Exhibit 10.7
AMENDMENT NO. 2 TO DISTRIBUTION
AND FULFILLMENT SERVICES AGREEMENT
THIS AMENDMENT NO. 2 ("Second Amendment"), is effective as of
July 2, 2002, by and between Cricket Communications, Inc. ("Cricket"), successor
in interest to Chase Telecommunications, Inc., a Delaware corporation, and
CellStar, Ltd. ("CellStar"), a Texas limited partnership.
WITNESSETH:
WHEREAS, Cricket and CellStar are parties to that certain Distribution and
Fulfillment Services Agreement, effective as of December 22, 1999, as amended by
Amendment No. 1, effective as of September 21, 2001, and as extended by letter
dated January 15, 2002 (collectively, the "Agreement"), pursuant to which
CellStar provides distribution, fulfillment and logistics services to facilitate
the sale and distribution of mobile phone handsets and accessories to Cricket
and its customers;
WHEREAS, the Agreement contemplated that CellStar would provide certain
services under a standard business model developed by the parties to meet the
requirements of Cricket's dealers and distributors as of the date of the
Agreement;
WHEREAS, Cricket's business has since expanded to include sales
opportunities with large national retailers and discount chains whose payment
practices and operating procedures may require CellStar to implement new
procedures and/or incur additional costs, expenses, fees, deductions,
chargebacks, returns or liabilities over and above those included in the
original business model contemplated in the Agreement; and
WHEREAS, the parties desire to modify and set out their respective
obligations with respect to such customers and their requirements.
NOW, THEREFORE, in consideration of mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. For purposes of this Second Amendment only, the
following defined terms shall apply:
"Added Services" means any services not listed on Exhibit A of the
Agreement.
"Agreement" is defined in the first recital paragraph above.
"Mass Merchant" means those Cricket dealers and distributors that are the
subject of a separate Merchant Addendum and sales to whom would require CellStar
to: (i) perform Added Services, (ii) implement new procedures; (iii) incur
additional costs, expenses or fees in providing Standard Services or Added
Services, and/or (iv) be subject to potential costs, penalties, charge-backs,
deductions, returns or liabilities in excess of those allocated for the Standard
Services. Mass Merchants could include, without limitation: Wal-Mart, McLane,
Best Buy, AutoZone, Office Depot, Staples, Kroger and such other parties as may
from time to time be designated as Mass Merchants as mutually agreed in writing
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between Cricket and CellStar as a result of the terms and conditions contained
in such Mass Merchant's Vendor Requirements.
"Merchant Addendum" is defined in Section 3.4 below.
"Merchant Deducts" means any and all (i) fees, costs or expenses imposed,
charged, billed, invoiced to CellStar by any Mass Merchant, or (ii) amounts
deducted by any Mass Merchant from amounts validly invoiced by CellStar,
including without limitation fees, costs, expenses and amounts deducted for
freight, insurance, unauthorized returns, handling fees for authorized or
unauthorized returns, freight or insurance charges for returns, defective
product allowances, unauthorized charge-backs, or any other items resulting in
payments to CellStar of less than the full amount validly invoiced by CellStar
to such Mass Merchant but in each case only as mutually agreed upon in advance
by Cricket and Cellstar with respect to each Mass Merchant in the applicable
Merchant Addendum.
"Second Amendment" means this Amendment No. 2 to the Agreement.
"Standard Services" means the Services set forth on Exhibit A of the
Agreement.
"Vendor Requirements" means any policy, procedure, practice, custom or
requirement of any Mass Merchant, including any risk, duty, obligation or
liability assumed or undertaken by CellStar in compliance with, or in order for
CellStar to comply with such Mass Merchant's terms, conditions or requirements
for sales to such Mass Merchant, as set out in a written agreement executed by
CellStar and such Mass Merchant, under which CellStar is to provide distribution
and fulfillment services on behalf and for the benefit of only Cricket and that
do not constitute part of the Standard Services, but only after Cricket has
reviewed an unredacted copy of such written agreement and provided CellStar with
acceptance of such terms in the form of the applicable Merchant Addendum. An
example of a Vendor Requirement includes, by way of illustration only and not
for purposes of limitation, a requirement that CellStar indemnify a Mass
Merchant for product liability or intellectual property infringement claims,
which indemnification obligation is beyond or outside the scope of CellStar's
standard indemnity provided in the Standard Services or as routinely provided to
other customers of CellStar.
All other capitalized terms used but not defined herein shall have the
meanings assigned thereto in the Agreement.
SECTION 2. Amended Provisions. The provisions of this Second Amendment are
intended to amend and supercede any provision of the Agreement that is
inconsistent or in conflict with this Second Amendment, including without
limitation, inconsistent or conflicting portions of Sections 3 and 10 of the
Agreement. In the event of a conflict between the provisions of the Agreement
and this Second Amendment, the provisions of this Second Amendment shall
control.
