Exhibit 2.1
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is executed as of this 1st
day of July, 1999 (the "Effective Date") by and among VALLEY MEDIA, INC., a
Delaware corporation ("Valley"), VALLEY ENTERTAINMENT, INC., a Delaware
corporation ("VE") and BARNET X. XXXXX, an individual ("Xx. Xxxxx").
In consideration of the mutual promises and covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Capital Contributions. Valley and the persons listed on Exhibit A
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hereto (each a "Stockholder" and collectively the "Stockholders"), which is
incorporated herein by this reference, will make capital contributions to VE in
return for shares of VE's common stock as follows:
1.1 Transfer of Assets.
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(a) At the same time the parties enter into this Agreement,
Valley and VE will enter into an Assignment and Assumption Agreement in the form
attached hereto as Exhibit B (the "Assignment Agreement"), which is incorporated
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herein by this reference, and Valley will execute and deliver a Trademark
Transfer and Assignment in the form attached hereto as Exhibit C (the "Trademark
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Assignment"), which is incorporated herein by this reference, pursuant to which
Valley will assign the assets (the "Assigned Assets") of its Valley
Entertainment division ("Old VE") to VE and VE will assume the liabilities of
Old VE (the "Assumed Liabilities").
(b) In return for receiving the Assigned Assets, VE will issue
19 shares of its common stock to Valley.
1.2 Payment of Cash.
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(a) The Stockholders will transfer to VE a total of $1,620,000
in cash (the "Cash Contribution") in the respective amounts set forth opposite
their names on Exhibit A.
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(b) In return for receiving the Cash Contribution, VE will issue
81 shares of its common stock to the Stockholders in the respective amounts set
forth opposite their names on Exhibit A.
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1.3 Sub-Lease.
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(a) Pursuant to the Assignment Agreement, Valley is assigning to
VE its rights under that certain Lease dated May 1, 1997 between Valley and
Xxxxxx Group for the premises commonly known as 0000 Xxxxxx Xxxxxx, Xxxx #000,
Xxxxx Xx, Xxx Xxxxxx (the "Premises"). For the period beginning July 1, 1999 and
ending January 1, 2000 (the "Sublease Period"), VE will sublease to Valley that
portion of the Premises currently occupied by Valley employees not primarily
engaged in the business of Old VE. During the Sublease Period, Valley will pay
VE a monthly fee of $2,600.00 (the "Monthly Sublease Fee") to cover Valley's
portion of rent expenses and other occupancy costs for the Premises.
(b) If Valley wishes to terminate its sublease of the Premises prior
to January 1, 2000, it may do so by notifying VE of such termination; provided,
however, that, in the event of any such termination, Valley will be required to
pay the Monthly Sublease Fee in full for the month during which the termination
notice is received by VE.
1.4 Post-Closing Adjustments.
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(a) The independent firm of Xxxxxxxx Xxxxx Xxxxxx & Xxxxx ("Xxxxxxxx
Xxxxx") has calculated the fair market value of the Assigned Assets, less the
Assumed Liabilities, as set forth on Exhibit D hereto (the "Fair Market Value"),
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which is incorporated herein by this reference
(b) Within 15 days of the Effective Date, Valley will deliver to VE a
schedule substantially in the form attached hereto as Exhibit E, which is
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incorporated herein by this reference, setting forth the net book value of the
Assigned Assets, less the amount of the Assumed Liabilities, as of July 3, 1999
(the "Net Book Value").
(c) On August 1, 1999, VE will make a payment to Valley (the "Excess
Payment") in an amount equal to the amount, if any, by which the value of the
Assigned Assets less the amount of the Assumed Liabilities (the "Net Asset
Value") exceeds $380,000. For purposes of this Agreement, the Net Asset Value
will be equal to the greater of (i) the Fair Market Value or (ii) the sum of the
Net Book Value and the amount of all net losses incurred by Old VE during the
first quarter of Valley's 2000 fiscal year ("Fiscal 2000"). For purposes of the
foregoing calculation, Old VE's losses during the first quarter of Fiscal 2000
will include the cost of retaining Xxxxxxxx Xxxxx to calculate the Fair Market
Value.
(d) VE may, at its election, make the Excess Payment in cash or by
delivering a promissory note to Valley in substantially in the form attached
hereto as Exhibit F-1 (the "Note"), which is incorporated herein by this
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reference, in a principal amount equal to the amount of the Excess Payment. If
VE elects to make the Excess Payment by delivering the Note, Xx. Xxxxx will
personally guarantee VE's obligations under the Note in substantially in the
form attached hereto as Exhibit F-2, which is incorporated herein by this
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reference.
