediately in writing and shall issue the
Tunes shares not later than 15 days following such notification; and
(ii) execute and deliver the "Marketing Agreement" described below.
B. ISSUANCE OF THE MUSICMAKER SHARES. As consideration for and in exchange
for the Tunes Shares, Musicmaker shall:
(i) issue to Tunes shares of Xxxxxxxxxx.xxx, Inc. common stock, par
value $.01 per share, valued at $5,000,000 (the "Musicmaker Shares"), such
Musicmaker Shares to be valued at a price per share equal to the average
closing price of Musicmaker's common stock listed on the Nasdaq National
Market under the symbol "HITS" for the period beginning on July 7, 1999,
through the date of this binding Agreement. The Musicmaker Shares shall be
issued to Tunes upon the consummation of the Stock Exchange Agreement; and
(ii) execute and deliver the "Marketing Agreement" described below.
C. REGISTRATION RIGHTS. Subject to the terms of that certain Registration
Rights Agreement dated as of June 8, 1999, by and among Musicmaker and
various holders of registrable securities, Musicmaker shall grant to Tunes
"piggyback" registration rights with respect to the Music Shares to be issued
under the terms of the Stock Exchange Agreement. Subject to the terms of that
certain Amended and Restated Registration Rights Agreement dated as of May 4,
1999, by and among Tunes and various holders of registrable securities, Tunes
shall grant to Musicmaker equivalent "piggyback" registration rights with
respect to the Tunes Shares to be issued under the terms of the Stock
Exchange Agreement.
D. TUNES REGISTRATION STATEMENT DISCLOSURE. Upon the execution of this
Agreement, tunes shall take such action to ensure that the Transaction
proposed herein and the issuance of the Tunes Shares of Musicmaker are each
accurately disclosed in Tunes' final prospectus to the extent required to be
described therein under applicable law.
E. REPRESENTATIONS AND WARRANTIES. Each of Musicmaker and Tunes shall make
standard and customary representations and warranties with respect to the
issuance of the Tunes Shares and the Musicmaker Shares. Each party shall
agree to indemnify the other for any and all breaches of such representations
and warranties.
II. MARKETING AGREEMENT. Musicmaker and Tunes shall enter into an agreement
embodying the terms and conditions detailed below (the "Marketing Agreement").
A. ADVERTISING PAYMENTS. For a period of five years following the closing of
the transactions contemplated herein (the "Term") or until the earlier
termination by the parties as discussed below, Musicmaker shall make annual
payments of $1,000,000, payable in advance on a quarterly basis (the
"Advertising Payments"), for advertising and promotion of Musicmaker and its
products and related services on the Xxxxx.xxx website and Tunes'
genre-specific related websites, including but not limited to
xxxxxxxxxxxx.xxx, xxxxxxxxx.xxx and xxxxxxxxxxxx.xxx (the "Tunes Websites"),
such advertising and promotional services to be provided to Musicmaker by
Tunes at competitive market rates during the Term. Tunes shall use its best
efforts at all times during the Term to encourage and direct artists, bands
and independent labels seeking to sell music content on the Tunes Websites to
work with and through Musicmaker as a sale and technology partner.
B. EXCLUSIVITY FOR SALES OF CUSTOM CDS. For the Term, Tunes agrees that
Musicmaker shall be the exclusive online provider of customized compact disc
compilations ("Custom CDs") on the Tunes Websites. During the Term, Tunes
will not authorize any other supplier of Custom CDs to offer, sell or
distribute Custom CDs through the Tunes Websites except for:
(i) the sales through the Tunes Websites of prerecorded
CDs, collections, and/or pre-existing compilations, which are not
customized online by visitors and/or registrants to the Tunes
Websites, sold by tunes or any of its online store partners; and
(ii) the sale of Custom CDs directly by or through an
affiliated entity of BMG Entertainment, Universal Music Group, Sony
Music Entertainment, or Warner Music, or through any alliance or
partner entity, of music content not available for inclusion in
custom CDs through Musicmaker ("Additional Major Content") and to
which Musicmaker is unable to obtain sufficient rights to include
such Additional major Content in its Custom CDs within 120 days of
notification of the availability of Additional Major Content by
Tunes.
