EXHIBIT 10.15
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of this company's confidential treatment request.
VALLEY MEDIA-NEWCO
MARKETING, SALES SUPPORT AND FULFILLMENT AGREEMENT
This Agreement is made as of April 9, 2000 (the "Effective Date") between
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VALLEY MEDIA, INC., a Delaware corporation with its principal place of business
at 0000 Xxxxx Xxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxx 00000 ("Valley"), and AMPLIFIED
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HOLDINGS, INC., a Delaware corporation, with its principal place of business at
0000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000 ("Newco").
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R E C I T A L S
- - - - - - - -
A. Valley is in the business of distributing music, video and other
entertainment products to traditional "bricks and mortar" and E-Commerce
retailers for their sale to the public.
B. Valley and Newco have entered into that certain Contribution and
Reorganization Agreement dated March 15, 2000 (the "Contribution Agreement")
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whereby Valley will contribute certain assets related to the sale and
distribution of certain products over the Internet to Newco.
NOW, THEREFORE, the parties agree as follows:
I. GENERAL
A. Definitions.
"Consumer" means a customer of an E-Commerce Customer.
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"E-Commerce Customer" means (i) a business that sells all or
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substantially all of its products through On-line Orders; or (ii) for a business
that sells via On-line Orders and other ordering methods, the portion of such
business that sells products through On-line Orders; provided, however, the
definition of "E-Commerce Customer" will not include any local or regional
independent retailer that may sell all or substantially all of its products
through methods other than On-line Orders, or any portion of such retailer's
business.
"Existing Customer" means an E-Commerce Customer with whom Valley has
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a written agreement as of the Effective Date for the sale and purchase of
Products (the "Existing Agreements"), but only until such written agreement
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expires or terminates.
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"Major Label" means each of Universal, EMI, Sony, Time/Warner and BMG
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or their respective successors.
"New Customer" means any E-Commerce Customer who either is (i) not an
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Existing Customer; or (ii) an Existing Customer whose Existing Agreement has
expired or terminated.
"Other Agreements" means the Database License Agreement and the
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Administrative Services Agreement between the parties of even date herewith.
"On-line Order" means an order for products made (i) on a seller's
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Site; or (ii) via a telephone number identified on a seller's Site.
"Products" means the products described in Exhibit A and any ancillary
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services that Valley may provide in the Product fulfillment process, excluding
the Excluded Products listed in Exhibit A, and all products (whether or not
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listed on Exhibit A) to be delivered to E-Commerce Customers, or Consumers via
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digital download, or products compiled by Newco according to customer's
specifications.
"Site" means a web site, or an internet location.
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B. Existing Customers.
Valley will continue to sell Products to Existing Customers under the
terms of the relevant Existing Agreements. Newco will market the Products and
provide sales support to Existing Customers, at Newco's expense, as set forth in
Sections I and II. Valley will not amend the terms of Existing Agreements in
any material respect, including without limitation as to prices, fees, or
payment, terms, nor shall Valley exercise, waive or compromise any material
rights or claims under any Existing Agreement, in each case without Newco's
prior written consent. Valley will let those Existing Agreements having
automatic renewal terms expire after the expiration of the first renewal term.
Newco will be entitled to the compensation described in Section II(C)(1) for the
Products sold by Valley to Existing Customers. For those Existing Customers
having Existing Agreements that prohibit Valley from delegating its obligations
to a third party, Newco will assist Valley in the marketing and sale of the
Valley Products to such Existing Customers, at Newco's expense, as reasonably
requested by Valley; provided, however, Newco will not be obligated to perform
any assistance exceeding the scope of Newco's obligations set forth in Sections
I and II. Subject to Section I(C)(1), prior to the termination of any Existing
Agreement or the expiration of the current term thereof, Valley will use its
reasonable commercial efforts to persuade the Existing Customer to transition
its commercial and contractual relationship under such Existing Agreement to
Newco, and will provide such assistance and consultation as Newco may from time
to time request, if such request is deemed reasonable by Valley, with respect to
the negotiation and execution of the agreement between Newco and such New
Customer for the sale of Products.
C. New Customers.
1. Lenders' Approval. The parties acknowledge and agree that unless
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and until the financial institutions that provide Valley or Newco with secured
credit facilities ("Lenders") approve the business relationship described in
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Section III ("Approval"), the parties' rights and obligations will be as
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described in Section I(C)(3)(c) below.
2. Newco's Own Accounts. After the Approval has been obtained, as
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between the parties, Newco and only Newco will have the right to enter into
agreements with New Customers ("New Agreements") for the sale
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of Products ("Newco's Own Accounts"), subject to Section I(C)(3)(a), and will
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engage Valley to perform the fulfillment services on behalf of Newco with
respect to the Products purchased by New Customers under Newco's Own Accounts.
The parties' respective rights and obligations with respect to Newco's Own
Accounts will be as set forth in this Section I and Section III. Section II will
not apply to the parties with respect to the Newco's Own Accounts.
3. Rep Accounts.
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(a) After the Approval has been obtained, if any New Customer informs
Newco that it prefers to enter into an agreement with Valley rather than with
Newco for the sale of Products, Newco will promptly notify Valley, and Valley
will use its reasonable efforts to persuade such New Customers to enter into an
agreement with Newco. If such New Customer refuses to enter into an agreement
with Newco notwithstanding Valley's efforts, Newco and Valley will jointly
execute an agreement with such New Customers for the sale of Products ("Joint
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Customer Agreement"), whereby Valley will bear the responsibility for order
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fulfillment, shipment, and processing of returns, and Newco will market the
Valley Products and provide sales support to such New Customers at Newco's
expense as set forth in Section I(C)(3)(c), or as otherwise agreed by the
parties in writing.
(b) Until and unless the Approval has been obtained, as between
the parties, Valley and only Valley will have the right to enter into agreements
directly with New Customers for the sale of Products, and will engage Newco as
an independent representative to market and provide sales support to New
Customers.
(c) The Existing Customers and the New Customers described in
Sections I(C)(1), I(C)(3)(a) and (b) will be referred to as the "Rep Accounts".
The parties' rights and obligations with respect to the Rep Accounts will be as
set forth in Sections I and II. Section III will not apply to the parties with
respect to the Rep Accounts.
(4) Other Products. Nothing in this Agreement precludes Valley from
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selling or providing products or services (other than the Products) to E-
Commerce Customers directly or indirectly through distributors, resellers or
representatives ("New Opportunity"), provided that Valley will notify Newco in
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writing of any such New Opportunity, and, for a period of fourteen (14) days
after Valley's notification to Newco with respect to such New Opportunity,
Valley will not negotiate or enter into an agreement with any third party with
respect to such New Opportunity. If Newco expresses an interest in pursuing the
New Opportunity with Valley and notifies Valley in writing of such interest, the
parties will, for a period of sixty (60) days from the date Valley receives
Newco's notification, negotiate in good faith an agreement that is similar to
this Agreement, or a three-party agreement between Valley, Newco and a third
party with respect to such New Opportunity. Nothing herein precludes Valley
from negotiating with any third party with respect the New Opportunity during
such sixty (60) day period; provided, however, Valley may not enter into a
definitive agreement with any such third party with respect to such New
Opportunity until the expiration of such sixty (60) day period. If the parties
cannot reach an agreement with respect to New Opportunity during such sixty (60)
days period, or if Valley does not receive any written notification from Newco
of its interest within fourteen (14) days after Valley's notification to Newco,
or if Newco notifies Valley that it is not interested in pursuing the New
Opportunity, Valley will have no obligations towards Newco with respect to such
New Opportunity. Notwithstanding anything herein, Valley may not sell or
provide the Excluded Products listed in Exhibit A to E-Commerce Customers.
