Contract
EX-10.1
2
v020011_ex10-1.htm
Exhibit 10.1
Execution
Copy
ALLIANCE
AGREEMENT
ALLIANCE
AGREEMENT(this “Agreement”), dated
as of May 5, 2005, by and between SSC, Inc., a Delaware corporation
(“SSC”),
E&S International Enterprises, Inc., a California corporation (“ESI”), and
GVI Security Solutions, Inc., a Delaware corporation “GVI”).
R E C I T A L S:
GVI
Security Solutions, Inc. and its subsidiaries (collectively, “GVI”) are
providers of integrated security solutions for the homeland security,
professional, business to business and retail security markets. All consumer
security products now or hereafter licensed by GVI, distributed by or on behalf
of GVI, or manufactured on behalf of GVI are referred to herein as the
“GVI
Products”.
ESI is
the parent company of SSC. ESI and SSC are independent distributors and
suppliers of consumer electronics and appliances to national and regional
retailers. All consumer security products, other than the GVI Products, licensed
by ESI, SSC and/or their affiliates, and/or distributed or manufactured by or on
behalf of ESI, SSC and/or their affiliates, are referred to herein as the
“SSC
Products” and,
the SSC Products and the GVI Products are together referred to herein as the
“Products”.
SSC and
GVI desire to form an alliance (the “Alliance”)
whereby SSC will be responsible for retail sales and distribution of the
Products to all businesses that designate themselves as retailers, all
distributors that sell to retailers, all wholesale and warehouse clubs, and all
direct to consumer sales (the “Retail
Channel”).
NOW,
THEREFORE, the parties hereto agree as follows:
1. Grant.
(a) During
the Term, GVI hereby grants to SSC and its affiliates (i) the
exclusive worldwide right to sell, promote, market and distribute the GVI
Products in the Retail Channel (exclusive of aftermarket sales for retail
customers conducted by GVI in after sales support of SSC’s retail accounts, as
described below); (ii) all
rights of GVI to the brand name Samsung, LG and any other brand names licensed
to GVI for use with the sale of the GVI Products to the Retail Channel (subject
to restrictions in the applicable license and/or distribution agreements to
which GVI is a party); and (iii) any
additional rights GVI may have under agreements to which it is a party relating
to brands and suppliers of GVI Products to the Retail Channel (subject to
restrictions in the applicable agreements), provided,
however, that no
license or rights are granted by GVI to SSC or its affiliates under this Section
1 with respect to any GVI Products that, as of the date of this Agreement, are
held for sale in Europe by L.B.E. Ltd. T/A Partners in Europe
(PIE).
(b) GVI
represents and warrants that it has furnished SSC with true and correct copies
of (i) that certain Distributor Agreement, dated as of August 31, 2004, by and
between Samsung Electronics Co., Ltd. (“Samsung”) and GVI Security, Inc. (the
“Samsung Agreement”), and (ii) that certain agreement, dated as of June 1, 2005,
between LG Electronics, Inc. (“LG”) and GVI (the “LG Agreement”). GVI shall not
amend any provision of the Samsung Agreement or the LG Agreement that relates to
the Products to be distributed hereunder to the Retail Channel without the
approval of SSC, such approval not to be unreasonably withheld. GVI shall not
enter into a new agreement with Samsung, LG or any other manufacturer or
licensor relating to the distribution of Products to the Retail Channel under
this Agreement without SSC’s consent, such consent not to be unreasonably
withheld. GVI shall provide SSC with prompt written notice upon the termination
of the Samsung Agreement, the LG Agreement or any other agreement under which
GVI sells Products to SSC hereunder and/or to which Section 1(a) applies.
Additionally, if GVI receives any notice, or gives any notice, under any of the
foregoing agreements indicating that such Agreement may or will be terminated,
GVI shall promptly notify ESI in writing that such notice has been received or
given, as the case may be.
2. Term. The
term of this Agreement (the “Term”) shall
commence on the date hereof and, unless terminated sooner as provided herein,
continue for the initial period (the “Initial
Term”) of
three (3) years from such date, and thereafter shall be automatically extended
for additional periods of one year (each, a “Renewal
Term”) unless
SSC notifies GVI in writing not less than 90 days prior to the expiration of the
Initial Term or the Renewal Term then in effect that it does not wish to so
renew the Term.