(e) The amount of the Assumed Liabilities as set forth in Exhibit E
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will be based on the amount accrued by Valley for the Assumed Liabilities as of
the Effective Date. Within 90 days of the Effective Date, Valley will submit a
report to VE (the "Reconciliation Report") setting forth any adjustments that
need to be made to reconcile the actual amounts of the Assumed Liabilities with
the amounts accrued by Valley. To the extent the actual amounts of the Assumed
Liabilities exceed the amounts accrued by Valley, Valley will reimburse VE for
the difference. To the extent the amounts accrued by Valley exceed the actual
amounts of the Assumed Liabilities, VE will reimburse Valley for the difference.
Payment by either party under this Section 1.4(e) will be made by bank wire
transfer within three days of the date on which VE receives the Reconciliation
Report.
1.5 Transfer Taxes. Valley and VE will each be responsible for and
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pay an equal portion of all applicable state, foreign and local sales, transfer,
excise, value added, use or other similar taxes, as well as all recording and
filing fees ("Transfer Taxes") that are payable by reason of the assignments and
assumptions contemplated hereby; provided, however, that VE will not be
responsible for any of Valley's income and capital gains taxes or franchise or
other taxes based on Valley's income, which will be the sole responsibility of
Valley, and Valley will not be responsible for any of VE's income
and capital gains taxes or franchise or other taxes based on VE's income, which
will be the sole responsibility of VE. Valley will be responsible for preparing
and filing all tax returns with respect to the Transfer Taxes.
2. Ancillary Agreements. On or about the time the parties enter into
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this Agreement, they will enter into the following ancillary agreements:
(a) The Assignment Agreement;
(b) The Trademark Assignment;
(c) An Administrative Services Agreement in the form attached hereto
as Exhibit G (the "Administrative Services Agreement"), which is incorporated
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herein by this reference;
(d) A Distribution Agreement in substantially the form attached
hereto as Exhibit H, which is incorporated herein by this reference (the
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"Distribution Agreement"); and
(e) A Termination Agreement between Valley and Xxxxxxx Xxxxxxx in
the form attached hereto as Exhibit I, which is incorporated herein by this
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reference (the "Termination Agreement").
3. Representations and Warranties of Valley. To induce VE and Xx. Xxxxx
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to enter into this Agreement and to perform the transactions contemplated
hereunder, Valley represents as follows:
3.1 Organization. Valley is a corporation duly organized, validly
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existing and in good standing under the laws of the state of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties, including the Assigned Assets, and to carry on its business as now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or the
leasing of its properties makes such qualification necessary, unless the failure
to be so qualified would not have a material adverse effect on the Assigned
Assets or the business of Old VE (the "Business").
3.2 Authority; Consents and Approvals; No Violations. Valley has
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the full corporate power and authority and legal right to execute and deliver
this Agreement and all other agreements, instruments or other documents executed
by Valley in connection therewith (the "Valley Documents"), to transfer the
Assigned Assets and Assumed Liabilities pursuant to this Agreement, and
otherwise to perform its obligations hereunder and under the Valley Documents.
The execution and delivery of this Agreement and the Valley Documents has been
duly authorized by Valley's Board of Directors, and no other proceeding or
action on the part of Valley is necessary to authorize this Agreement, the
transfer of the Assigned Assets and Assumed Liabilities hereunder or the other
transactions contemplated hereby. This Agreement and each of the Valley
Documents has been validly executed and delivered by Valley and will constitute
a valid and binding obligation of Valley enforceable in accordance with its
terms, except to the extent such enforceability may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and by the effect of general principles
of equitable law, regardless of whether such enforceability is considered in a
proceeding in equity or at law. No permit, authorization, consent or approval
of, or declaration or filing with any public body, agency, court or authority is
necessary for the lawful, proper and valid consummation by Valley of the other
transactions contemplated hereby. The
execution and delivery of this Agreement and the Valley Documents, the transfer
of the Assigned Assets and Assumed Liabilities, and the consummation of the
other transactions and matters contemplated hereby and thereby do not and will
not violate any provision of Valley's Certificate of Incorporation or Bylaws,
any statute, rule or regulation, any order or decree of any public body, agency,
court or authority by which Valley or any of its properties is bound, or
violate, conflict with, result in a breach of or constitute (with or without due
notice, lapse of time or both) a default under any agreement, license, contract,
franchise, permit, indenture, lease, or other instrument to which Valley is a
party, or by which it or any of the Assigned Assets are bound.
