AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2002
REGISTRATION NO. 333-83878
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETFLIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7841 77-0467272
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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970 UNIVERSITY AVENUE
LOS GATOS, CA 95032
(408) 399-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
W. BARRY MCCARTHY, JR.
CHIEF FINANCIAL OFFICER
970 UNIVERSITY AVENUE
LOS GATOS, CA 95032
(408) 399-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
LARRY W. SONSINI, ESQ. ROBERT SANCHEZ, ESQ. JONATHAN A. SCHAFFZIN, ESQ.
WILSON SONSINI GOODRICH & ROSATI WILSON SONSINI GOODRICH & ROSATI CAHILL GORDON & REINDEL
PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION 80 PINE STREET
650 PAGE MILL ROAD 7927 JONES BRANCH DRIVE NEW YORK, NEW YORK 10005
PALO ALTO, CA 94304 LANCASTER BUILDING WESTPARK, (212) 701-3000
(650) 493-9300 SUITE 400
MCLEAN, VIRGINIA 22102
(703) 734-3100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to rule
434, please check the following box. [_]
======================================================================================================
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
------------------------------------------------------------------------------------------------------
Common Stock $0.001 par value......................... $115,000,000 $10,580
======================================================================================================
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Amount previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1** Form of Purchase Agreement.
3.1** Amended and Restated Certificate of Incorporation of Registrant.
3.2* Proposed Amended and Restated Certificate of Incorporation of Registrant.
3.3* Amended and Restated Bylaws of Registrant.
3.4** Proposed Amended and Restated Bylaws of Registrant.
4.1** Form of Registrant's Common Stock Certificate.
5.1* Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between Registrant and each of its directors and officers.
10.2* 2002 Employee Stock Purchase Plan.
10.3* Amended and Restated 1997 Stock Plan.
10.4* 2002 Stock Plan.
10.5* Amended and Restated Stockholders' Rights Agreement dated July 10, 2001.
10.6* Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.
10.7* Office Lease dated October 27, 2000 between Registrant and BR3 Partners.
10.8* Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco,
LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to
Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12,
2001 between Registrant and Joseph Sully.
10.9* Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of
Registrant.
10.10* Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.
10.11* Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.
10.12+ Letter Agreement dated May 1, 2000 between Registrant and Columbia TriStar Home
Entertainment, Inc.
10.13+ Revenue Sharing Output License Terms between Registrant and Warner Home Video.
23.1* Consent of KPMG LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).
24.1* Power of Attorney.
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* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested on portions of this exhibit. An unredacted
version of this exhibit has been filed separately with the Securities and
Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Gatos, State of
California, on the 20th day of March, 2002.
NETFLIX, INC.
By: /S/ REED HASTINGS
-----------------------------------
Reed Hastings
CHIEF EXECUTIVE OFFICER
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Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
SIGNATURE TITLE DATE
/S/ REED HASTINGS President, Chief Executive Officer March 20, 2002
------------------------ and Director (principal executive
Reed Hastings officer)
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W. BARRY MCCARTHY, JR.* Chief Financial Officer (principal March 20, 2002
------------------------ financial and accounting officer)
W. Barry McCarthy, Jr.
TIMOTHY M. HALEY* Director March 20, 2002
------------------------
Timothy M. Haley
JAY C. HOAG* Director March 20, 2002
------------------------
Jay C. Hoag
A. ROBERT PISANO* Director March 20, 2002
------------------------
A. Robert Pisano
MICHAEL N. SCHUH* Director March 20, 2002
------------------------
Michael N. Schuh
*By: /S/ REED HASTINGS
------------------------
Reed Hastings
ATTORNEY-IN-FACT
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1** Form of Purchase Agreement.
3.1** Amended and Restated Certificate of Incorporation of Registrant.
3.2* Proposed Amended and Restated Certificate of Incorporation of Registrant.
3.3* Amended and Restated Bylaws of Registrant.
3.4** Proposed Amended and Restated Bylaws of Registrant.
4.1** Form of Registrant's Common Stock Certificate.
5.1* Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between Registrant and each of its directors and officers.
10.2* 2002 Employee Stock Purchase Plan.
10.3* Amended and Restated 1997 Stock Plan.
10.4* 2002 Stock Plan.
10.5* Amended and Restated Stockholders' Rights Agreement dated July 10, 2001.
10.6* Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.
10.7* Office Lease dated October 27, 2000 between Registrant and BR3 Partners.
10.8* Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco,
LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to
Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12,
2001 between Registrant and Joseph Sully.
10.9* Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of
Registrant.
10.10* Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.
10.11* Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.