The exclusivity provision in Section II(B) shall in no way restrict
xxxxxxxxxx.xxx from entering into similar marketing agreements with other
Internet portals and music marketing companies.
C. NON-EXCLUSIVE BASIS FOR SALES OF DIGITAL DOWNLOADS. For the Term, Tunes
agrees that Musicmaker shall be a provider, on a non-exclusive basis, of
digitally downloaded music content, available in formats including, but not
limited to, Microsoft MS-Audio, Liquid Audio and Secure-MP3 ("Digital
Downloads") on the Tunes Websites. Musicmaker shall also have on a
non-exclusive basis the right to provide Digital Downloads of songs which are
sold by Tunes on the Tunes Websites and which are or have been created from
songs delivered to Tunes for promotion, distribution and/or sale on its tunes
Websites by unsigned artists or bands. Musicmaker shall provide Tunes,
subject to any licensing restrictions, with regular access to the Musicmaker
Digital Downloads, for the purposes of creating samples, promotional offers,
etc.
D. CALCULATION OF THE SALES COMMISSION FOR SALES OF CUSTOM CDS AND DIGITAL
DOWNLOADS THROUGH THE TUNES WEBSITES. A sales commission on each online sale
of a Musicmaker Custom CD or digital Download, originated by or through the
tunes Websites, equaling 33 1/3% of the "Net Profits" (as defined below)
shall be paid by Musicmaker to Tunes.
The sales commission shall be paid to Tunes in connection with direct sales
of Custom CDs and Digital Downloads through the Tunes Websites as well as
through special offers, promotions, marketing campaigns directed through the
Tunes Websites to Tunes users/visitors. Payment of sales commissions shall be
made by Musicmaker on a quarterly basis.
E. CALCULATION OF NET PROFITS. Net Profits shall mean all revenues derived by
Musicmaker in connection with the sale of a Musicmaker Custom CD or Digital
Download from sales to users/visitors, originating by or through the Tunes
Websites, less the following amounts.
(i) costs associated with royalty and license payments made by
Musicmaker required in connection with the distribution of Custom CDs and
Digital Downloads, payable to licensors of music content and owners of
copyrights for the sound recordings contained in such Custom CDs and Digital
Downloads.
(ii) actual expenses incurred directly by Musicmaker in performing
the following functions:
(a) manufacturing the Custom CDs to be sold including the
cost of the compact disc, jewel case, packaging; and
(b) processing orders for Custom CDs and Digital Downloads
including but not limited to credit car authorization processing,
fulfillment, billing, collection of payments, tracking, transaction security,
delivery to purchasers and customer service functions;
(iii) mutually agreed-upon promotional and advertising costs
associated with driving users/visitors from Xxxxx.xxx to the musicmaker
website exclusive of the Advertising payments described herein; and
(iv) delivery costs associated with mailing Custom CDs as charged to
the customer.
F. CUSTOMER DATA. Musicmaker and Tunes shall jointly own all user/customer
data gathered in connection with any sales of Custom CDs or Digital Downloads
originated by or through the Tunes Websites. All use of this data would be
subject to any limitations placed on such data by third parties providing
such information. Tunes agrees not to use any of the data on Musicmaker
customers for the purposes of selling Digital Downloads or Custom CDs
competitive in any respect with any Musicmaker's product offerings during the
term of the Marketing Agreement.