3.3 Contracts.
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(a) To the knowledge and belief of Valley after due
investigation and inquiry, Schedule 3.3 hereto, which is incorporated herein by
this reference, contains a true and complete listing of the following as they
relate to Valley, the Assigned Assets or the Business:
(1) All contracts, agreements or other commitments to which
Valley is a party or by which it or its property is bound which involve the
Business or which may materially affect any of the Assigned Assets in the
future;
(2) All leases, options to purchase, or agreements to lease
or purchase any property which is part of the Assigned Assets;
(3) All property that is part of the Assigned Assets that is
used by Valley but not owned by Valley, except for property held under a lease
disclosed in Schedule 3.3 pursuant to Section 3.3(a)(2);
(4) All permits (including second class mailing permits),
licenses, franchises, authorizations, approvals and other certificates of
authority held by Valley to the extent the same is required or useful for the
conduct of the Business;
(5) All patents, registered or unregistered trademarks,
trade names, registered copyrights and internet domain names, and all pending
applications which are part of the Assigned Assets or used in the Business;
(6) All written employment, consulting or independent
contractor agreements and a summary of all such agreements that are oral (other
than oral agreements containing no terms other than employment at will) between
Valley and persons primarily engaged in, or providing services to Valley with
respect to, the Business; and
(7) Any other agreement or instrument to which Valley is a
party and which is material to the Business, or with respect to which a default
thereunder would materially or adversely affect the Business; and
(b) Except as may be disclosed in Schedule 3.3, Valley is not in
default under any contract or agreement that is included in the Assigned Assets
or is material to the Business.
3.4 Agreements with Respect to Assets. Other than this Agreement,
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there are no existing options, rights, contracts, commitments, understandings,
arrangements, or executory agreements of any nature to which Valley is a party
or by which it is bound relating to the sale, delivery, lease (as lessor) or
transfer of any of the Assigned Assets, except with respect to inventory sold in
the ordinary course of business.
3.5 Employee Matters. Schedule 3.5, which is incorporated herein by
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this reference, contains the name, residence address, social security number,
job description and current rate of compensation of each person who, immediately
prior to the Effective Date, was employed by Valley and was engaged primarily in
the Business (collectively, the "Old VE Employees"). Except as disclosed in
Schedule 3.5: (a) to Valley's knowledge, none of the Old VE Employees is
represented by any union or other labor organization; (b) there is no unfair
labor practice charge pending or, to Valley's knowledge, threatened against
Valley relating to any of the Old VE Employees; (c) there is no labor strike,
dispute, slowdown or stoppage relating to any of the Old VE Employees actually
pending or, to Valley's knowledge, threatened against or involving Valley; (d)
no labor grievance relating to any of the Old VE Employees is pending against
Valley; and (e) Valley has not in the past three years experienced any work
stoppage or organizational activity relating to the Old VE Employees. Subject
to the execution of the Termination Agreement, the termination of any VE
Employee as a result of the transactions contemplated by this Agreement will not
breach or result in a claim or cause of action arising under any written or oral
employment agreement, other than the obligation to pay all wages and benefits
accrued through the Effective Date.
3.6 Legal Compliance. There is no litigation or administrative or
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judicial proceedings of any nature involving the Assigned Assets or the Business
that is pending or, to Valley's knowledge, threatened. To Valley's knowledge,
there are no other facts or circumstances that are likely to result in any
future civil, administrative or criminal claim or proceeding against the
Assigned Assets or the Business. To Valley's knowledge, Valley has operated and
is presently operating the Business in material compliance with all conditions
and requirements of all applicable federal, state and local laws, statutes,
ordinances, rules, regulations, permits, licenses, certificates and other
authorizations.
3.7 Ownership of Assets. Valley has good and marketable title to, or
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a valid leasehold interest in, all of the Assigned Assets, and all of the
Assigned Assets are owned or held free and clear of all title defects or
objections, mortgages, claims, liens, pledges, charges, security interests, co-
ownership interests, options to purchase or other encumbrances of any kind or
character, except liens for current taxes, assessments and governmental charges
not yet due and payable.