(5) Specific Exclusion. Nothing in this Agreement precludes Valley's
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Distribution North America Division ("DNA") from carrying on its operations in
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the ordinary course of business, provided that Valley will ensure that DNA will
not sell any Products to E-Commerce Customers other than independent label
products on a wholesale basis , and will not offer any direct-to-consumer
fulfillment services to E-Commerce Customers.
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(6) Terms of Sale. Except as otherwise agreed to in writing by
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Valley, all sales to Newco will be according to Valley's terms and conditions
set forth in the then-current Customer HandBook, attached hereto as Exhibit G in
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effect at the time of sale. Valley reserves the right to, in its sole
discretion, change, alter or amend its terms and conditions set forth in the
Customer Hand Book, provided that Valley will notify Newco of any such changes
thirty (30) days before such changes take effect, and provided that any such
changes will not materially affect any terms and conditions of this Agreement.
(7) Systems Changes. Each party will promptly notify and consult with the
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other party regarding any changes in the systems it uses to perform its
obligations under this Agreement that are reasonably likely to result in a
material increase in the other party's operating costs. During any fiscal year,
if any such systems changes by one party result in increases in the other
party's operating costs in excess of $500,000 in the aggregate, the party that
made such changes will reimburse the other party for the amount of such excess.
D. Newco's and Valley's Obligations.
(1) Development Efforts.
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(a) During a period of [*] from the Effective Date, Newco will
reimburse Valley for the costs incurred by Valley in its development of the
projects listed in Exhibit E ("Development Projects"), up to [*]. The costs
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incurred by Valley will consist of direct out-of-pocket expenses and labor
costs; the labor costs will be calculated based on the number of hours spent by
Valley employees on the Development Projects multiplied by the Standard Rate
(as defined in the Administrative Services Agreement). Valley will use its
reasonable efforts to continue the Development Projects, and will be responsible
for all development costs in excess of [*], unless Valley reasonably determines
that the development of any Development Project that requires additional funding
is not commercially practicable and notifies Newco in writing of such
determination.
(b) Subject to the Databases License Agreement dated April 9, 2000
between the parties ("Databases License Agreement"), Valley will own all
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software, technology, algorithms, formulas, techniques, and know-how developed
by Valley in the Development Projects ("Work Product"). Subject to the terms
and conditions of this Agreement and the Databases License Agreement, Valley
hereby grants to Newco a royalty-free, exclusive, worldwide, perpetual license
to use the Work Product on a stand-alone basis for Newco's internal business
purposes. For clarification purposes, nothing in this Section precludes Valley
from using, licensing or otherwise transferring the Work Product to any third
party if the Work Product is combined, bundled or integrated with other software
or technology.
(2) Minimum Quantity. Newco will generate (according to Section II or
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Section III, as the case may be), during and for each of the periods described
in Exhibit C, at least the minimum dollar volume of Products sales set forth in
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Exhibit C, which quantities Newco acknowledges to be reasonable estimates of
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anticipated Products sales for such periods.
(3) Fulfillment Services. Valley will provide the fulfillment
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services with respect to all orders for Products transmitted by Newco or Newco's
E-commerce Customers to Valley via the electronic data interchange ("EDI")
according to the terms set forth in Exhibit D. If any E-Commerce Customers
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request services that are additional to or different from the services set forth
in Exhibit D, the parties agree to negotiate in good faith the terms under which
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Valley will provide such additional or different fulfillment services. Nothing
herein commits Valley to provide any fulfillment services that are additional to
or different from the fulfillment services set forth in Exhibit D except as
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otherwise agreed to in writing by Valley.
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(4) Minimum Service Level. Newco will provide, at the minimum, all of
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the marketing, advertising and sales support functions performed by Valley's I-
Fill Division as of the Effective Date at the same level of service. Without
limiting the foregoing, Newco will, at the minimum, maintain a marketing and
sales staff of a size substantially equal to that of Valley's I-Fill Division as
of the Effective Date and Newco will pay such marketing and sales staff at a
level substantially equal to the compensation Valley pays its I-Fill Division
personnel. Newco will cause each of its E-Commerce Customers to establish an
EDI communication link with Valley prior to placing orders for the Products if
Valley reasonably determines that such connection is necessary.
(5) Covenants. Each party will: (i) conduct business in a manner
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that reflects favorably at all times on the good name, goodwill and reputation
of the other party; (ii) not engage in any deceptive, misleading or unethical
practices that are or might be detrimental to the other party, the Products or
the public; (iii) make no false or misleading representations with regard to the
other party or the Products; (iv) not publish or employ, or cooperate in the
publication or employment of, any misleading or deceptive advertising material
with regard to the other party or the Products; (v) make no representations,
warranties or guarantees to customers or to the trade with respect to the
specifications, features or capabilities of the Products that are inconsistent
with the representations made by the other party.
(6) Valley's Financial Condition. Valley warrants and represents that
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it will meet the requirements set forth in Exhibit F.
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(7) Newco Financial Condition. Newco warrants and represents that it
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will meet the requirements set forth in Exhibit F.
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(8) Compliance with Law. Each party will at all times have all
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material legal permits and licenses required by any governmental unit or agency
and will comply with all applicable international, national, state, regional and
local laws and regulations in performing its duties hereunder and in any of its
dealings with respect to the Products.
(9) Customer Complaints. Each party will promptly inform the other
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party of any customer complaints it receives that relates to the other party's
obligations under this Agreement. Each party will use its reasonable efforts to
handle and resolve such complaints in a timely and satisfactory manner.
(10) Costs and Expenses. Except as expressly provided herein or
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agreed to in writing by Valley and Newco, each party will pay all costs and
expenses incurred in the performance of its obligations under this Agreement.
(11) Marketing Obligations. Newco will vigorously and aggressively
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promote and solicit orders for Products.
E. Records, Reports, Audit, and Interest Rate.
(1) Reports. Each party will submit to the other party a monthly
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written report within fifteen (15) days of the end of each calendar month, the
content and format of which to be agreed on by the parties.
(2) Records. Newco will maintain, during the term and for at least
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two (2) years after expiration or termination of this Agreement, accurate books
and records, including copies of all customer and other correspondence, relating
to Newco's performance of its obligations under this Agreement. Valley will
maintain,
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during the term and for at least two (2) years after expiration or termination
of this Agreement, accurate books and records, including copies of all customer
and other correspondence, relating to the calculation of the Newco Price and
Valley's performance of its fulfillment obligations described in Exhibit D.