3. Exclusivity.
(a) ESI and
SSC acknowledge and agree that, as of the date hereof, GVI offers and sells a
wide range of security products and services through local, regional
and
national system integrators and distributors who resell products to professional
security providers as well as to end users including airports, seaports,
military installments, high security federal installations, Fortune 500
corporations, casino, gaming and institutional end users (the “Professional
Channel”). ESI
and SSC hereby agree that during the Term (i) they will not sell any Products to
the Professional Channel, (ii) they will use diligent efforts to cause its
distributors to sell Products only to the Retail Channel and not the
Professional Channel, and (iii) that GVI shall have the exclusive right to
continue to sell and distribute Products to the Professional
Channel.
(b) During
the Term, GVI shall not, directly or indirectly, sell, offer for sale, market or
otherwise promote or distribute anywhere in the world GVI Products to the Retail
Channel other than through SSC and its affiliates. Notwithstanding the
foregoing, GVI may effect (i) after market sales of GVI Products to retail
customers in after-sales support of retail accounts of SSC and its affiliates,
and (ii) sales of GVI Products to distributors for the sole purpose of
re-selling such Products to the Professional Channel, provided,
however, that
all of GVI’s direct and indirect sales in the Professional Channel shall be in
accordance with the terms of this Agreement, and GVI will use commercially
reasonable efforts to prevent its customers (including distributors and
representatives), other than SSC and its affiliates, from selling GVI Products
in the Retail Channel, including, without limitation, by promptly discontinuing
sales to such customers. In addition, GVI shall have the right to sell new or
refurbished Products that are returned to GVI from SSC or its customers provided
that GVI grants SSC a right of first refusal to purchase such Products or the
right to disapprove of the sale of such Products to a customer in the Retail
Channel, such disapproval not to be unreasonably made by SSC.
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4. Duties
of the Parties.
(a) SSC
shall, at its own costs and expense, be responsible for the following activities
in connection with the Alliance:
(i) the
promotion and sale of the Products to the Retail Channel (including by
developing relationships with and otherwise marketing and promoting the Products
to retailers and retail customers);
(ii) logistics
and distribution of Products sold by SSC or its affiliates;
(iii) accounting
for the purchase and sales of all Products sold by SSC or its
affiliates;
(iv) subject
to and in accordance with Section 6 hereof, financial support for the Products
sold by SSC or its affiliates, including the funding and issuance of
transferable/discountable letters of credit necessary for the purchase by GVI of
GVI Products for sale by SSC or its affiliates in the Retail Channel, in amounts
up to the Base Cost (defined below) of such GVI Products; and
(v) the
purchase of all new displays (in such numbers and designs as are determined by
SSC in its reasonable discretion and excluding any current display programs),
and the maintenance and stocking of all displays, for the Products.
(b) ESI
hereby guarantees all of the obligations of SSC under this Agreement, including,
without limitation, the obligations of SSC under Section 4(a).
(c) GVI
shall, at its own cost and expense, be responsible for the following activities
in connection with the Alliance.
(i) warranty
and repair services for the Products sold by SSC or its affiliates;
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(ii) after-market
service and support of the Products sold by SSC or its affiliates;
(iii) technical
support of the Products sold by SSC or its affiliates;
(iv) handling
of returns and replacements of the GVI Products sold by SSC or its affiliates,
provided,
however, that
overstocked and unsold products purchased by SSC or its affiliates hereunder
shall not be returnable to GVI; and
(v) the cost
of display programs in place on or prior to November 5, 2004.
5. Pricing.
(a) Subject
to the foregoing, GVI shall sell the GVI Products to SSC and/or its affiliates
at a price (the “Purchase
Price”) equal
to the sum of (i) the Base Cost, and (ii) the Base Cost multiplied by the Markup
(as such terms are defined below). “Base Cost” shall mean the lowest possible
cost at which the applicable Product is purchased from the manufacturer
(exclusive of shipping, customs, duties, warehousing and other incidental
costs). The Markup shall initially equal eight percent (8%) and shall be subject
to downward adjustment, but in no event below zero, in the event SSC’s Gross
Margin (defined below) from all Products SSC and its affiliates sell to the
Retail Channel (including SSC Products) falls below 30% (weighted fully by all
sources of revenue from the Alliance) in any calendar year. The downward
adjustment of the Markup will only be effective upon SSC’s written notice to
GVI, which notice will include financial statements and other documentation SSC
deems appropriate which show in reasonable detail that the Gross Margin from the
sale of all Products for a full calendar quarter was less than 30%. Any downward
adjustment in the Markup shall be in proportion to the decrease in SSC’s Gross
Margin below 30%. For example, if SSC’s Gross Margin falls to 25%, the Markup
would be reduced to 6.7% (i.e., 25%/30% multiplied by 8%).