3.8 Broker. No agent, broker or other person acting pursuant to
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authority of Valley is entitled to any commission or finder's fee in connection
with this Agreement or the transactions contemplated hereby.
3.9 No Untrue Statement. No representation or warranty by Valley in
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this Agreement or any instrument, certificate, exhibit, schedule or list
attached hereto or furnished or to be furnished by Valley pursuant to the terms
of this Agreement, contains or will contain any untrue statement of a material
fact. Valley acknowledges that the Stockholders and VE are entering into this
Agreement in reliance upon Valley's representations, warranties and covenants
made in this Agreement.
4. Representations and Warranties of The Stockholders. To induce Valley
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to enter into this Agreement and to consummate the transactions contemplated
hereunder, Xx. Xxxxx represents and warrants to, and covenants with, Valley as
follows.
4.1 Authority; Consents and Approvals; No Violation. This Agreement
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has been duly and validly executed and delivered by Xx. Xxxxx and constitutes a
valid and binding obligation of his enforceable in accordance with its terms
except to the extent such enforcement may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally, and by the effect
of general principles of equitable law, regardless of whether such
enforceability is considered in a proceeding in equity or at law. No permit,
authorization, consent or approval of any public body or authority within the
United States is necessary for the consummation by Xx. Xxxxx of the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, will not violate any
provision of any statute, rule, regulation, order or decree of any public body
or authority by which Xx. Xxxxx is bound, or conflict with, result in a breach
of or constitute (with or without due notice, lapse of time or both) a default
under any license, franchise, permit, indenture, agreement or other instrument
to which Xx. Xxxxx is a party, or by which he or any of his properties is bound.
4.2 Broker. No agent, broker or other person acting pursuant to
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authority of Xx. Xxxxx is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement.
5. Representations and Warranties of VE. To induce Valley to enter into
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this Agreement and to perform the transactions contemplated hereunder, VE
represents as follows:
5.1 Organization. VE is a corporation duly organized, validly
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existing and in good standing under the laws of the state of Delaware.
5.2 Authority; Consents and Approvals; No Violations. VE has the
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full corporate power and authority and legal right to execute and deliver this
Agreement and all other agreements, instruments or other documents executed by
VE in connection therewith (the "VE Documents"), and otherwise to perform its
obligations hereunder and under the VE Documents. The execution and delivery of
this Agreement and the VE Documents has been duly authorized by VE's Board of
Directors, and no other proceeding or action on the part of VE is necessary to
authorize this Agreement or the transactions contemplated hereby. This
Agreement and each of the VE Documents has been validly executed and delivered
by VE and will constitute a valid and binding obligation of VE enforceable in
accordance with its terms, except to the extent such enforcement may be limited
by the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, and by the effect of general
principles of equitable law, regardless of whether such enforceability is
considered in a proceeding in equity or at law. No permit, authorization,
consent or approval of, or declaration or filing with any public body, agency,
court or authority is necessary for the lawful, proper and valid consummation by
VE of the transactions contemplated hereby. The execution and delivery of this
Agreement and the VE Documents and the consummation of the transactions and
matters contemplated hereby and thereby do not and will not violate any
provision of VE's Certificate of Incorporation or Bylaws, any statute, rule or
regulation, any order or decree of any public body, agency, court or authority
by which VE or any of its properties is bound, or violate, conflict with, result
in a breach of or constitute (with or without due notice, lapse of time or both)
a default under any agreement,
license, contract, franchise, permit, indenture, lease, or other instrument to
which VE is a party, or by which it or any of its assets are bound.
5.3 Broker. No agent, broker or other person acting pursuant to
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authority of VE is entitled to any commission or finder's fee in connection with
the transactions contemplated by this Agreement.
6. Employment Matters. As of the Effective Date, all of the Old VE
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Employees will cease to be employees of Valley and will cease to be eligible to
participate in Valley's 1994 Stock Option Plan, 1997 Stock Option Plan, Employee
Stock Ownership Plan, 401(k) Plan and any successor to any of such plans;
provided, however, that nothing in this Section 6 will terminate or otherwise
impair any post-termination rights of the Old VE Employees under any of such
plans.
7. Assets Sold as Is. Subject to the representations and warranties of
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Valley set forth in Section 3, the parties agree that the Assigned Assets are
transferred from Valley to VE "as is," and Valley expressly disclaims any
express or implied warranties, including warranties of merchantability and
fitness for a particular purpose, with respect to the Assigned Assets.