G. CO-BRANDING OF DIGITAL DOWNLOAD AND CUSTOM CD SALES AREA. Musicmaker and
Tunes shall work together to quickly develop co-branded pages which will live
within an area dedicated to sales of Custom CDs and Digital Downloads on the
Tunes Websites, to be hosted on Tunes' servers with specific asset links to
Musicmaker digital content for sale and downloading purposes. Individual
streamed samples of all Digital Downloads for sale would be made available to
visitors to the co-branded Digital Download area and, from time to time, on a
mutually agreeable basis entire songs would be made available for
users/visitors to the tunes Websites to download for free either for a
limited time, subsequent to automatic expiration
protections or on some other acceptable basis, all of the above subject to
xxxxxxxxxx.xxx's licensing restrictions.
H. CROSS MARKETING. For the purpose of joint marketing efforts, including
sales promotion activities, Musicmaker and Tunes agree to use their best
efforts to provide (i) each user/visit to Tunes the opportunity to subscribe
to Xxxxxxxxxx.xxx's Custom CD and Downloading programs including free
promotional and club member campaigns and (ii) each user/visitor to
Musicmaker the opportunity to subscribe to various Tunes newsletters and to
receive other notification of Tunes' contests, promotion, etc.
I. TERMINATION. The Marketing Agreement described above shall expire upon
completion of the Term and shall be automatically renewable on a yearly
basis, unless otherwise agreed to by both parties. During the Term and upon a
change in control of Tunes, not including the proposed tunes IPO, Music shall
have the right to terminate the Marketing Agreement on thirty (30) days
written notice. During the Term and upon a change in control of Music, Tunes
shall have the right to terminate the marketing Agreement on thirty (30) days
written notice. Both parties agree that for a reasonable period following
notice of termination by any party, both parties shall continue to provide
reasonable assistance in carrying out the sales transactions for Custom CDs
and Digital Downloads received prior to termination.
3. MISCELLANEOUS.
A. CONFIDENTIALITY. It is acknowledged and agreed by each party that any
confidential information divulged in connection with this Agreement or the
Transactions by one party to the other is in all respects of a confidential
and proprietary nature, and that any disclosure or use of such information by
the recipient, except in connection with the transactions, can and will
involve serious harm or damage to the businesses of the parties. Therefore,
each party covenants that it will not, either directly or indirectly through
any agent, employee or otherwise, disclose any such information (except any
information required by law to be disclosed or generally available to the
public other than as a result of a disclosure in violation of this Agreement)
either in whole or in part to any third party. Without limiting the
generality of the foregoing, each party covenants that it will disclose such
information only to those of its officers, directors, employees, agents,
accountants, attorneys, consultants or any other advisors who need to know
such information in connection with such parties' analysis of the
Transactions.
B. PUBLICITY. Except as required by law or regulation, including in
connection with Tunes' IPO, either of the parties shall, and each shall cause
their respective affiliates, agents, representatives and advisors not to,
make any public announcement or issue any press release with respect to the
Transactions contemplated herein without the prior consent of the other. It
is contemplated that a joint press release be issued immediately following
the consummation of this Letter Agreement.
C. EXPENSES. Each party shall bear its own fees and expenses in connection
with the Transactions contemplated in this Agreement and the implementation
of this Agreement.
D. AMENDMENTS. This Agreement shall not be amended except by written
instrument executed by the parties hereto.
E. COUNTERPARTS. This Agreement may be executed in counterparts.
It is understood that, subject to the satisfaction of the conditions
subsequent to this Agreement set forth in the first paragraph of page one
above, this Agreement sets forth a binding statement of the intentions with
respect to the transactions contemplated herein requiring the parties hereto
to negotiate in good faith in order to execute and deliver definitive
documents embodying the transactions above.
Please confirm your agreement with the foregoing by executing this Agreement
and returning it to Musicmaker.
All of us at Musicmaker are enthusiastic about the transactions
detailed above. We look forward to proceeding as expeditiously as possible
toward their consummation.
Sincerely yours,
xxxxxxxxxx.xxx, Inc.
By:_______________________________
Xxxxxx X. Xxxxxxxx
Chairman and Co-CEO
Agreed as of this 25th day of July 1999:
Xxxxx.xxx INC.
By:_______________________________
Xxxxxx X. Xxxxxxx
Chairman and CEO