(b) For
purposes of this Agreement, “Gross Margin” shall mean a fraction, expressed as a
percentage, the numerator of which is the excess of Net Sales over Net Cost of
Goods Sold (inclusive of direct expenses such as product purchase price,
shipping, customs, duties, warehousing and other incidental costs) and the
denominator of which is Net Sales. For purposes of this Agreement, “Net Sales”
and “Net Cost of Goods Sold” shall mean net sales and net cost of goods sold,
respectively, of SSC and its affiliates from sales of Products, computed in a
manner consistent with the previously established sales practices of SSC and its
independent representatives.
6. Product
Purchases and Payment.
(a) SSC shall
issue purchase orders to GVI for all GVI Products that SSC desires to purchase,
which purchase orders shall be deemed to be accepted upon receipt by GVI. Each
purchase order shall be for the amount of the applicable Purchase Price,
consistent with Section 5 of this Agreement. SSC shall be responsible for the
payment of the Base Price to the manufacturer of the GVI Products that are the
subject of such purchase order in accordance with the manufacturers’ terms, as
referenced in Section 6(d) below, and, if required by such manufacturer, SSC
will, at its sole cost and expense, issue a letter of credit in an amount up to
the Base Cost in such form as shall be reasonably requested by such
manufacturer.
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(b) With
respect to sales of all Products (including SSC Products), SSC shall pay to GVI,
within 30 days of its receipt of such Products, an amount equal to the Base Cost
of such Product multiplied by the Markup then in effect.
(c) SSC will
arrange for and directly pay, or at its option, promptly reimburse GVI, for all
costs of shipping, customs, duties, warehousing and other incidental costs with
respect to all GVI Products. All purchases under this Agreement of GVI Products
may be effected by direct contact by SSC or its affiliates with the
manufacturers of such Products, provided,
however, that in
all events, GVI shall be named as the purchaser on all manufacturers’ invoices
and purchase orders, and SSC shall take such other action reasonably requested
by GVI so that GVI is deemed the purchaser of the GVI Products from the
manufacturer; provided further, that
GVI shall cooperate with SSC and take such action reasonably requested by SSC in
connection with SSC’s exercise of any rights and/or remedies that SSC would
otherwise have under the agreements, invoices and/or purchase orders with such
manufacturers if SSC was named as the purchaser of the GVI Products. All
purchases of SSC Products from the manufacturers of such Products (such as Akai)
shall be effected by SSC or its affiliates, and SSC shall promptly report in
writing such purchases to GVI.
(d) SSC shall
have the right to select and source manufacturers of the GVI Products and the
right to negotiate and approve the terms of all agreements with such
manufacturers, provided,
however, that
such terms shall also be subject to the approval of GVI, which approval shall
not be unreasonably withheld or delayed.
7. Warranty
and Service.
(a) GVI shall
be entitled to receive all warranty allowances and rebates provided under its
distribution or manufacturing agreements with vendors. All of such percentages
are to be fully and promptly disclosed in writing to SSC. Except as otherwise
provided in Sections 7(a) and (b), SSC will be entitled to receive all other
rebates on purchases of Products (such as market development fund and early
payment rebates).
(b) GVI
agrees that except for amounts for the current display program (the remaining
cost of which GVI will pay and be entitled to reimbursement from the Samsung
market development fund from products sold through such current display program)
SSC shall be reimbursed for the maximum amount that could be refunded from the
market development fund from Samsung, LG, and others, as the case may be, under
the applicable agreements between GVI and such manufacturers.
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8. Issuance
of Securities.
In
connection with entering into this Agreement and the formation of the Alliance
hereunder, concurrently herewith (i) GVI and ESI shall enter into a subscription
agreement in the form attached hereto as Exhibit
A pursuant
to which ESI shall be entitled to receive additional compensation in the form of
stock and warrants of GVI, and (ii) GVI and Xxxxx Xxxxx shall enter into a
subscription agreement pursuant to which Xxxxx Xxxxx shall be entitled to
receive up to 150,000 shares of GVI common stock.
9. Representations
and Warranties.
(a) Each
party hereby represents and warrants to the other party that: (a) it is a
corporation duly incorporated and validly existing under the laws of the State
or country of its incorporation, (b) that it has all necessary corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder, (c) that the person(s) signing below on its behalf are its duly
authorized representatives and that this Agreement when executed and delivered
will constitute its legal, valid and binding obligation enforceable against it
in accordance with its terms, and (d) it is not bound by any agreement or other
obligation that conflicts with its obligations hereunder, and it shall not enter
into or otherwise become bound by any such agreement or obligation during the
Term.