SECTION 3. Sales and Distribution to Mass Merchants; Indemnification by
Cricket.
3.1 Indemnification by Cricket.
(a) To induce CellStar to fulfill and ship Products to Mass Merchants
and comply with the Vendor Requirements, Cricket hereby agrees, subject to the
provisions of Section 3.5 hereof and the terms and conditions set forth in this
Second Amendment and the corresponding Merchant Addendum, to indemnify and hold
CellStar harmless for any and all costs, losses, fees, expenses, penalties,
deductions, reduced payments, chargebacks, excessive or unauthorized returns
and/or discounts and any liabilities incurred or to which CellStar becomes
subject as a result of entering into agreements and/or conducting sales
transactions with Mass Merchants at the request or for the benefit of Cricket as
contemplated in the applicable Merchant Addendum (collectively, the "Charges"),
including
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without limitation, Merchant Deducts, but only to the extent such Charges arise
out of Cellstar providing services that do not constitute Standard Services and
are not incurred solely as a result of CellStar's error or omission, provided,
however, that Cricket shall not be liable under this Section for any such
Charges that result from or are caused by CellStar's breach of contract,
negligence or intentional misconduct, for which CellStar shall indemnify, defend
and hold Cricket harmless. The indemnification obligations in this Section shall
survive the termination or expiration of the Agreement for a period of one (1)
year.
(b) With respect to any amount for which CellStar claims
indemnification from Cricket, CellStar shall provide to Cricket appropriate
supporting documentation as reasonably requested by Cricket, such as (i) proof
of delivery of Products invoiced to the Mass Merchant; (ii) copies of invoices
supporting the existence of the Merchant Deduct and/or Vendor Requirement; (iii)
copies of correspondence and other documentation, if any, documenting CellStar's
attempts to collect for or reverse the Merchant Deduct or Vendor Requirement and
that such attempts have not been successful, (iv) any other supporting
documentation reasonably requested by Cricket.
3.2 Fulfillment by CellStar. In consideration for Cricket's agreement
to indemnify CellStar in Section 3.1 hereof, and in reliance thereon, upon
Cricket's written request and subject to the terms and conditions of the
Agreement as modified by this Second Amendment, CellStar agrees to enter into
and perform under vendor agreements with Mass Merchants for the sale and
distribution of Cricket Products to such Mass Merchants. Notwithstanding the
foregoing, CellStar shall not be obligated to execute any agreement with, or
accept or fulfill any purchase order from, a Mass Merchant unless and until
transactions with that Mass Merchant are made subject to the Agreement, as
amended by this Second Amendment, by execution of a Merchant Addendum, as
defined below.
3.3. New Account Review and Initiation. Cricket will notify CellStar
of each new Mass Merchant prospect selected by Cricket ("Prospect"), and will
provide CellStar with such Prospect's forms of vendor agreements, guidelines,
procedures, manuals and other relevant documents and materials governing such
Mass Merchant's packaging, labeling, invoicing, payment, shipping and other
Vendor Requirements, ("Forms"). Within seven (7) days of receipt from Cricket,
CellStar will review the Prospect's Forms and advise Cricket in writing of: (i)
any Added Services and the price at which CellStar will perform them; (ii) the
type or nature and estimated amount of any anticipated Merchant Deducts; and
(iii) the scope and anticipated costs associated with any Vendor Requirements.
Cricket and Cellstar acknowledge and agree that such estimated amounts or
anticipated costs shall be reasonable estimates only.
3.4 Merchant Addendum. CellStar and Cricket shall work together in
good faith to agree upon the specific terms and conditions for sales and
shipments to each Mass Merchant Prospect, including, without limitation, the
pricing for any Cellstar charges related to Vendor Requirements. The final
agreement between Cricket and Cellstar with respect to each Mass Merchant
Prospect shall be set forth in a separate written document ("Merchant Addendum")
which, upon execution by Cricket and CellStar, shall be subject to the terms and
conditions of the Agreement and this Second Amendment.
3.5 Exceptions to Cricket's Indemnification Obligation.
(a) Cricket shall not be obligated to indemnify CellStar for:
(i) any Merchant Deduct that is attributable to or arises from
an event or condition for which anyone or more of CellStar or CellStar's
employees, agents or subcontractors are responsible; or
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(ii) any item for which CellStar was directly at fault in
failing to comply with terms and conditions that were agreed upon in
advance by CellStar and Cricket with respect to any Mass Merchant.
SECTION 4. Invoicing and Payment.
4.1 Obligations of Cricket. Cricket shall be responsible for
informing all Mass Merchants of any price changes. Penalties assessed or amounts
deducted by a Mass Merchant due to improper price notification will be charged
to Cricket without any attempt by CellStar to have the Mass Merchant reverse the
assessment or deduction. Cricket must reasonably notify CellStar prior to a
change in any Uniform Product Code (UPC) and upon introduction of any new
Product. Cricket shall provide assistance to Cellstar to obtain the consent of
each Mass Merchant for CellStar to provide to Cricket information on the aging
and past due status of such Mass Merchant's outstanding invoices. CellStar shall
not be obligated to provide such information, or copies of outstanding invoices,
unless and until CellStar has received written consent of the Mass Merchant for
such disclosure.
