Exclusive CD Manufacturing Agreement

Exhibit (10)(hh)


EXCLUSIVE CD MANUFACTURING AGREEMENT


EXCLUSIVE CD MANUFACTURING AGREEMENT, made as of the 12th day of September 1997, by and between Sofsource, Inc. with offices at 425 South Telshor, Building C, Suite 201, Las Cruces, New Mexico 88011 ("Sofsource"), and Allied Digital Technologies Corporation, a Delaware corporation having its principal place of business at 140 Fell Court, Hauppauge, New York 11788 ("Allied").


W I T N E S S E T H


WHEREAS, Sofsource desires to appoint Allied as the exclusive manufacturer of Sofsource's Product Requirement for its Sofsource Division during the Term, as such capitalized terms are defined herein, and Allied wishes to serve as the exclusive manufacturer of Sofsource's Product Requirement during the Term, all on the terms and conditions set forth in this Agreement;


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the parties hereby agree as follows:


1. Definitions. As used herein, the following terms shall have the respective meanings set forth below:


(a) "Affiliated Entity" shall mean any entity directly or indirectly owned in whole or in part by Sofsource or any such Affiliated Entity, including but not limited to Media Safari.


(b) "Allied Notice" shall have the meaning set forth in Section 9(d).


(c) "Sofsource Group" shall mean the Sofsource Division of Sofsource and Affiliated Entities and each entity with which Sofsource currently or during the Term enters into a joint distribution agreement for any computer disc or for which Sofsource controls or agrees to control the assignment of manufacturing orders for such discs. Each reference to Sofsource in this Agreement shall be deemed to include and refer to each member of the Sofsource Group unless the context otherwise requires.


(d) "Sofsource Notice" shall have the meaning set forth in Section 9(c).


(e) "Assembly Order" shall have the meaning set forth in Section 4(d).


(f) "Communications" shall have the meaning set forth in


Section 22.


(g) "Components" shall mean the following with respect to Product manufactured hereunder, all of which components shall be delivered to Allied by Sofsource at Sofsource's own expense, and all of which shall be referenced at the time of delivery to the Replication Order to which such Components relate:


(1) Mastering discs from a 1630, CD, CD-R, DAT or
8 mm. source master;


(2) Film for two (2) to five (5) color disc
printing, as required;


(3) Booklets/folders and tray liners as appropriate;
and


(4) Special Materials (e.g. stickers, tray cards, registration cards, inserts, etc.), if applicable.


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(h) "Contract Year" shall mean any twelve-month period of time during the Term ending on the anniversary of the date of this Agreement first above stated.


(i) "Fulfillment" shall mean the services described in Exhibit C attached hereto.


(j) Initial Orders" shall have the meaning set forth in Section 4(a).


(k) "Inventory" shall have the meaning set forth in Section 11(b).


(l) "Product" shall mean a computer disc ("CD") replicated from a source master supplied by Sofsource, with materials and services described in Exhibit A attached hereto and packaged in one of the formats described in Exhibit B attached hereto.


(m) "Product Requirement" shall mean the aggregate amount of all Product required by the Sofsource Group in the Territory during the Term.


(n) "Reorders" shall have the meaning set forth in Section 4(b).


(o) "Replication Orders" shall mean an order from Sofsource to Allied for a specified quantity of Product to be replicated and delivered to the Warehouse (or other location specified by Sofsource) for which Allied has been supplied by or on behalf of Sofsource with all required Components.


(p) "Shipping Orders" shall have the meaning set forth in Section 4(e).

(q) "Standards" shall mean industry CD standards.


(r) "Term" shall have the meaning set forth in Section 3.


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(s) "Third Party Manufacturer" shall have the meaning set forth in Section 9(c).


(t) "Third Party Offer" shall have the meaning set forth in Section 9(c).


(u) "Transactional Documents" shall have the meaning set forth in Section 28.


(v) "Warehouse" shall have the meaning set forth in Section 4(a).