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(3) Audit. Once yearly, and within ninety (90) days of Valley's
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fiscal year-end, an independent certified public accountant selected by Newco
and authorized to practice in front of the Securities and Exchange Commission
may, at Newco's expense, except as provided below, upon reasonable notice and
during normal business hours, inspect the Valley records that relate to the
calculation of Commissions. If such audit reveals that Valley has underpaid
Newco an amount ("Underpayment") less than or equal to the lesser of $150,000 or
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five percent (5%) Newco of the payment due to Newco in the period being audited,
Valley will pay Newco the Underpayment plus interest. If the Underpayment is
greater than the lesser of $150,000 or five percent (5%) of the payments due to
Newco in the period being audited, Valley will bear all reasonable expenses and
costs of such audit in addition to its obligation to pay the Underpayment plus
interest.
(4) Interest. Interest shall accrue on any delinquent amounts owed by
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one party to the other at the lower of the Prime rate as announced from time to
time by Xxxxx Fargo Bank, or the highest rate permissible by law.
(5) Offset. Either party may offset the amount it owes to the other
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party under this Agreement against the amount owed to it by the other party
under the Other Agreements. Either party may offset the amount it owes to the
other party under the Other Agreements against the amount owed to it by the
other party under this Agreement.
F. Non-Disclosure of Confidential Information.
(1) Definition. "Confidential Information" means the pricing terms
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of this Agreement and any and all proprietary business information which derives
value, actual or potential, from not being generally known to the public or
other persons, whether or not such information constitutes a trade secret under
applicable law, which either party or its authorized agents (the "Disclosing
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Party") provide to the other party or its agents (the "Receiving Party") in
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connection with performance of any obligations under this Agreement and the
Other Agreements, including, without limitation, information concerning (a) the
Disclosing Party's finances, financial statements, plans, processes, policies,
procedures, systems, computer programs, technical or non-technical data,
inventions (whether or not patentable), business methods, business manuals,
contracts, negotiations, strategies, actual or potential customers, business
partners, advertisers, stockholders, employees, independent contractors or
actual or potential suppliers, or (b) any pending or threatened litigation,
arbitration, mediation, investigation, hearing, settlement or other controversy
or dispute directly or indirectly involving the Disclosing Party. Confidential
Information includes proprietary information of third parties that the
Disclosing party maintains in confidence which the Receiving Party knows or has
a reason to know of its confidential nature. Without limiting the foregoing,
all Consumer Data collected, compiled or developed during the term of this
Agreement shall constitute Confidential Information of Newco. However,
Confidential Information does not include any information that the Receiving
Party can prove (i) is generally available to or known by the public, (ii) was
available to or known by the Receiving Party on a non-confidential basis prior
to disclosure to the Receiving Party by the Disclosing Party, (iii) was
independently developed for the Receiving Party by persons who were not given
access to the information disclosed to the Receiving Party by the Disclosing
Party, or (iv) becomes generally known to the public after the date hereof
through no act or omission of the Receiving Party.
(2) Obligations. Neither Newco nor Valley may use any Confidential
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Information of the other except to the extent necessary to perform its
obligations under this Agreement, the Joint Customer Agreement, Administrative
Services Agreement, the Existing Agreements and the New Agreements. Each party
will take all reasonable measures to
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maintain the confidentiality of the other party's Confidential Information,
which in no event will be less than the measures it employs to maintain the
confidentiality of its own information of equal importance. In addition, neither
Newco nor Valley may disclose any Confidential Information of the other to any
third party unless (a) such disclosure is made to the Disclosing Party's
employees or agents on a "need to know" basis or (b) such disclosure is required
by law or legal process and the party from whom such disclosure is required has
given the other party prior notice to enable the Disclosing Party to oppose such
disclosure. Notwithstanding the foregoing, the parties acknowledge and agree
that either party may (i) file this Agreement as an exhibit to any reports or
registration statement it may hereafter file with the Securities and Exchange
Commission, and (ii) disclose the Confidential Information of the other party to
its actual and prospective Lenders, and the terms of this Agreement to investors
and underwriters on an "as-needed" basis, subject to the execution and delivery
by such Lenders, investors, or underwriters of a confidentiality agreement
substantially similar to this Section I(F). For purposes of this Agreement, any
unauthorized use or disclosure of Confidential Information by an employee or
agent of Newco or Valley will be treated as an unauthorized disclosure by such
party.
G. Customer Data Ownership.
1. E-Commerce Customer's Data. Newco will own all data it collects from E-
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Commerce Customers. Neither party will use the E-Commerce Customer's Data in
violation of any Existing Agreement, New Agreement or Joint Customer Agreement.
Subject to the foregoing sentence, Newco hereby grants Valley a non-exclusive,
royalty-free, world-wide, perpetual, irrevocable license to use or distribute
the E-Commerce Customer's Data for any purposes.
2. Consumer's Data. Newco will own all data it collects from the
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Consumers ("Consumer Data"). Newco hereby grants Valley a non-exclusive, non-
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transferable, royalty-free, world-wide license to use the Consumer Data to the
extent necessary to fulfill its obligations hereunder. Notwithstanding anything
herein, each party will use the Consumer Data only internally, and will not
disclose, distribute, or otherwise transfer any Consumer Data that could
reasonably be used to identify a specific named individual (except for
disclosures required by order of a court or other governmental body). In
addition, neither party will use any Consumer Data in a manner that violates the
provisions of any Existing Agreement, New Agreement or Joint Customer Agreement.
Each party will comply with all applicable privacy laws in using or releasing
the Consumer Data.
H. Representations and Warranties.
(1) Disclaimer of Warranty. ALL PRODUCTS SOLD UNDER THIS AGREEMENT
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ARE SOLD "AS-IS" AND VALLEY EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED
WARRANTIES WITH RESPECT TO ANY AND ALL SUCH PRODUCT, INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-
INFRINGEMENT.
(2) Representations, Warranty and Covenants of Newco. Newco
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represents and warrants as follows: Newco has the full corporate power and
authority and legal right to execute and deliver this Agreement, and otherwise
to perform its obligations hereunder. Newco will make no warranty, guarantee or
representation, whether written or oral, on Valley's behalf.
(3) Representations, Warranty and Covenants of Valley. Valley represents and
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warrants as follows: subject to approval from its Lenders, Valley has the full
corporate power and authority and legal right to execute and deliver this
Agreement, and otherwise to perform its obligations hereunder. Valley will make
no warranty, guarantee or representation, whether written or oral, on Newco's
behalf.
I. Indemnification.
Each party will indemnify, defend and hold the other party harmless
from any and all third-party claims, damages, liabilities, costs and expenses
(including reasonable attorney's fees and amounts paid in settlement) arising
out of any breach or alleged breach by such party of any representation,
warranty or covenant of the indemnifying party set forth in this Agreement. In
addition, Newco will indemnify, defend and hold Valley harmless for any and all
third party claims, damages, liabilities, costs and expenses (including
reasonable attorney's fees) arising out of any infringement or alleged
infringement of any patent, copyright, trademark or other intellectual
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property rights that results from the sale of the Products by or on behalf of
Newco outside of the United States. In all matters relating to this Agreement,
neither party nor its employees or agents are or will act as, employees of the
other party within the meaning or application of any federal or state
unemployment insurance laws, old age benefit laws, social security laws,
workers' compensation or industrial accident laws, or under any other laws or
regulations which may impute any obligations or liability to such other party by
reason of an employment relationship. Each party will reimburse the other for
and hold it harmless from any liabilities or obligations imposed or attempted to
be imposed upon such other party by virtue of any such law with respect to its
employees in performance of this Agreement.