10.12+ Letter Agreement dated May 1, 2000 between Registrant and Columbia TriStar Home
Entertainment, Inc.
10.13+ Revenue Sharing Output License Terms between Registrant and Warner Home Video.
23.1* Consent of KPMG LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).
24.1* Power of Attorney.
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* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested on portions of this exhibit. An unredacted
version of this exhibit has been filed separately with the Securities and
Exchange Commission.
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ___
day of _______, _____ by and between Netflix, Inc., a Delaware corporation (the
"Company") and ___________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase in
corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(A) Indemnification of Expenses. The Company shall indemnify Indemnitee
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other (hereinafter a "Claim") by reason of (or arising in part
out of) any event or occurrence related to the fact that Indemnitee is or was a
director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations
of the Company under Section 1(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 1(c) hereof is involved) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been a Change in Control the Reviewing Party shall be the Independent Legal
Counsel referred to in Section 1(c) hereof. If there has been no determination
by the Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in
Control of the Company then, with respect to all matters thereafter arising
concerning the rights of Indemnitee to
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the payment of Expenses and Expense Advances under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as now
or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such Independent Legal Counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent Indemnitee would be permitted to be
indemnified under applicable law and the Company agrees to abide by such
opinion. The Company agrees to pay the reasonable fees of the Independent Legal
Counsel referred to above and to fully indemnify Independent Legal Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other provision
of this Agreement other than Section 9 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit,
proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in
the defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee in connection therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitees' right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have
-3-
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company of
a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt
notice of the commencement of such Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such action, suit, proceeding,
inquiry or investigation in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitees'
counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
the Company shall not continue to retain such counsel as selected by the Company
and approved by Indemnitee to defend such Claim, then the Company shall be
liable for the fees and expenses of Indemnitee's counsel. The Company shall have
the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee without the consent
of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement shall
be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation,
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its Bylaws, any agreement, any vote of stockholders or disinterested directors,
the General Corporation Law of the State of Delaware, or otherwise. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action Indemnitee took or did not take while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. (i) To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions for which Indemnitee may not be
indemnified under applicable law; or (ii) to indemnify Indemnitee for
Indemnitee's intentional acts, omissions or transactions in violation of the
Company's policies;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee
and not by way of defense, except (i) with respect to actions or proceedings
brought to establish or enforce a right to indemnification under this Agreement
or any other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
-5-
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) (b) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent entity
(including any constituent of a constituent) absorbed in a consolidation or
merger to which the Company is a party which, if its separate existence had
continued, would have had the power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was a
director, officer, employee, agent or fiduciary of such constituent entity, or
is or was serving at the request of such constituent entity as a director,
officer, employee, agent or fiduciary of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving entity as Indemnitee would have with respect to
such constituent entity if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company."
-6-
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
more than 50% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within three years of the date on which
they are selected by Indemnitee (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other Company indemnitees
under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or, if applicable, Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal
-7-
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect with respect
to Claims relating to Indemnifiable Events regardless of whether Indemnitee
continues to serve as a director, officer, employee, agent or fiduciary of the
Company or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if delivered by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at the Indemnitee address as set forth beneath
Indemnitee signatures to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Chief Executive Officer) or at such
other address as such party may designate by ten days' advance written notice to
the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
-8-
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto,
including the Indemnification Agreement dated ______________ by and between the
Company and Indemnitee.
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
* * * * *
-9-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NETFLIX, INC.
By:____________________________________
Title:_________________________________
Address: 970 University Avenue
Los Gatos, CA 95032
AGREED TO AND ACCEPTED BY:
Signature:_______________________
Printed Name:____________________
Address:_________________________
-10-
Exhibit 10.12
As of May 1, 2000
NETFLIX, Inc.
970 University Avenue
Suite 100
Los Gatos, CA 95032-7606
Attn: Ted Sarandos, Vice President, Content Acquisition
This letter agreement ("Agreement") sets forth the terms of the
agreement between Netflix ("Netflix") and Columbia TriStar Home Entertainment,
Inc. ("CTHE") (formerly known as Columbia TriStar Home Video) in connection with
Netflix's ordering of certain "DVDs" (as such term is defined below) pursuant to
the terms hereof solely for the purposes of renting such DVDs to consumers
pursuant to Netflix's rental-by-mail business, and in connection therewith,
Netflix's and CTHE's participation in a "Revenue Sharing Program" (as defined
below) for the "Rental Pictures" (as defined below) covered by this Agreement.