2. Appointment, Acceptance, Exceptions.


(a) Appointment and Acceptance. Subject to the provisions of Section 2(b), Sofsource hereby appoints Allied as the exclusive manufacturer of all the Product Requirement of Sofsource during the Term and Allied hereby accepts the appointment as the exclusive manufacturer of Product Requirement of Sofsource during the Term, on the terms and conditions herein provided.


(b) Notwithstanding the provisions of Section 2(a), it is agreed as follows:


(i) Sofsource may utilize other entities for packaging and Fulfillment of CD's replicated by Allied except that Allied shall exclusively Fulfill jewel-cased Product at the Warehouse; (it is anticipated that multi-CD sets in ROM boxes will be assembled and Fulfilled by JVC in Atlanta, Georgia for at least the first year of this Agreement); and


(ii) with respect to Replication Orders for one-hundred thousand (100,000) or more units of the Products, Sofsource may request Allied in its Replication Order for such Products to notify Sofsource as to how many of such units Allied will be able to deliver within the time specified in such Replication Order (which time, at the minimum


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shall be within the parameters set forth in Section 4(a) hereof). Upon receipt of any such request Allied shall promptly notify Sofsource of its delivery


capabilities and, to the extent Allied notifies Sofsource that it is not capable of delivering all of the number of units of Products within the timeframe designated by Sofsource, Sofsource shall be free to have such number of units that Allied is unable to so deliver manufactured by another manufacturer and such Replication Order shall be deemed to be a Replication Order only for the number of units of Products which Allied notifies Sofsource that it is capable of delivering.


3. Term. The initial term of this Agreement shall commence as of the date hereof and shall end on July 14, 2000, unless sooner terminated pursuant to the provisions of this Agreement. The term of this Agreement will be renewed for additional one year terms unless either party gives notice of non-renewal to the other party at least ninety (90) days before the end of the initial term or the then current one-year renewal term. (The initial term and each one year renewal term in effect are referred to as the "Term" as applicable).


4. Orders and Delivery Schedule.


(a) Replication Orders. Sofsource shall deliver written Replication Orders to Allied from time to time. Replication Orders for selections of Product which have not been delivered previously by Allied to Sofsource Group hereunder ("Initial Orders") shall be filled and delivered to Allied's warehouse in Clinton Tennessee, to such other fulfillment facility designated by Allied (either, a "Warehouse") or to such other location specified by Sofsource, not later than seven (7) business days after the receipt by Allied of all


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Components of such Replication Orders. In the event that Sofsource shall designate a location for delivery of a Replication Order other than a Warehouse, the time for delivery shall be extended by the difference in carrier's time between delivery to Clinton, Tennessee and such other location.


(b) Reorders. Replication Orders for selections of Product which have been delivered previously by Allied to Sofsource hereunder ("Reorders") shall be filled and delivered to the Warehouse, not later than five (5) business days after the receipt by Allied of all Components of such Replication Orders, with deliveries to other than a Warehouse to be subject to a similar extended delivery time as provided in Section 4(a) above.


(c) Replication Order and Reorder Contents. Each Replication Order and Reorder shall include the following:


(1) Sofsource purchase order number;


(2) the quantity and description of the Product ordered;


(3) the Sofsource applicable catalog designation, if any;


(4) the selection number of each unit of Product ordered


and the unit replication price therefor, as determined in accordance with Section 10 hereof;


(5) shipping instructions if applicable;


(6) delivery date(s) consistent with Section 4(a) and 4(b) above; and


(7) any other special instructions applicable to such Replication Order.


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(d) Assembly Orders. Sofsource through its authorized personnel, shall deliver written assembly orders to Allied from time to time, specifying in detail the assembly and packaging format to be used with specific numbers of specific items of Product which have been Replicated and are maintained in Inventory at a Warehouse. The designated format shall be one of the formats described in Exhibit B hereto, at the price therein designated ("Assembly Orders"). All Assembly Orders shall be fulfilled within three (3) business days after receipt by Allied of all Components of such Assembly Orders.