J. Duration and Termination of Agreement.
(1) Term. This Agreement is for a term of twenty (20) years from the
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Effective Date unless terminated sooner in accordance with this Section I(J).
This Agreement will be renewed automatically for successive five (5) year terms
unless either party gives the other party written notice of its election not to
renew at least 120 days prior to the end of any term.
(2) Termination for Cause. In addition to any other remedies provided
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by this Agreement or available at law or in equity, either party may terminate
this Agreement at any time in the event that the other party has materially
breached this Agreement and such breach continues unremedied for a period of
thirty (30) days following written notice from the non-breaching party. Newco's
breach of Section I(D)(1) will be deemed a material breach of this Agreement.
Notwithstanding the foregoing, Valley may terminate this Agreement upon written
notice, without giving Newco an opportunity to cure, if Newco breaches Sections
I(D) (2) or (7). A party's taking of any action in respect of a breach of the
other party's obligations will not limit its right to take the same or a
different action in respect of any subsequent or other breach.
(3) Change of Control. A party ("terminating party") may terminate
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this Agreement immediately upon (i) the consummation of a merger, consolidation
or reorganization of the other party with or into a Competitor of the
terminating party, (ii) the acquisition by a Competitor of the terminating party
of stock of the other party, such that the stockholders of the other party
immediately before such transaction own collectively, immediately after such
transaction, less than 50% of the outstanding voting stock of the other party
and the Competitor owns, or has the right to acquire, directly or indirectly,
outstanding shares representing 50% or more of the outstanding voting power of
the other party; or (iii) the acquisition by a Competitor of the terminating
party of all or substantially all of the other party's assets in one or a series
of related transactions. As used herein, "Competitor" means, (i) with respect
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to Valley, [*], any company that controls, is controlled by, or under common
control with any of them, or any company that acquires, is acquired by or merges
with any of them, and (ii) with respect to Newco, [*], any company that
controls, is controlled by, or under common control with any of them, or any
company that acquires, is acquired by or merges with any of them. Each party
may replace, on a one-for-one basis, any Competitor listed above with a
different entity during the term of this Agreement upon notice to the other
party, and such replacement will become a Competitor of that party.
(4) Termination of Major Label Contract. If at any time Valley is no
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longer able to supply the products of all of the Major Labels, and fails to
remedy the situation within thirty (30) days after written notice from Newco,
then Newco may, by written notice to Valley, terminate this Agreement or
Valley's exclusivity under Sections IIA and IIIA.
(5) Automatic Termination. This Agreement terminates automatically,
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with no further act or action of either party, if a receiver is appointed for a
party or its property, a party makes an assignment for the benefit of its
creditors, any case is commenced by, for or against a party under the United
States Bankruptcy Code or any proceeding instituted under any other bankruptcy,
insolvency or debtor's relief law, and each of such case or proceeding is not
dismissed or stayed within sixty (60) days, or a party is liquidated or
dissolved, or according to the provision regarding pricing changes set forth in
Exhibit B.
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(6) Effect of Termination or Expiration. Upon termination or
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expiration of this Agreement, each party will return to the other party or
destroy all Confidential Information of the other party.
(7) No Damages for Termination or Expiration. NEITHER VALLEY NOR
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NEWCO WILL BE LIABLE TO THE OTHER FOR DAMAGES SUCH AS LOSS OF GOODWILL,
PROSPECTIVE PROFITS OR ANTICIPATED INCOME, OR ON ACCOUNT OF ANY EXPENDITURES,
INVESTMENTS, LEASES OR COMMITMENTS MADE BY EITHER VALLEY OR NEWCO, OF ANY KIND,
INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR
EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION I(J).
(8) Survival. The provisions of Sections I(E)(2), I(E)(4), I(F),
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I(G), (I)(H)(1), I(I); I(J)(6), I(J)(8), and I(K) of this Agreement will survive
termination or expiration of this Agreement.
K. General.
(1) Assignment. Neither party may assign this Agreement or its rights
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and obligations hereunder, without the prior written consent of the other party,
provided, however, that Valley may assign this Agreement to a subsidiary or to
any entity that acquires all or substantially all of the stock or assets of
Valley, and Newco may assign this Agreement to its majority-owned operating
subsidiary. Any attempted assignment in violation of this provision shall be
void. The provisions hereof will be binding upon and inure to the benefit of
the parties, their successors and permitted assigns.
(2) Notices. All notices and demands hereunder will be in writing and
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will be served by personal service, facsimile transmission or mail at the
address of the receiving party set forth in this Agreement (or at such different
address as may be designated by such party by written notice to the other
party). All notices or demands by mail will be by certified or registered mail,
return receipt requested, and will be deemed complete ten (10) days after
mailing.
(3) Governing Law and Arbitration. The laws of the State of New York,
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U.S.A. excluding that body of law controlling conflicts of law, will govern all
disputes arising out of or relating to this Agreement. Subject to Section
I(K)(5), all disputes arising out of, under, or relating to this Agreement, or
the relationship of the parties hereto, will be arbitrated as described in
Exhibit T of the Contribution Agreement.
(4) Force Majeure. Neither Valley nor Newco will be responsible for
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any failure to perform due to unforeseen circumstances or to causes beyond its
reasonable control, including but not limited to acts of God, war, riot,
embargoes, systematic failure of the Internet, emergency acts of civil or
military authorities, fire, floods, accidents, strikes, or shortages of
transportation, fuel, energy, labor or materials. Each party will notify the
other as promptly as possible upon becoming aware of any circumstances that have
or are reasonably likely to have a material adverse effect on said party's
ability to perform its obligations hereunder and shall consult with the other
party concerning the steps taken and to be taken to remedy such situation. If
either party is unable to perform its obligations due to circumstances described
in this Section for a period in excess of three consecutive months, then the
other party may terminate this Agreement by written notice to the affected
party.
(5) Equitable Relief. Each party acknowledges that any breach of its
----------------
obligations under this Agreement with respect to the Confidential Information of
the other party will cause irreparable injury for which there are inadequate
remedies at law, and therefore the other party will be entitled to receive in
any court of competent jurisdiction injunctive, preliminary or other equitable
relief in addition to damages, including court costs
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and fees of attorneys and other professionals, to remedy any actual or
threatened violations of its rights with respect to such matters.
(6) Waiver. The waiver by a party of any default by the other party
------
will not waive subsequent defaults by the other party of the same or a different
kind.
(7) Attorneys' Fees. In the event any litigation (to the extent
---------------
permitted hereunder) or arbitration proceeding is brought by either party in
connection with this Agreement, the substantially prevailing party in such
proceedings (as determined by the court or arbitral tribunal hearing such
proceedings) will be entitled to recover from the other party all the costs,
reasonably attorneys' fees and other out-of pocket expenses actually incurred by
such party in such proceedings.
(8) Section Headings and Language Interpretation. The section
--------------------------------------------
headings contained herein are for reference only and will not be considered
substantive parts of this Agreement. The use of the singular or plural form
will include the other form.
(9) Severability. In the event any of the provisions of this
-----------
Agreement is held by a court or other tribunal of competent jurisdiction to be
illegal, invalid or unenforceable, the other provisions of this Agreement will
remain in full force and effect. To the extent legally permissible, any
illegal, invalid or unenforceable provision of this Agreement shall be replaced
by a valid provision which will implement the commercial purpose of the illegal,
invalid or unenforceable provision as nearly as possible.
