Product Distribution Services Agreement

EXHIBIT 10.8

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Agreement for Product Distribution Services



THIS AGREEMENT (this "Agreement") is made between SmarterKids.com, Inc. ("SmarterKids"), a Delaware corporation with a place of business at 200 Highland Avenue, Needham, MA 02494, and J.L. Hammett Company ("Hammett"), a Massachusetts corporation with a place of business at P.O. Box 859057, One Hammett Place, Braintree, MA 02185-9057. This Agreement supersedes in its entirety the Contract for Services and Term Sheet executed by SmarterKids and Hammett on September 29, 1998.







SmarterKids wishes to purchase certain educational product distribution, logistics, warehouse storage, inventory management, and other order fulfillment services in support of the retail operations at its SmarterKids.com web site. Hammett wishes to provide and sell such services to SmarterKids.





In consideration of their mutual representations, promises and obligations, Hammett and SmarterKids agree as follows:



Services to be Performed



1. Services. Hammett agrees to perform product distribution, transportation,

-------- warehouse storage, inventory management, and return services (collectively, the "Services") for the benefit of SmarterKids as described in Exhibit A. Hammett

--------- agrees to perform the Services for SmarterKids upon receipt of an order for one or more Products (as defined below) sent by electronic data interchange ("EDI") from SmarterKids or its authorized agents. Hammett agrees that the customer data transmitted is the exclusive property of SmarterKids and such data will only be used by Hammett to process SmarterKids' customer orders in conformance with the requirements set forth in Exhibit A.

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Hammett agrees that it shall distribute all SmarterKids products ("Products") in strict conformity with all applicable SmarterKids product specifications and all applicable laws and regulations. Hammett agrees that it shall make no change in or deviate in any way from such specifications except pursuant to instructions from SmarterKids as provided in this Agreement. Hammett agrees to meet or exceed the performance milestones as set forth in Exhibit A.

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2. Additional Services. If Hammett is asked by SmarterKids to perform

------------------- additional services not described in Exhibit A, then the parties agree to

--------- negotiate the specific scope of services and the fees for such services if Hammett is willing to provide such services. If the negotiation is successful, the parties will execute an amendment to this Agreement before the new services are furnished by Hammett. The amendment will contain a detailed description of the new services, the fees for the services, and any other information the parties agree is relevant. Hammett agrees to provide the services in accordance with the Agreement as amended.

3. Customers. Hammett agrees that customer data transmitted to Hammett is the

--------- exclusive property of SmarterKids. Hammett shall not use, distribute, publish, license or transmit any customer data of SmarterKids except to perform the Services. It is acknowledged that customers of SmarterKids may also be customers of Hammett and that the fact that a Hammett customer is also a SmarterKids customer shall not preclude Hammett from distributing, using, publishing, licensing or transmitting information and data that Hammett has independently procured from such a customer.



4. Product Specification. The documentation for each Product to be handled by

--------------------- Hammett in conjunction with its provision of the Services is the product specification ("Product Specification") for such Product. Each Product Specification shall contain a detailed physical description and the SKU for the relevant Product and may contain a list designating approved vendors for such product and instructions relating to the finish packaging, packing and labeling (including placement of trademark/trade names) for such Product. Product Specifications for new Products not originally listed in this Agreement shall become effective when agreed to in writing by SmarterKids and Hammett. Minor changes in Product Specifications may be effected by delivery to Hammett of a written notice of such changes executed by an authorized employee of SmarterKids. Effective upon receipt of such notice, the applicable Product Specification shall include the changes described in such notice.



5. Transportation. Except as may be otherwise directed, each order will be

-------------- shipped using either United Parcel Service ("UPS"), Federal Express ("FedEx") or the United States Postal Service (USPS). Hammett shall use the shipping company and level of delivery service specified by each Customer.



Prices for Services and Payment for Services



6. Payment for Services. For all Services SmarterKids contracts Hammett to

-------------------- perform that are performed by Hammett SmarterKids agrees to pay the amount described in Exhibit B. Hammett will deliver invoices electronically to

--------- SmarterKids calculated in U.S. Dollars that set out the Products sold and charges incurred during the preceding day. Hammett's invoice will segregate the charges for shipping, handling, taxes and duties. SmarterKids will remit all amounts properly due under such invoices within 15 business days of receipt of such invoices. SmarterKids has the right to verify independently all amounts charged by Hammett, should it choose to do so.



7. Compensation. The compensation to be paid by SmarterKids to Hammett for the

------------ Services, along with a description of reimbursable expenses, is set forth in Exhibit B. Hammett's compensation is based upon, and presumes that Hammett will - --------- satisfactorily accomplish, the Services as required by SmarterKids pursuant to the performance standards set forth in Exhibit A.

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8. Transportation. The prices that apply to the transportation of Products to

-------------- Customers under this Agreement are listed in Exhibit C. Transportation Services

--------- performed by UPS, FedEx and the USPS as part of the Services furnished by Hammett are subject to the terms and





conditions of the respective agreements between Hammett and each of these delivery entities (each, a "Shipping Agreement" and collectively, the "Shipping Agreements The terms of this Agreement shall govern any conflicts between it and the Shipping Agreements.