(e) Shipping Orders. All Inventory (as defined in Section 11(b) hereof) stored by Allied at the Warehouse for and on behalf of Sofsource, shall be shipped by Allied within thirty six (36) hours of receipt of written shipping orders ("Shipping Orders") received by Allied from Sofsource personnel authorized to place such Shipping Orders and containing at least the following information: Sofsource shipping order number; name and address of customer to whom shipped; method of shipment and identity of carrier; quantity and identity of each Product to be shipped. Except as may be required pursuant to Section 9(e) hereof, all prices described in the Exhibits hereto are F.O.B. the Warehouse. Allied shall use its best efforts to complete and ship orders in accordance with the priority and delivery schedules requested by Sofsource.


(f) Minimum Orders. All Initial Orders shall be for a minimum quantity of 5,000 units and all Reorders shall be for a minimum quantity of 1,000 units.


(g) Authorized Personnel. Sofsource shall designate, from time to time, by written notice to Allied, the names of its personnel who are authorized to place Replication


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Orders, Assembly Orders and Shipping Orders for Product. Allied will accept Replication Orders, Assembly Orders and Shipping Orders only from such designated personnel. Replication Orders, Assembly Orders and Shipping Orders shall be given in writing; provided that in cases of emergency, any of such Orders may be given by telephone. Replication Orders given by telephone shall


include all information required by Section 4(c), Assembly Orders given by telephone shall include all information required by Section 4(d) and Shipping Orders given by telephone shall include all information required by Section 4(e) and each shall be confirmed by a written Replication Order, Assembly Order and/or Shipping Order, as the case may be, delivered to Allied within twenty-four (24) hours thereof, by personal delivery or by telex or telecopier.


(h) Variance of Quantity. Replication Orders shall be manufactured, delivered and billed within a variance of plus or minus ten (plus minus 10%) percent of the quantities set forth in Sofsource's Replication Orders, but in no event more than two thousand (2,000) units as to any Replication Order.


5. Customer Service Representative. Allied shall employ, at its sole cost and expense, a Customer Service Representative whose primary responsibility shall be to facilitate Allied's performance under this Agreement with respect to day-to-day operational matters. Such person may be given other duties provided they do not prevent his or her ability to perform the foregoing services. Such person shall be available to Sofsource during normal business hours to discuss Allied's performance under this Agreement. If Sofsource, in good faith, becomes dissatisfied with such person, Sofsource may request a substitution


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and Allied shall comply with such request by appointing a new Customer Service Representative within a reasonable time after such request.


6. Startup. At Sofsource's costs and expense, it will expeditiously arrange to deliver to Allied premises at Hauppauge, New York and to the Warehouse, its current inventory of Components and Products and Allied shall cooperate with Sofsource in scheduling the receipt of such items at its appropriate location.


7. Quality of Product.


The quality of Product manufactured by Allied for Sofsource, and all of the materials supplied by Allied in connection with the manufacture of Product hereunder, shall meet or exceed the Standards.


8. Exclusivity. Except as provided in Section 2 hereof, Sofsource shall purchase from Allied not less than one hundred percent (100%) of Sofsource's Product Requirement.


9. Allied's Right of First Refusal on New Products.


(a) New Media Products. During the Term, Sofsource agrees that it will not place Replication Orders with any manufacturer other than Allied for Sofsource's requirements of any new product requiring new media (e.g. DVD) unless it has first complied with the provisions of this Section 9.


(b) Solicitation of Orders. If, during the Term,


Sofsource requires the manufacture of any product requiring new media, including but not limited to DVD, then Sofsource may solicit bids from other manufacturers of such product for the purpose of


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obtaining the lowest cost for the manufacture of such new product, consistent with acceptable quality standards as set forth in this Agreement.


(c) Notice of Offers. If, after such solicitation Sofsource receives and intends to accept a written bona fide offer (the "Third Party Offer") from a reputable manufacturer of such new product (the "Third Party Manufacturer") to manufacture such new product for Sofsource in accordance with such quality standards, then, before accepting such Third Party Offer Sofsource shall first give Allied written notice thereof, which notice (the "Sofsource Notice") shall include a copy of the Third Party Offer and shall set forth all of the material terms and conditions of such Third Party Offer, including but not limited to all of the elements relating to the price, quantity and delivery ...