4.2 Monthly Invoice and Reconciliation. CellStar will invoice Cricket
monthly for amounts due to CellStar from Cricket pursuant to this Second
Amendment. Invoiced amounts shall not include any additional administrative fee
or other costs or fees incurred in connection with applicable Merchant Deducts
or Vendor Requirements, except as permitted by the applicable Merchant Addendum.
Each invoice will include an itemized reconciliation of amounts invoiced,
amounts collected and amounts outstanding from each Mass Merchant as of the date
of the invoice, in a format to be agreed upon between Cricket and CellStar.
Invoices will be due and payable after review and approval by Cricket, but in no
event later than thirty (30) days from the date of the invoice.
SECTION 5. Transfer of Title and Risk of Loss. Notwithstanding any other
provision in the Agreement, this Second Amendment, any Merchant Addendum, any
vendor terms and conditions or purchase order requirements issued or imposed by
any Mass Merchant, or in any other document, agreement or instrument by and
between CellStar and any Mass Merchant or Cricket, or by and between Cricket and
any Mass Merchant or CellStar, the parties understand and agree that title to
and risk of loss for all Product shipped by CellStar to any Mass Merchant under
the Agreement or this Second Amendment shall pass to the Mass Merchant upon
submission by CellStar of an invoice for such Product. If CellStar procures
insurance coverage for any Product shipped to a Mass Merchant, CellStar shall be
entitled to recoup such insurance cost, without xxxx-up, in the invoice
submitted to Cricket therefor, unless the Mass Merchant agrees to pay for said
insurance. All claims for lost Product or shipping damage to Product shall be
the sole responsibility of the Mass Merchants and Cricket, but only to the
extent the benefit of the insurance procured by Cellstar inures to the direct
benefit of Mass Merchant and Cricket, and such insurance is sufficient to cover
the full replacement cost of the damaged or lost Product. CellStar shall provide
any reasonably requested assistance to Cricket in Cricket's pursuit of any such
claims.
SECTION 6. Payments Held in Trust. If Cricket should receive in error any
payment due CellStar from any Mass Merchant on any account receivable or other
obligation due to CellStar, Cricket shall promptly notify CellStar of the
receipt of such funds, hold such funds in trust for the sole and exclusive
benefit of CellStar, and pay over to CellStar such funds on demand by CellStar,
provided that if Cricket is aware of the Mass Merchant's mispayment then Cricket
shall pay such amounts over to CellStar no later than the tenth (10th) day from
the date of receipt of such funds.
SECTION 7. No Violation. Each party hereby confirms that nothing in the
Agreement, this Second Amendment or any of the transactions contemplated hereby,
would constitute a breach or give rise to a default under any of its material
agreements with its creditors, lenders or any other third party.
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SECTION 8. All Other Provisions of Agreement Unaffected. Except as
specifically modified by this Second Amendment, all other terms and conditions
contained in the Agreement shall remain in full force and effect. Nothing herein
shall be construed as invalidating or in any way effecting the parties' mutual
commitments and obligations under their prior management of sales and shipments
to any Mass Merchant notwithstanding the absence of any specific agreement in
writing covering that management or that such occurred prior to the effective
date of this Second Amendment.
SECTION 9. Security Interest in Mobile Phone Handsets. Cricket has granted
a security interest in substantially all of its property to State Street Bank
and Trust Company, as collateral agent ("State Street"), under that certain
Security Agreement, dated as of November 24, 1999, among Cricket, the other
parties thereto, and State Street (the "Security Agreement"). The collateral
relating to such security interest includes all of Cricket's inventory,
including all of the following property owned by Cricket: mobile phone handsets,
packaging materials, and other goods to be consumed in Cricket's business.
CellStar agrees to hold all property owned by Cricket in the possession of
CellStar (including all Cricket owned mobile phone handsets and all other
Cricket owned inventory) subject to the security interest created under the
Security Agreement and to the instructions of State Street as collateral agent.
CellStar agrees to waive and release any Lien held by it with respect to all
such property, whether arising by operation of law or otherwise. For purposes of
this Section, the term "Lien" means any lien, pledge, hypothecation,
encumbrance, charge or security interest in, on or of such property of Cricket.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
by and through their duly authorized representatives as of the effective date
first set forth above.
CELLSTAR, LTD. CRICKET COMMUNICATIONS, INC.
By: National Auto Center, Inc.
Its: General Partner
By: /s/ Xxxxxx Xxxx Xxxxxxxxx By: /s/ Xxx XxXxxxx
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Name: Xxxxxx Xxxx Xxxxxxxxx Name: Xxx XxXxxxx
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Title: Senior V.P. Title: V.P. Sales & Marketing
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