(10) Entire Agreement and Interpretation. This Agreement, together
-----------------------------------
with its Exhibits, constitutes the entire agreement between the parties
pertaining to the subject matter hereof, and supersedes in their entirety any
and all written or oral agreements previously existing between the parties with
respect to such subject matter. In the event of an irreconcilable conflict
between the terms of Section I and Section II, the terms of Section II will
control. In the event of an irreconcilable conflict between the terms of
Section I and Section III, the terms of Section III will control. In the event
of an irreconcilable conflict between the terms of this Agreement and any of the
Exhibits, the terms of this Agreement will control.
(11) Independent Contractor. The relationship of the parties during
----------------------
the term of this Agreement will be that of independent contractors. Neither
party will have, and will not represent that it has, any authority to bind the
other, to assume or create any obligation, express or implied, or to make any
warranties or representations on behalf of the other or in its name.
(12) Execution of Agreement. This Agreement may be executed in two or
----------------------
more counterparts, each of which when so executed will be deemed an original,
and all of which together will constitute one and the same instrument.
II. REP ACCOUNTS
The terms of this Section II apply only to Rep Accounts. As used in this
Section II, the term "E-Commerce Customers" will refer only to those E-Commerce
Customers under Rep Accounts.
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A. Appointment as Exclusive Independent Representative of Valley.
(1) Appointment. Valley appoints Newco, and Newco accepts such
-----------
appointment, as Valley's exclusive independent representative for the limited
purposes of promoting the sale of Products solely to, and soliciting orders for
the Products solely from E-Commerce Customers, subject to the Existing
Agreements and Joint Customer Agreements. As long as Newco satisfies all of its
obligations under Sections I and II of this Agreement, Valley will not appoint
another representative for the promotion of Products and the solicitation of
orders for Products from E-Commerce Customers. Newco will not promote the sale
of, or solicit orders for the Products on behalf of any party other than Valley;
provided, however (i) if a Product ordered by one of Newco's E-Commerce
Customers is not in stock at Valley at the time such order is transmitted to
Valley, Newco may engage a third party who does have such Product in stock and
available for immediate shipment to fill such order; and (ii) Newco may enter
into an agreement with any entity for the sale of the Products outside the
United States, provided that such entity is located, and its parent companies,
if any, are located outside the United States.
(2) Customer-Related Responsibilities. Newco will: (i) undertake to
---------------------------------
locate prospective E-Commerce Customers and provide all pertinent information
concerning Valley's business and services to such E-Commerce Customers; (ii)
promptly transmit to Valley all inquiries, complaints and other important
information Newco obtains from or with respect to such E-Commerce Customers;
(iii) assist E-Commerce Customers in placing orders for Products and promptly
transmit such orders to Valley for acceptance or rejection by Valley as set
forth in this Agreement; and (iv) assist in expediting deliveries of Products.
B. Orders, Terms of Sale and Billing.
(1) Orders.
------
(a) All orders for Products will be made by the E-Commerce
Customers and transmitted by the E-Commerce Customers to Valley via EDI. Once
the real- time-stock-on-hand system is established, orders can also be
transmitted by Consumers to Valley. Newco will not, and has no right to, accept
orders on behalf of Valley. No order received by Valley for Products will be
considered binding unless Valley determines that it conforms to terms of the
applicable Joint Customer Agreement or Existing Agreement, and that the Products
ordered are available for sale. Valley will accept all orders from E-Commerce
Customers who have agreed to Valley's then-current standard terms of sales
unless: (i) Valley has an insufficient inventory of the Products to fulfill
demands from such E-Commerce Customers and Valley's other customers; or (ii)
Valley determines that the proposed order presents a credit risk unacceptable to
Valley.
(b) In the event Valley does not accept an order based on Section
II(B)(1)(a)(i), Valley, in its own discretion, will allocate the inventory in a
non-discriminatory manner among Newco and its other customers, and Newco may
exercise its right under Section II(A)(1) with respect to any rejected order or
any portion thereof.
(c) In the event Valley does not accept an order based solely on
Section II(B)(1)(a)(ii), Valley will promptly notify Newco, and Newco has the
right to cause Valley to accept such order by indemnifying Valley with respect
to such order as set forth in Section 5.2 of Exhibit A to the Administrative
Services Agreement between the parties of even date herewith.
(2) Terms of Sale. All sales to E-Commerce Customers will be
-------------
according to Valley's terms and conditions in effect at the time of sale which
will be incorporated into the Joint Customer Agreement or the Existing
Agreement. Valley reserves the right to, in its sole discretion, change, alter
or amend its terms and conditions of sale, delivery and packaging charges,
methods of payment and any other matters relating to the sale and delivery of
Products without thereby incurring any obligation or liability to Newco, subject
to the Joint Customer Agreement
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and the Existing Agreements. Valley will promptly notify Newco of any changes
that are reasonably likely to have a material effect on (i) the systems used by
Valley to perform its obligations under this Agreement, the Joint Customer
Agreements or the Existing Agreements; or (ii) Valley's Average Cost (defined in
Exhibit B) for any Products.
---------
(3) Shipment and Payment. All orders accepted by Valley will be
--------------------
shipped to E-Commerce Customers or their customers. All invoice payments are to
be made directly to Valley by the E-Commerce Customer. If Newco receives any
payments from the E-Commerce Customers in error, Newco will immediately forward
such payments to Valley in full.
C. Calculation and Payment of Commission.
(1) Calculation. In any given calendar month, (a) if the Customer
-----------
Price (defined in Exhibit B) is greater the Newco Price (defined in Exhibit B),
--------- ---------
Valley will pay Newco the Commission; (b) if the Newco Price is greater than the
Customer Price, Newco will pay Valley the Commission. "Commission" means the
----------
difference between Customer Price and the Newco Price.
(2) Timing and Method of Payment. Each party will pay the other party
----------------------------
the Commissions by mailing a check or wire transferring funds to the bank
designated by the other party within thirty (30) days of due date of the invoice
sent to the E-Commerce Customers. To ensure that Valley will perform its
obligation to pay Commissions to Newco, Valley will carry a stand-by letter of
credit naming Newco as the beneficiary in an amount equal to the Commissions
owed to Newco offset by the amount Newco owes to Valley under this Agreement and
the other Agreements.
(3) Refunds. No Commission will be due to Newco, and any Commission
-------
paid will be refunded by Newco, with regard to sales of Products in the event
that and to the extent that such Products are rejected or returned. Valley may
deduct any amounts owed by Newco to Valley from any Commissions owed by Valley
to Newco.
(4) Payment Upon Termination or Expiration. The payment obligations
--------------------------------------
set forth in Section II(C) will apply to any orders for Products that have been
accepted by Valley as of the termination effective date. Newco will have no
rights to any Commissions whatsoever following termination or expiration even if
sales are made by Valley to E-Commerce Customers originally solicited by Newco.
III. NEWCO'S OWN ACCOUNTS
The terms of this Section III only apply to Newco's Own Accounts. As used in
this Section III, the term "E-Commerce Customers" will refer only to those E-
Commerce Customers under Newco's Own Accounts.