Export and Import



9. Export Compliance. (a) Each party agrees that it will abide by all export

----------------- laws and regulations of the United States with respect to the export of Products and any technical information. Products shall not be supplied to a Customer in any country if (i) the export of any such Product to such country is prohibited by the laws of the United States of America, including the Export Regulations of the Department of Commerce or the International Traffic in Arms Regulation of the Department of State; (ii) the import of any such Product into such country is prohibited by the laws of such country; or (iii) the proper import certificate(s) required by the laws of such country for the lawful importation of any such Product have not been obtained.



(b) Hammett agrees to execute and deliver in time any and all certifications, representations, and other documents required under the laws and regulations of the United States of America or as reasonably requested by SmarterKids.



10. Taxes and Duties. SmarterKids will reimburse all charges paid by Hammett

---------------- on behalf of SmarterKids in performance of storage, repair and shipment services with respect to SmarterKids Products for customs duties, value-added taxes, customs brokers' fees and related taxes assessed, excluding taxes based on the income and property of Hammett. Hammett will include all such charges on its monthly invoice and SmarterKids will remit such sums properly due consistent with the procedures set out in Payment for Services above. SmarterKids has the right to verify independently any and all such charges.



Title; Risk of Loss; Insurance



11. Title, Risk of Loss, Right to Possession. SmarterKids will supply Hammett

---------------------------------------- with certain equipment, parts, materials and Products (collectively, the "Inventory") to be used solely for the purposes of accomplishing the Services. Title to and right to immediate possession of the SmarterKids Inventory supplied by SmarterKids and in the possession of Hammett or its subcontractors shall be and remain in SmarterKids at all times. Hammett reserves no property rights or interest in such SmarterKids Inventory. SmarterKids will bear the risk of loss of such property except for (i) loss due to inventory "shrinkage" greater than 1% in any single year (ii) causes within the control of Hammett. Hammett agrees to reimburse SmarterKids for the replacement cost of Inventory lost as described in (i) or (ii) in the previous sentence. SmarterKids agrees not to hold Hammett responsible for Vendor concealed shortages. SmarterKids reserves the right to remove the SmarterKids Inventory from Hammett upon reasonable notice.



12. Title to Tools, Equipment and Computer Programs. SmarterKids will provide

----------------------------------------------- Hammett, or authorize Hammett to purchase on SmarterKids' behalf, such tooling, equipment and computer programs and services (i.e. a new accounting system) as SmarterKids may specifically require Hammett to obtain in order to provide the Services. Any sums expended by Hammett for such





items shall be included on the invoice and reimbursed by SmarterKids. All such tooling, equipment and computer programs and services shall be and remain the sole property of SmarterKids. Hammett reserves no property rights or interest in such tooling, equipment and computer programs and services. Hammett agrees that it will not use any such tooling, equipment and computer programs and services for any purpose other than the provision of Services for SmarterKids. SmarterKids may obtain possession of any such tools, equipment and computer programs and services at any time upon reasonable notice or at such time as Hammett is no longer using such tooling, equipment or computer programs and services to provide the Services in accordance with this Agreement, or upon the termination or expiration of the Agreement. Equipment and computer programs that have not been provided by SmarterKids and that have not been purchased on SmarterKids request may be used by Hammett for uses other than the Services and will at all times remain the property of Hammett.



13. Maintenance of Tools, Equipment and Computer Programs. Hammett agrees to

----------------------------------------------------- maintain the tools, equipment and computer programs supplied by or procured for SmarterKids for the stated life of each such item at no additional cost to SmarterKids. SmarterKids agrees to cover the cost of any maintenance agreements for the equipment and computer programs supplied or procured solely for the use of SmarterKids.



14. Insurance. (a) SmarterKids Products stored by Hammett on behalf of

--------- SmarterKids are to be insured by SmarterKids.



(b) The parties shall maintain at their own expense adequate (i) comprehensive general liability insurance that includes coverage for product liability, bodily injury and property damage, (ii) worker's compensation insurance, and (iii) automobile liability insurance policies that shall protect the other party from claims for damages which may arise from the negligence or misconduct of the insured party, its employees, agents and subcontractors. In no event shall either party be insured for less than one million dollars for general liability or automobile liability.



License to Perform Services; Trademarks; Confidential Information



15. License to Upgrade and Repair Products. SmarterKids grants to Hammett a

-------------------------------------- non-exclusive license to use the Product Specifications and all related SmarterKids proprietary and Confidential Information and know-how necessary to perform Services pursuant to this Agreement. This license is non-transferable, may be used only in connection with the provision of Services for SmarterKids, and shall expire on the date on which Hammett's obligation to provide Services expires or terminates under this Agreement.