8. Indemnification.
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(a) VE will indemnify, defend and hold Valley harmless from, against
and in respect of all claims against Valley relating to any liabilities that
arise from VE's ownership of the Assigned Assets or its operation of the
Business on or after the Effective Date. In addition, VE will indemnify, defend
and hold Valley harmless from, against and in respect of all claims against
Valley relating to any liabilities that arise with respect to that certain
Employment Agreement, dated December 7, 1998, between Valley and Xxxxxxx
Xxxxxxx.
(b) Valley will indemnify, defend and hold VE harmless from, against
and in respect of all claims against VE relating to any liabilities that arise
from Valley's ownership of the Assigned Assets or its operation of the Business
prior to the Effective Date, except to the extent such liabilities are included
among the Assumed Liabilities.
9. Miscellaneous.
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9.1 Survival of Representations and Warranties. All of the
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respective representations, warranties, covenants and agreements of the parties
to this Agreement shall survive the consummation of the transactions
contemplated hereby for a period of twelve months.
9.2 Further Assurances. In addition to the obligations required to
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be performed by the parties hereto under the other provisions of this Agreement,
the parties agree to perform, without further consideration, such other acts and
to execute, file, acknowledge and deliver such other instruments and documents,
including without limitation UCC termination statements, as may be reasonably
required to carry out the provisions and purposes of this Agreement and to fully
and properly consummate the transactions contemplated hereby.
9.3 Amendment and Termination. No amendment, modification,
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termination or cancellation of this Agreement will be effective unless set forth
in a writing signed by an authorized representative of the party against which
enforcement of such amendment is sought. No waiver of any provision of this
Agreement will be deemed or will constitute a waiver of any other provision of
this Agreement or any subsequent waiver of the same provision.
9.4 Notices. Any notice to a party pursuant to this Agreement shall
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be given by one of the following means: (a) certified or registered United
States mail, postage prepaid, (b) private courier or express service requesting
evidence of receipt as a part of its service, or (c) by telecopy, with a copy
also to be given by first class United States mail, postage prepaid, or by any
means permitted under subparagraphs (a) or (b) of this section. Notices shall
be given to the parties at the following addressees:
If to Valley: Valley Media, Inc.
0000 Xxxxx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxx
Fax Number: (000) 000-0000
If to Xx. Xxxxx or
VE: Barnet X. Xxxxx
Valley Entertainment, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xx, Xxx Xxxxxx 00000
Fax Number: (000) 000-0000
with a mandatory copy to:
Xxxx Xxxxx, Esq.
Rosenman & Colin LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Fax Number: (000) 000-0000
9.5 Binding Effect. Upon execution hereof by all parties hereto,
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this Agreement shall inure to the benefit of, be binding on and be enforceable
against the parties and their respective heirs, legal representatives,
successors and assigns.
9.6 Entire Agreement. This Agreement (including the exhibits and
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schedules hereto) and the instruments and documents delivered pursuant hereto,
together with (a) the Administrative Services Agreement, (b) the Assignment
Agreement, (c) the Trademark Assignment, (d) the Distribution Agreement, (e) the
Termination Agreement, and (f) that certain Stockholders' Agreement, dated as of
the Effective Date, by and among Valley, VE and the Stockholders, constitute the
entire agreement and understanding between the parties with respect to the
subject matter hereof, and supersede any prior or contemporaneous agreements or
understandings relating to the subject matter hereof, whether written or oral.
9.7 Counterparts. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument.
9.8 Attorneys' Fees. If any arbitration, legal action or other
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proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it, he,
she or they may be entitled.
9.9 Headings. The headings of the paragraphs and sections of this
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Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any provisions hereunder.
9.10 Partial Invalidity. The invalidity of any part or provision of
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this Agreement will not affect the enforceability of the remainder of the
Agreement.
9.11 Governing Law. This Agreement will be governed by and
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construed in accordance with the substantive laws of the State of California
applicable to contracts entered into and performed entirely within that state.
In witness whereof, the parties have executed this Contribution Agreement
as of the Effective Date.
VALLEY MEDIA, INC. VALLEY ENTERTAINMENT, INC.
/s/ J. Xxxxxxxx Xxxx /s/ Barnet X. Xxxxx
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By: J. Xxxxxxxx Xxxx By: Barnet X. Xxxxx
Its: Senior Vice President Its: President
and Chief Financial Officer
/s/ Barnet X. Xxxxx
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BARNET X. XXXXX