(b) GVI
further represents and warrants that SSC’s sale of the GVI Products shall not
infringe upon any other party’s rights, and it shall reimburse SSC for SSC’s
costs and expenses arising as a result of GVI’s breach of the representation and
warranty. In addition, GVI, at its sole cost and expense, shall promptly take
such action as may be reasonably necessary from time to time to prevent a
violation of this representation and warranty; provided,
however, that in
addition to all other legal and equitable remedies available to SSC, if any
other person or entity is directly or indirectly selling GVI Products in the
Retail Channel in violation of the terms of this Agreement, then after thirty
(30) days following notification to GVI thereof, SSC may, at its own cost and
expense, undertake efforts to attempt to cause such other person or entity to
cease such activity.
10. Termination;
Effect of Termination.
(a) SSC’s
obligations under this Agreement shall cease and this Agreement shall terminate,
at the option of SSC, exercisable any time after June 30, 2005, if (i) the
Samsung Agreement, as it relates to Sam’s Wholesale Club, is not renewed for at
least one (1) year beyond its current term of December 31, 2005, or if the
Samsung Agreement is not renewed each year thereafter for at least an additional
one (1) year term, on substantially the same terms and for the same territory
and products as currently exists, or (ii) SSC, in its sole discretion, is not
satisfied with the LG products, the terms of the LG Agreement or LG’s
performance. If SSC exercises this option to terminate this Agreement, SSC
agrees not to sell Samsung or LG products in the Retail Channel (other than such
products purchased hereunder prior to such termination) for a period of one (1)
year following the date of termination, provided that GVI is under contract with
Samsung or LG, respectively, throughout the entire one (1) year
period.
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(b) SSC’s
obligations under this Agreement shall also cease and this Agreement shall
terminate, at the option of SSC, exercisable at any time, in the event that (i)
GVI is in bankruptcy proceedings, makes an assignment for the benefit of
creditors or is insolvent (i.e., assets are less than liabilities), (ii) GVI
does not provide commercially reasonable after-sales support as required
hereunder, or (iii) GVI materially breaches this Agreement, the Samsung
Agreement, the LG Agreement or any agreement related hereto or thereto and, in
each case, fails to cure such breach within thirty (30) days after written
notice of such breach is provided to GVI.
(c) Notwithstanding
the termination of this Agreement under this Section 10 or at the end of the
Term pursuant to Section 2 (i) SSC shall remain obligated to pay GVI under
Section 5 of this Agreement for all GVI Products which it receives following
such termination under purchase orders provided by SSC to GVI prior to such
termination, and (ii) following such termination, SSC shall be permitted to
continue to sell all Products purchased by it under this Agreement prior to such
termination.
11. Confidentiality;
Non-Solicitation.
(a) Except as
necessary in the course of performing its obligations hereunder, neither party
shall, at any time during the Term or thereafter, use, divulge, furnish,
disclose or make accessible to any person any confidential information or
knowledge (other than information generally known to the public or the industry)
relating directly or indirectly to the Products or to the business of the other
party.
(b) During
the Term and for a period of (i) two (2) years following the Term with respect
to Costco Wholesale Corporation, BJ’s Wholesale Club, Sam’s Wholesale Club and
Wal-Mart Stores, Inc. and (ii) six (6) months following the Term with respect to
any other retailers, neither GVI nor any of its affiliates shall directly or
indirectly (A) contact, or accept any business from, any customer of SSC or any
of its affiliates other than in connection with contacts initiated by SSC’s
customers for services or after market sales in accordance with the terms of
this Agreement, or (B) solicit or encourage any such party to terminate or
adversely alter in any material respect any relationship such party may have
with SSC or any of its affiliates. In addition, during the Term and for a period
of three (3) years following the Term, neither GVI nor any of its affiliates
shall directly or indirectly (A) solicit or hire any existing or future
employees or consultants of SSC or its affiliates, or (B) solicit or encourage
any such party to terminate or adversely alter in any material respect any
relationship such party may have with SSC or any of its affiliates.
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12. Equitable
Relief. Without
prejudice to the rights and remedies otherwise available to either party, a
party shall be entitled to equitable relief by way of injunction if the other
party breaches or threatens to breach any of the provisions of Sections 3 and
11, without the necessity of proving irreparable harm or posting a bond or other
security.
13. Relationship
Between the Parties. The
relationship between GVI and SSC created by this Agreement is that of
independent contractors and not that of partners, joint venturers, principal and
agent, employer and employee or any similar relationship, and neither party
shall have the right to bind the other based on this Agreement, except as
otherwise provided under Section 6(c) with respect to SSC’s naming of GVI as
purchaser of GVI Products.