A. Appointments.
(1) Newco's Appointment. Valley appoints Newco, and Newco accepts
-------------------
such appointment, as the independent exclusive reseller of Products solely to
Newco's Own Accounts. As long as Newco satisfies all of its obligations under
Sections I and III of this Agreement, and unless Newco's exclusive status is
terminated pursuant to Section I(E)(2) of this Agreement, Valley will not
appoint another reseller for the sale of Products to E-Commerce Customers.
Newco will not sell any Products obtained by Newco from any party other than
Valley; provided,
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however (i) if a Product ordered by one of Newco's E-Commerce Customers is not
in stock at Valley at the time such order is transmitted to Valley, Newco may
engage a third party who does have such Product in stock and available for
immediate shipment to fill such order; and (ii) Newco may enter into an
agreement with any entity for the sale of the Products outside the United
States, provided that such entity is located, and its parent companies, if any,
are located outside the United States.
(2) Valley's Appointment. Newco appoints Valley, and Valley accepts such
--------------------
appointment, as the independent exclusive fulfillment agency to handle the
ordering, packaging, delivery and returns (as further described in Exhibit D) of
Valley Products sold by Newco under Newco's Own Accounts. The parties
acknowledge and agree that Valley's obligations under this Section III run to
Newco and not to any third parties, including but not limited to Newco's E-
Commerce Customers or their customers; Newco's E-Commerce Customers and their
customers are not third-party beneficiaries of this Agreement.
(3) Newco's Customer Agreement. Newco will include in all of its agreements with
--------------------------
its E-Commerce Customers a provision substantially similar to the provision set
forth in this Section. The E-Commerce Customer acknowledges that Newco has
engaged Valley to act as a fulfillment agency for Newco. Although the E-Commerce
Customers may interface directly with Valley in the Products ordering, delivery
and returns process, the E-Commerce Customer has no contractual relationship
with Valley and is not a third-party beneficiary of the agreement between Newco
and Valley. The E-Commerce Customer's rights and obligations will run to Newco
and not to Valley. Therefore, Valley will have no liability to the E-Commerce
Customer by virtue of being the fulfillment agency for Newco.
B. Order Procedure.
(1) Valley Acceptance. The orders transmitted to Valley by Newco's E-
-----------------
Commerce Customers, or Consumers (once the real-time-stock-on-hand system is
established) via EDI will be deemed to be Newco's orders. No order received by
Valley from Newco or directly from any E-Commerce Customer of Newco will be
considered binding unless and until Valley determines that it conforms to
Valley's then-current standard terms of sale and that the Products ordered are
available for sale. Valley will accept all Newco's orders (whether transmitted
by Newco or Newco's E-Commerce Customers) that meet Valley's then-current
standard terms of sale unless Valley has an insufficient inventory of the
Products to fulfill demands from Newco's E-Commerce Customers. In the event
Valley does not accept an order due to insufficient inventory, Valley will
allocate the available inventory among Newco and its other customers in a non-
discriminatory manner, and Newco may exercise its right under Section III(A)(1)
with respect to any rejected order or any portion thereof.
(2) Controlling Terms. The terms and conditions of Sections I and III and will
-----------------
apply to each order accepted or shipped by Valley hereunder. The provisions of
any form of purchase order or other business forms will not apply to any order
notwithstanding Valley's acknowledgment or acceptance of such order unless
agreed to in writing by Valley.
(3) Cancellation. Valley reserves the right to cancel any orders placed by Newco
------------
or Newco's E-Commerce Customers and accepted by Valley as set forth above, or to
refuse or delay shipment thereof, if Newco (i) fails to make any payment as
provided in this Agreement or under the terms of payment set forth in any
invoice or otherwise agreed to by Valley and Newco, (ii) fails to meet
reasonable credit or financial requirements established by Valley, including any
limitations on allowable credit, or (iii) otherwise fails to comply with the
terms and conditions of this Agreement.
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C. Prices and Payment.
(1) Prices to Newco. Newco will pay Valley for the Products it purchases from
---------------
Valley according to the payment terms set forth in Section III(C)(3). The prices
of the Valley Products to Newco will be the Newco Price.
(2) Taxes, Tariffs, Fees. Valley's prices do not include any national, state or
--------------------
local sales, use, value added or other taxes, customs duties, or similar tariffs
and fees which Valley may be required to pay or collect upon the delivery of
Valley Products or upon collection of the prices or otherwise. Should any tax or
levy be made, Newco agrees to pay such tax or levy and indemnify Valley for any
claim for such tax or levy demanded.
(3) Payment Terms. The parties agree that the payment mechanics and
-------------
schedule will be as mutually agreed upon by the parties.
(4) Upon Termination or Expiration. Upon termination or expiration of this
------------------------------
Agreement, notwithstanding any credit terms made available to Newco prior to
such notice, any Valley Products shipped thereafter shall be paid for by
certified or cashier's check prior to shipment. The due dates of all outstanding
invoices for Valley Products automatically will be accelerated so they become
due and payable on the effective date of termination, even if longer terms had
been provided previously. All orders or portions thereof remaining unshipped as
of the effective date of termination shall automatically be cancelled.
D. Newco Determines Its Own Price.
Although Valley may publish suggested wholesale or retail prices, these are
suggestions only and Newco will be entirely free to determine the actual prices
at which Valley Products will be sold to its E-Commerce Customers.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
VALLEY MEDIA, INC.
------------------
Signature: /s/ J. Xxxxxxxx Xxxx
--------------------
Printed Name: J. Xxxxxxxx Xxxx
----------------
Title: Senior Vice President and CFO
-----------------------------
Date: April 9, 2000
-------------
AMPLIFIED HOLDINGS, INC.
------------------------
Signature: /s/ Xxxxxxxxxxx Xxxxxx, Xx.
---------------------------
Printed Name: Xxxxxxxxxxx Xxxxxx, Xx.
-----------------------
Title: CEO
---
Date: April 9, 2000
-------------
EXHIBIT A
---------
PRODUCTS
Products
The Products will consist of Audio Products, Game Products and Video
Products, as those products are defined below, which stock keeping units
("SKU") are listed in Valley's then-current audiofile database.
"Audio Product" means any prerecorded sound recordings in the form of
-------------
compact discs, audio tapes, audio cassettes, DVDs, phonograph records or
any other device or equipment used for the storage, presentation, display
and/or reproduction of sound not coupled with audiovisual material but
specifically excluding digital downloads, streaming audio and custom
compilations.
"Game Product" means any video discs, video cassettes, DVDs or any other
------------
device or equipment used for the storage, presentation, display and/or
reproduction of visual images coupled or not coupled with sound and/or
electronic impulses, where such visual images consist principally of video
games but specifically excluding digital downloads, web based interactive
game products and custom compilations.
"Video Product" means any video discs, video cassettes, DVDs or any other
-------------
device or equipment used for the storage, presentation, display and/or
reproduction of visual images coupled or not coupled with sound
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and/or electronic impulses, but not including Game Product but specifically
excluding digital downloads, streaming video and custom compilations.
Excluded Products: In no event will the definition of "Products" include
------------------------------------------------------------------------
the following:
--------------
Digital downloads of audio, game and video products.
Custom compilation of audio, game and video products according to
customer's specifications.
Sound clips.
Consumer data used in connection with E-Commerce Customers' operations.
