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CONFIDENTIAL TREATMENT
REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.62
DISTRIBUTION AND SUPPLY AGREEMENT
This DISTRIBUTION AND SUPPLY AGREEMENT
("Agreement") is made this 10th day of
May, 2005 (the "Effective Date"), by and
among Levy Home Entertainment LLC
("LHE") and Source Interlink Companies,
Inc. (together with its direct and
indirect subsidiaries,"Source").
RECITALS
Whereas, LHE is a full line distributor of
hardcover, mass-market and trade
paperback books, bargain books, and
children's coloring books, activity books
and storybooks (collectively "Book
Product") purchased from the publishers
thereof for distribution and sale to the
public within the United States of
America and, in connection with the conduct
of its business, LHE maintains
facilities, machinery, equipment and an
extensive inventory of Book Product to
satisfy the orders of retailers of Book
Product;
Whereas, LHE has determined that the cost
to service certain lower volume
retailers exceeds the benefits it may enjoy
from making sales to such customers;
Whereas, Source Interlink Companies, Inc.,
through one or more of its direct and
indirect subsidiaries, is a full line
distributor of home entertainment content,
including magazines, digital versatile
disks (DVDs) and audio compact disks
(CDs), purchased from the suppliers thereof
for distribution and sale to the
public within the United States of America
and, in connection with its business,
maintains an extensive field force of
trained personnel to provide in store
merchandising services to retailers;
Whereas, Source desires to procure Book
Product from LHE and thereby avoid
making a significant investment in the
facilities, machinery, equipment and
inventory necessary to adequately satisfy
its customers demands for Book
Product; and
Whereas, LHE desires to engage Source to
distribute Book Product to certain
class of retailers and thereby reduce
expenses associated with the servicing of
these customers.
The parties, intending to be legally bound,
hereby agree as follows:
1. Appointment. For and during the term of
this Agreement, LHE hereby appoints
Source Interlink Companies, Inc.
collectively with its direct and indirect
subsidiaries as its sole and exclusive
subdistributor of Book Products to all
traditional supermarket chains (not
including "super centers" or "hyper-markets"
such as those combined supermarket and
general merchandise stores currently
operated by Wal-Mart, Target, Kmart and
Meijer, among others), drug stores,
convenience stores, newsstands and
terminals (the "Stores") except for such
Stores as affirmatively request to be
served directly by LHE within the
geographic area serviced by Source with
DVDs, CDs and/or magazines (as expanded
from time to time during the term of this
Agreement, the "Territory") and, in
connection therewith, grants Source the
right to sell, distribute and service
Book Product to Stores within the
Territory. Nothing herein shall prohibit LHE
from directly servicing Stores that
affirmatively request to be served directly
by LHE or
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Stores outside the Territory; provided that
if Source elects to expand the
geographic area in which it provides DVD,
CD and/or magazine service it may
notify LHE and expand the Territory and as
soon as practicable after receipt of
such notice LHE shall cease to directly
service Stores within the expanded
Territory except for any Stores that
affirmatively request to be served directly
by LHE. Nothing in this Agreement shall
require Source to purchase any minimum
or specific amount of Book Product nor
shall anything in this Agreement require
Source to distribute any Book Product to
any person or entity.
2. Book Product Requirements. During the
term of this Agreement, Source agrees
to purchase exclusively from LHE all of
Source's requirements of Book Product
for resale to its existing and future
customers that sell Book Product except
for such Book Product as LHE is (a) unable
to supply to Source or (b) not
required and not willing to supply to
Source. During the term of this Agreement,
LHE agrees to sell Book Product to Source
for resale to the Stores except for
such Stores as affirmatively request to be
served directly by LHE, and for
resale to any bookstores that are customers
of Source. It shall be the
responsibility of Source to sell and
deliver Book Product to its customers.
3. Returns. All Book Product purchased
hereunder from LHE that is returnable by
LHE to its suppliers shall be fully
returnable by Source for credit against
future purchases. In order to receive
credit for unsold Book Product, Source
shall (a) return Book Product within a time
period that permits LHE to return
such Product and obtain credit from its
suppliers, and (b) comply with the
return procedures set forth in Exhibit A
hereto.
4. Pricing and Service Terms. LHE shall
sell Book Product to Source in
accordance with the discount terms set
forth in Exhibit B attached hereto. If
and to the extent that LHE experiences a
material change (favorable or adverse)
in its terms of purchase from the
publishers from which it purchases Book
Product, LHE shall promptly notify Source
and the parties shall renegotiate in
good faith the Exhibit B discount terms to
remain in the same economic position
as it is in on the Effective Date of this
Agreement. LHE shall perform the
services set forth in Exhibit A attached
hereto at no additional charge to
Source except as set forth therein.
5. Payment. Payment for Book Product
supplied pursuant to this Agreement shall
be due [***]. Payment for any agreed upon
service charge shall be due [***].
6. Fixture Reimbursement. In the event that
Source or an affiliate begin
supplying Book Product to any customer
previously supplied directly by LHE,
Source shall pay LHE the then current
unamortized value (computed on the basis
of a three-year straight line amortization
period) of any fixtures provided to
such customer by LHE within 30 days of
receipt of LHE's invoice therefore. In
the event that LHE begins supplying Book
Product to any customer previously
supplied by Source, LHE shall pay Source
the then current unamortized value
(computed on the basis of a three-year
straight line amortization period) of any
fixtures provided to such customer by
Source/CLCC within 30 days of receipt of
Source's invoice therefore.
7. Term and Termination. The initial term
of this Agreement shall commence on
the Effective Date of this Agreement and
shall terminate on June 30, 2015.
Thereafter, the term
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[***] indicates confidential material
redacted and filed separately with the
Commission
Page 2 of 9
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shall automatically renew for successive
one-year periods, unless either party
provides written notice of termination to
the other party at least 120 days, and
not more than 180 days, prior to the
expiration of the initial or any renewal
term. Either party may terminate this
Agreement if the other party breaches its
material obligations hereunder, but only
after (a) informing the other party in
writing of the precise nature of the breach
and (b) allowing the other party at
least 60 days to correct the breach other
than with respect to non-payment of
sums due for Book Product supplied, in
which case the other party shall have 10
days to pay any such overdue sums.
Termination of the Agreement for whatever
reason shall not affect or extinguish any
obligation of either party that arose
prior to the termination. Source also shall
have the right to terminate this
Agreement on 90 days notice in the event
that 50 percent or more of the
ownership interest or assets of LHE is sold
or transferred, directly or
indirectly to any of the following entities
or their affiliates: Handleman
Company, Anderson Merchandisers, LP, Ingram
Entertainment, Inc., Baker & Taylor,
Inc., Anderson News Company, Hudson News
Company, News Group, and Ingram Book
Group.
8. Confidentiality. (a) As used in this
Section 8, the "CONFIDENTIAL
INFORMATION" of a party shall mean all
information concerning or related to the
business, operations, financial condition
or prospects of such party or any of
its Affiliates that is disclosed to the
other party (or to which the other party
gains access pursuant to the transactions
contemplated under this Agreement) as
of and after the date of this Agreement,
regardless of the form in which such
information appears and whether or not such
information has been reduced to a
tangible form, and shall specifically
include (i) all inventions, discoveries,
trade secrets, processes, techniques,
methods, formulae, ideas and know-how, if
any, of such party and its Affiliates and
(ii) all financial statements, audit
reports, budgets and business plans or
forecasts of such party and its
Affiliates; provided, that the Confidential
Information of a party shall not
include (A) information which is or becomes
generally known to the public
through no act or omission of the other
party a