14. Notices.
(a) All
notices, requests or instructions required or permitted to be given pursuant to
this Agreement shall be in writing and sufficiently given if delivered in person
or if sent by courier, telecopier or by registered or certified airmail, return
receipt requested, postage prepaid, as follows:
If to
GVI, at:
0000
Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx,
Xxxxx 00000
Telecopier
No.: (000) 000-0000
Attention:
Xxxxxxxxx X. Xxxxxxxx
with a
copy to:
Kronish
Xxxx Xxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Telecopier
No.: (000) 000-0000
Attention:
Xxxxxx Xxxxxx, Esq.
If to SSC
or ESI. at:
0000
Xxxxxx Xxxxxx
Xxxxxx
Xxxx, Xxxxxxxxxx 00000
Telecopier
No.:
Attention:
Xxxxxx Xxxxxxxx
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with a
copy to:
Xxxxxxx
Xxxxxxx Smiley LLP
0000
Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Telecopier
No.: (000) 000-0000
Attention:
Xxxx X. Xxxxx, Esq.
(b) Such
notices, requests or instructions shall be deemed received when given if
delivered in person or sent by telecopier, within 48 hours if sent by courier,
and within five business days if sent by registered or certified airmail. Any of
the above addresses may be changed to such other addresses as shall be
designated by such party hereto by notice given as provided above to the other
party hereto; provided,
however, that
any such notice of change of address shall be effective only upon receipt.
15. Modification. This
Agreement may be changed, amended, terminated, modified, extended or superseded,
or compliance with any term or condition hereof may be waived, only if agreed to
in writing by the parties hereto, or in the case of a waiver, by the party
waiving compliance. No waiver by either party hereto of any provision of this
Agreement shall be deemed a waiver of any other provision hereof or a waiver of
the same provision at any prior or subsequent time.
16. Assignment. SSC may
not assign any of its rights or delegate any of its duties hereunder without
GVI’s prior written consent, which may be granted or withheld in GVI’s sole
discretion. Notwithstanding the foregoing, SSC may assign its rights under this
Agreement and any agreements related hereto to an affiliate of SSC as long as
such affiliate agrees to be bound by the terms of this Agreement. GVI may not
assign any of its rights or delegate any of its duties hereunder without SSC’s
prior written consent, which may be granted or withheld in SSC’s sole
discretion. “Affiliate” shall
mean with respect to any person, any person that directly or indirectly through
one or more intermediaries controls, is controlled by or is under common control
with such person.
17. Severability. If any
provision hereof shall be determined to be invalid or unenforceable in any
respect, that provision shall be deemed deleted and the remaining provisions of
this Agreement shall remain in full force and effect to the fullest extent
possible.
18. Entire
Agreement. This
Agreement, together with the subscription agreement and warrants referred to in
Section 8 of this Agreement, contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supercedes the Memorandum of Understanding, dated as of November 5, 2004,
between GVI and ESI, and that certain Representation Agreement, effective May 2,
2001, by GVI, ESI and Xxxxxx Xxxx.
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19. Governing
Law; Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of New
York, without regard to the conflicts of law principles thereof. EACH PARTY
AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT SHALL BE INITIATED AND PROSECUTED IN THE COURTS HAVING PROPER
SUBJECT-MATTER JURISDICTION LOCATED IN NEW YORK, NEW YORK. EACH OF GVI, SSC AND
ESI CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY
ANY SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER.
20. Counterparts;
Facsimile Signatures. This
Agreement may be executed in two counterparts, both of which shall be deemed an
original, but both of which taken together shall constitute one and the same
instrument. Signed copies of this Agreement transmitted by facsimile will be
accepted by the parties, and the parties shall be entitled to rely upon such
copies as though they bear original signatures.
21.
Attorneys’ Fees. In the
event a party to this Agreement brings any action to enforce any provision
hereof or to secure specific performance hereof or to collect damages of any
kind for any breach of this Agreement, the prevailing party shall be entitled to
all court costs, all expenses arising out of or incurred by reason of the
litigation, and any reasonable attorneys’ fees expended or incurred in any such
proceedings, and all such costs and expenses shall be included in the
judgment.
22. Further
Assurances. Each
party hereto, upon the request of the other party, agrees to perform all further
acts and assurances and execute, acknowledge and deliver all documents and
instruments which may be reasonably necessary, appropriate or desirable to carry
out the provisions and intent of this Agreement.
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IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement or caused
the same to be duly executed on the date first above written.
E&S
INTERNATIONAL ENTERPRISES, INC.
By:__________________________________
Name:
Title:
SSC,
INC.
By:_________________________________
Name:
Title:
GVI
SECURITY SOLUTIONS, INC.
By:_________________________________
Name:
Title:
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