Just-in-time manufacturing
EXHIBIT B
---------
PRICING; COMPENSATION
"Customer Price" means, with respect to any period, the total dollar amount
--------------
invoiced during such period to the E-Commerce Customers under the Joint Customer
Agreement or the Existing Agreement for the Products purchased from and shipped
by Valley. Returns of Products will be deducted from invoiced amounts for
purposes of the calculation.
"Newco Price" means, with respect to any period, (i) the sum for all Products
-----------
invoiced during such period to E-Commerce Customers, of the various applicable
elements described in the Pricing Matrix below (as adjusted by the parties from
time to time) ("Product Cost"), less (ii) the Product Cost of any Products
------------
returned during such period.
"Average Cost" means, with respect to a particular Product's sku, the [*] for
------------
all units of such sku, including any box-lot incentives, new release discounts,
ongoing or periodic catalog discounts and one-time discounts, but excluding any
discounts for timely payment, return incentives, advertising incentives or
volume rebates [*] at the time the product is invoice to the customer. In
addition, the calculation of Average Cost will not take into account [*]
purchased from nontraditional sources, including without limitation [*]
purchased in connection with acquisitions, outsourcing contracts or
liquidations.
Newco
---------------------------------------------------------------------------------------------------------------------------
Pricing Matrix
---------------------------------------------------------------------------------------------------------------------------
Annual Sales Volume Annual Sales Volume Annual Sales Volume
====================================---------------------------------------------------------------------------------------
[*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Product Cost [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Returns processing fee [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
[*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Product Fulfillment Fees
---------------------------------------------------------------------------------------------------------------------------
1st unit [*] [*] [*]
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additional units [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Shrinkage fee [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Other Fees
---------------------------------------------------------------------------------------------------------------------------
Segregated Inventory-standard CD/VHS [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
International fees-per unit [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Gift wrap fees-per unit [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Insertion fees-per unit [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Processing of ineligible returns [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Technical Set up-each occurrence [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Invoice Set up-each occurrence [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Credit Card fees [*] [*] [*]
---------------------------------------------------------------------------------------------------------------------------
Bar codes [*] [*] [*]
===========================================================================================================================
Pricing Changes. The payments under this Agreement will be calculated based on
---------------
the Newco Price (defined in Exhibit B). Once every [*] beginning on the
---------
Effective Date, each party may request in writing for, and the other party will
comply with such request, a renegotiation of the Newco Price. If the parties
cannot agree on a new Newco Price after [*] after the written request, the Newco
Price will be calculated according to the formula set forth below, which will
apply for a period of [*] beginning from the date of the written request.
During such [*] period, the parties will continue to negotiate a new price in
good faith. If the parties cannot reach agreement on a new price after such [*]
period, this Agreement will automatically terminate at the end of such [*]
period.
Newco Price Formula:
For costs expressed in dollars and cents in the above table, prices
will be indexed up or down based on the change in the [*] from close
to the date of renegotiation. The fees above for product cost,
returns processing fee and product fulfillment fees include [*]
considered to be related to working capital. The working capital
portion will be indexed at [*] at the time of renegotiation divided by
[*] at close. Credit card fees will be Valley actual rate charged by
our supplier plus [*].
EXHIBIT C
---------
MINIMUM SALES VOLUME
First Year Following The Effective Date:
---------------------------------------
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[*].
Second Year Following The Effective Date:
-----------------------------------------
[*] in Net Product Purchases for each [*] period ("[*]"), beginning from the
[*] of the Effective Date, and [*] in Net Product Purchases for the [*]
following the [*] the Effective Date.
Each subsequent year:
--------------------
The greater of (i) [*] in Net Product Purchases per [*] and [*] in Net Product
Purchases per [*] (adjusted by the change in the [*] over the previous year), or
(ii) [*] of Net Product Purchases in the [*] and [*] of Net Product Purchases
in the [*].
"Net Product Purchases" means the gross Product purchases by E-Commerce
---------------------
Customers including Existing Customers and New Customers, less any customer
returns.
Adjustment to Minimum Sales. Newco's Minimum Sales Volume will be reduced by an
---------------------------
amount equal to Newco's Minimum Sales Volume multiplied by the ratio of Lost
Sale over Net Product Purchases, if:
(i) an E-Commerce Customer, whose purchases in the prior year
constitute at least [*] of Newco's Net Product Purchases terminates an Existing
Agreement, Joint Customer Agreement or New Agreement or fails to renew an
Existing Agreement or enter into a new Joint Customer Agreement or New Agreement
as a result of Valley's breach of its obligation, or
(ii) an E-Commerce Customer whose purchases in the prior year
constitute at least [*] of Newco's Net Product Purchases, declines to renew an
agreement with Newco and buys all or substantially all of the Products directly
from the Major Labels.
"Lost Sale" means the Dollar amounts of the E-Commerce Customer's Product
---------
purchases within the prior year, less any returns.
EXHIBIT D
---------
FULFILLMENT SERVICES
Fulfillment.
For each Product order forwarded to Valley by Newco or Newco's E-
Commerce Customers, Valley will pick the Product ordered from its
inventory, pack the Product for shipping and ship the Product directly to
Newco or Newco's E-Commerce Customers, or their customers, subject to the
terms and conditions set forth herein. Newco will and will require each
Newco's E-Commerce Customer to specify in each order forwarded to Valley
whether it is a Priority Order or a Standard Order. Valley will fulfill
Product orders forwarded by Newco or Newco's E-Commerce Customer as
follows:
Priority. Priority Orders received by Valley from Newco or Newco's E-
--------
Commerce Customer on or before [*] Pacific Time on any Business Day
will be shipped by Valley that same Business Day, but only to the
extent the Product ordered is in stock at the time Valley receives
such Priority Order. Priority Orders received by Valley after [*]
Pacific Time on any Business Day, or at any time on any non-Business
Day, will be shipped by Valley on the following Business Day, but only
to the extent the Product ordered is in stock at the time Valley
receives such Priority Order.
Standard. Standard Orders received by [*] Pacific Time on any Business
--------
Day will be shipped the following Business Day, but only to the extent
the Product ordered is in stock at the time Valley
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receives such Standard Order. Standard Orders received after [*]
Pacific Time on any Business Day, or at any time on any non-Business
Day, will be deemed received the following Business Day, and Valley
will ship any such Standard Order on the Business Day following the
Business Day on which the order is deemed received, but only to the
extent the Product ordered is in stock at the time Valley receives
such Standard Order.
Peak Periods. Valley shall use best efforts to adhere to the
------------
fulfillment policies set forth in this Section during Peak Periods,
but any failure by Valley to comply with any of their joint and/or
respective obligations under this Section during a Peak Period will
not be considered a breach by Valley of such obligation. As used
herein, "Peak Period" means (a) [*] (b) any day on which Valley's
-----------
aggregate order volume from all of its customers is more than [*]
higher than Valley's average daily order volume during the immediately
preceding [*].
Shipping.
Choice of Carrier. The carriers with which Valley does business are
-----------------
listed on the Shipping Tables, which is incorporated herein by this
reference. Newco will and will require its E-Commerce Customers to
specify on each order forwarded to Valley one such carrier as the
requested carrier for shipment of such order. If the carrier
requested by Newco or Newco's E-Commerce Customer does not service the
address to which the order is to be delivered, Valley will notify
Newco or Newco's E-Commerce Customer, in which case, Newco or Newco's
E-Commerce Customer may request that the order be shipped via an
alternative Valley supported carrier.