16. Use of Trademarks. SmarterKids shall provide descriptions of the

----------------- trademarks, trade names, insignia, symbols, decorative designs or packaging designs (collectively, the "Trademarks") that are to be affixed to the Products or to the packaging of such Products. Hammett agrees to affix the Trademarks in strict conformity with the instructions and standards provided to it as those instructions and standards are updated in writing by SmarterKids from time to time. Hammett shall have a license to use the Trademarks only for such purposes. However, nothing in this Agreement shall operate to confer on Hammett any right to use any





Trademark for any purpose other than in connection with providing Services in accordance with this Agreement without the prior consent of SmarterKids.



17. Title to Trademarks. All right, title and interest in the Trademarks, and

------------------- all goodwill associated with their use, shall remain the property and inure to the benefit of SmarterKids or its licensors.



18. Confidentiality. (a) "Confidential Information" means any product sales,

--------------- pricing, strategy, performance and projection information, plan, design, configuration, style or concept of any product, drawings, software, data, prototypes, or other business and/or technical information related to products, product plans, and service plans, any scientific, technical, merchandising, production or management design, procedure, formula, discovery, invention, item of information, concept, or improvement, the name of (and any data concerning) any customer, supplier or distributor (and any tangible evidence, record or representation of any of the foregoing) which is maintained in secrecy or confidence by the disclosing party or by any person or entity affiliated with the disclosing party, which might permit the disclosing party or its customers to obtain a competitive advantage over competitors who do not have access thereto or which is provided to the receiving party by the disclosing party pursuant to this Agreement in reliance on the receiving party's agreements contained in this Agreement. Without limiting the generality of the foregoing, this Agreement, including, all exhibits and addenda, the terms of this Agreement, and all SmarterKids product specifications and any document marked SmarterKids "Confidential" or "Proprietary" shall constitute SmarterKids Confidential Information. Also without limiting the generality of the foregoing, any document marked Hammett "Confidential" or "Proprietary" shall constitute Hammett Confidential Information.



Notwithstanding the foregoing, nothing herein shall apply to any information that is known to the receiving party prior to disclosure by the disclosing party, or that is lawfully obtained from any third party, that is or becomes publicly available without restrictions, that is disclosed by the receiving party with prior written permission of the disclosing party, or that is required by law to be disclosed by the receiving party. Information shall be deemed Confidential Information if it is in writing or other tangible form including, without limitation, machine readable object code, if clearly marked as proprietary by the disclosing party or, if disclosed orally or visually, such disclosure is stated as confidential at the time of disclosure and is confirmed as such in writing within 30 calendar days of any such oral or visual disclosure.



(b) Each party agrees that it shall at all times hold confidential all Confidential Information of the other party. Strict compliance of each party and its respective agents, subcontractors and employees with all of the provisions regarding Confidential Information is a material provision of this Agreement.



(c) Each party agrees that it shall not use any Confidential Information or any derivative or variation of Confidential Information except to fulfill its obligations under this Agreement and shall not disclose any Confidential Information to any person or entity outside SmarterKids without prior written permission of an authorized official of SmarterKids or Hammett, as the case may be. Each party shall give access to Confidential Information only to such of its employees, agents, subcontractors or other persons as are engaged in fulfilling its obligations





under this Agreement. Each party agrees further that before giving access to Confidential Information to any of its agents or subcontractors, such agents or subcontractors shall be under an appropriate confidentiality agreement prohibiting any use or disclosure of any of the Confidential Information except in accordance with this Agreement. Each party also agrees that it shall restrict disclosure of Confidential Information to its employees with a need to know who are under appropriate binding agreements to maintain confidentiality and inform all such employees of the obligations assumed here. Neither party shall copy any document or other material containing or embodying Confidential Information beyond that reasonably required for the effective and efficient performance of Services without the prior written consent of the other party. This Agreement shall not be construed to grant to either party any license or other rights in Confidential Information other than those specifically provided for herein.



(d) No license to Hammett under any trademark, patent, copyright, or any other intellectual property right is either granted or implied by the conveying of SmarterKids Confidential Information to Hammett. None of the Confidential Information which may be disclosed by SmarterKids shall constitute any representation, warranty, assurance, guarantee or inducement by SmarterKids of any kind, and in particular, with respect to the non-infringement of trademarks, patents, copyrights, or any other intellectual property rights, or other rights of third persons.



(e) All Confidential Information shall remain the property of the disclosing party and shall be returned to the disclosing party upon written request, upon termination of this Agreement, or upon the receiving party's determination that it no longer has a need for such Confidential Information.



(f) Each party agrees that all of its obligations undertaken regarding Confidential Information shall survive and continue for a period of ten years from the last date of receipt of Confidential Information.



(g) Each party acknowledges that money damages alone will not adequately compensate the other party for the breach by the party or any of its employees, agents, subcontractors or other persons as are engaged in furnishing Services, of any of the covenants and agreements relating to the protection of Confidential Information, and, therefore, agrees that in the event of the breach or threatened breach of any such covenant or agreement, in addition to all other remedies available at law, in equity, or otherwise, the other party shall be entitled to injunctive relief compelling specific performance of, or other compliance with, the terms of this Agreement.



19. No Other Rights Granted. This Agr ...