Risk of Loss. All shipments made by Valley under this Agreement will
------------
be F.O.B. Valley's shipping facility. Title and risk of loss with
respect to all such shipments will pass to Newco upon delivery of the
Products to the carrier at the point of shipment. With respect to any
Shipping Damaged Product, Valley will assist Newco or Newco's E-
Commerce Customer in filing a claim with the carrier and will credit
Newco or Newco's E-Commerce Customer any amounts received or credited
to Valley in connection with such claim.
Product Returns
Newco and its E-Commerce Customers may return product to Valley as
authorized in the customer agreements.
Return Credits. If Product returned to Valley by Newco or Newco's E-
--------------
Commerce Customer or Newco's E-Commerce Customer's customers is
Eligible Product, Valley will credit Newco or Newco's E-Commerce
Customer for such Product at the lowest price paid or the current
price to the returning party which ever is less. If the Product
returned is Ineligible Product or Shipping Damaged Product, however,
Valley will not credit Newco or Newco's E-Commerce Customer for such
Product. "Eligible Product" means any Product other than Ineligible
----------------
Product or Shipping Damaged Product.
"Ineligible Product" means any of the following: (a) Opened CDs from
------------------
any of the following companies: (i) Platinum, (ii) RYKO, (iii) Sony
Music Entertainment, (iv) Universal Music and Video Distributors
("UMVD"), (v) Warner, (vi) Elektra or (vii) Atlantic; (b) Opened audio
cassettes from UMVD; (c) Opened Video Product; (d) Opened DVD Product;
(e) Game Product; (f) accessories; (g) blank tape; (h) imports; (i)
promos; (j) limited editions; (k) Product identified in audiofile as
non-returnable; (l) Product not purchased from Valley; (m) Product
sold on a one-way basis; (n) Product with a last customer return date
(as defined in the periodic updates to audiofile provided to Retailer
by Valley) prior to the date the returned Product is received by
Valley; (o) Product without the original artwork or liner notes; (p)
Schwann Guides; (q) defaced Product; (r) Product with damaged artwork
or a foreign substance on the media; and (s) vinyl Product (including,
without limitation, LPs and 12" singles).
Newco may and may direct its E-Commerce Customers to return defective or
damaged Product, or report lost Product, to Valley, and Valley will ship
replacement Product to such customers, subject to the terms and conditions
of this Exhibit.
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Replacement Product.
-------------------
If Valley ships Product on behalf of Newco to replace
Eligible Product that is Defective Product, Valley will not
charge Newco the fulfillment fees described in Exhibit B in
connection with shipping such replacement Product. "Defective
---------
Product" means any Eligible Product returned to Valley that is
-------
identified as defective when returned and which is actually
defective (as determined by Valley).
If Valley ships Product on behalf of Newco to replace Product
that was reported as missing by Newco, Newco's E-Commerce
Customers or Newco's E-Commerce Customer's customers but was
listed as fulfilled on the customer's invoice, Valley (a) will
not charge Newco or Newco's E-Commerce Customer for such Product,
(b) will charge Newco the shipping fees for shipping such
replacement Product, but (c) will not charge Newco or Newco's E-
Commerce Customer the fulfillment fees in connection with
shipping such replacement Product.
Except as set forth in two paragraphs above, if Valley ships
Product on behalf of Newco to replace Product that was returned
by Newco or Newco's E-Commerce Customer or one of Newco or
Newco's E-Commerce Customer's customers, Valley (a) will charge
Newco for such Product, (b) will charge Newco the shipping fees
for shipping such replacement Product, and (c) will charge the
fulfillment fees in connection with shipping such replacement
Product.
Return Processing Information. Valley will post return processing
-----------------------------
information weekly via EDI.
Modifications. Valley reserves the right to modify its return
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policies from time to time. Any such modifications will be effective
upon receipt by Newco or Newco's E-Commerce Customer of written notice
thereof.
EXHIBIT E
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DEVELOPMENT PROJECTS
Exhibit E - Development Projects
Real Time System Access (including
[*]
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EXHIBIT F
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NEWCO'S FINANCIAL CONDITION
[*] Confidential Treatment Request
20
Liquidity Requirement. At the beginning of each month starting from the
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Effective Date, Newco will certify in a writing signed by its Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO") that Newco has adequate cash
(excluding any cash reserved under GAAP for liability associated with any claims
or law suits) or a binding commitment by investors to fund Newco with adequate
cash to carry out its business and to satisfy its payment obligations for at
least three months ("Liquidity"). Newco's lack of liquidity, or the failure of
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Newco's CEO or CFO to timely certify that Newco meets the liquidity requirement
and if such failure is not cured within 15 days, is a material breach of this
Agreement. In addition to any other remedies available to Valley, Valley may
audit Newco's books and records relating to Newco's financial conditions, cash
flow or credit facility, if Valley has reason to be concerned about Newco's
liquidity.
Net Worth Requirement. Beginning from the third year after the Effective Date,
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Newco will maintain, a valuation of [*], or a market capitalization of at least
[*]. The valuation of Newco will be [*]. If Newco has not had a [*], the
valuation will be determined by a neutral third party, having experience in such
type of determination, by analyzing the market capitalization or valuation of
similarly-situated companies. Valley's exclusive remedy for Newco's breach of
this net worth covenant will be: (i) discussing with Newco regarding the steps
to be taken by Newco to ensure that Newco will comply with its net worth
requirement; or (ii) if Newco is not in compliance with the net worth
requirement at the end of the fifth year from the Effective Date, Valley may
terminate this agreement and the Other Agreements and surrender any shares of
Newco stock in its possession at that time to Newco.
VALLEY'S FINANCIAL CONDITION
Liquidity Requirement. At the beginning of each month starting from the
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Effective Date, Valley will certify in a writing signed by its Chief Executive
Officer and Chief Financial Officer that Valley has adequate cash or a binding
commitment by investors or lenders to fund Valley with adequate cash to carry
out its business and to satisfy its payment obligations for at least three
months. Valley's lack of liquidity, or the failure of Valley's Chief Executive
Officer and Chief Financial Officer to timely certify that Valley meets the
liquidity requirement and if such failure is not cured within 15 days, is a
material breach of this Agreement. In addition to any other remedies available
to Newco, Newco may audit Valley's books and records relating to Valley's
financial conditions, cash flow or credit facility, if Newco has reason to be
concerned about Valley's liquidity.
Net Worth Requirement. Valley will maintain a minimum net worth [*]. Newco's
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exclusive remedy for Valley's breach of this net worth covenant will be: (i)
discussing with Valley regarding the steps to be taken by Valley to ensure that
Valley will comply with its net worth requirement; or (ii) if Valley is not in
compliance with the net worth requirement at the end of the fifth year from the
Effective Date, Newco may terminate this agreement and the Other Agreements
Listing. Valley will maintain its listing on the NASDAQ or other nationally
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recognized securities exchange and the same shall not have been suspended.
Valley's failure to maintain such listing without suspension, if such failure is
not cured within 15 days, is a material breach of this Agreement.
EXHIBIT G
CUSTOMER HANDBOOK
[*] Confidential Treatment Request
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