A. CONDITIONS PRECEDENT: All of CTHE's obligations under this Agreement are
subject to the satisfaction of the following conditions precedent ("Conditions
Precedent"):(i) Netflix's willingness and operational capability to
electronically report to CTHE (utilizing an electronic reporting system approved
by CTHE [CTHE hereby preapproves SuperComm]) point-of-sale information with
respect to Rental Pictures on an ongoing basis; and (ii) CTHE's receipt of this
Agreement executed by Netflix.
1. TERM: The term of this Agreement shall be for a period of 5 years
commencing on June 1, 2000 and ending on May 31, 2005 (the "Term")
unless earlier terminated pursuant to the terms hereof. Each year of the
Term shall be hereinafter referred to as a "Contract Year," with the
first year being referred to as the "First Contract Year," etc.
2. TERRITORY: The territory of the rights granted hereunder shall be and be
limited to the United States and its territories and possessions (the
"Territory").
3. RENTAL PICTURES:
a. Definition: For purposes of this Agreement, "Rental Picture"
shall be defined as [*] motion picture for which CTHE owns or controls
home entertainment distribution rights in the Territory (specifically
including "Direct to Video Pictures," as defined below) which CTHE
intends to release to consumers in the Territory on a Street Date during
the Term for the first time on "DVD". For purposes of this Agreement,
"Direct to Video Pictures" shall mean [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1
[*] motion picture that is initially made available for viewing in the
Territory to consumers in videocassette and/or DVD format or premium
cable premiere format and which otherwise fits within the description of
a Rental Picture. A "DVD" shall mean a digital
versatile disc (or otherwise known as "digital video disc") format and
shall include all sub-formats thereof.
4. RENTAL TERMS: All DVDs ordered by Netflix hereunder shall be included in
Netflix's mail order rental program which makes DVDs available, on a
rental or subscription basis, to consumers for home viewing purposes.
Consumers can access information regarding Netflix's mail-order program
and DVD inventory through Netflix's website at Netflix. In connection
with the foregoing, Netflix represents, warrants and agrees as follows:
a. Shelf Space Guarantee: All Rental Pictures will be placed in the
"New Release" section of Netflix's website [*] for such Rental Picture.
The New Release section shall be accessible by tab from Netflix's Home
Page. The titles shall remain within the rotation of the line listing
and box art for such [*] period.
b. Under the Netflix rental program the customers pay a monthly
flat fee ("Subscription Fee") and may order an unlimited [*] number of
DVD titles [*]. Such termination, if any, shall be CTHE's sole remedy
in connection with any such expansion. Notwithstanding the foregoing,
in the event of such a termination, Netflix shall remain obligated to
CTHE pursuant to the terms and conditions hereof with respect to all
DVDs of Rental Pictures ordered by Netflix prior to the date of such
termination.
c. [*].
d. CTHE Page: Netflix will create and continuously maintain
(subject to CTHE's approval thereof) a "CTHE Page" listing all of CTHE's
available titles which CTHE Page shall be accessible directly from
Netflix's Home Page.
5. ORDER REQUIREMENTS. Netflix shall order [*] Rental Picture
from CTHE (i.e., on an output basis). In connection with each such
order, the following shall apply:
a. Order Requirements: Netflix agrees to order and CTHE agrees to
provide (provided Netflix is not in breach hereunder), a specified
number of DVDs for such Rental Picture determined as follows:
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2
i. First and Second Contract Years. During the First and Second
Contract Years, Netflix shall order such quantity of DVDs [*] basis.
ii. Third, Fourth and Fifth Contract Years. During the Third, Fourth
and Fifth Contract Years, Netflix agrees to order such quantity (which
quantity will be sufficient to [*] or DVDs [*].
6. STREET DATE/ORDERING OF COPIES/DISTRIBUTION OF COPIES: With respect to each
of the Rental Pictures, CTHE shall specify the date for the first DVD
rental by Netflix of such Rental Picture to the general public for home
entertainment purposes (the "Street Date"). Netflix shall place its orders
with CTHE for each Rental Picture, in accordance with subparagraph 5.a.
above ("Initial Order"), not later than [*] prior to the Street Date
for such Rental Picture. Netflix acknowledges and agrees that if Netflix
does not place its Initial Order within such [*] period, CTHE can not
guarantee timely delivery of such DVDs.
7. "REVENUE SHARING PROGRAM": [*] Rental Picture hereunder shall be
ordered by Netflix and shall be provided by CTHE pursuant to the revenue
sharing terms set forth in this Agreement (the "Revenue Sharing Program").
The consideration payable by Netflix for the right to participate in the
Revenue Sharing Program with respect to any particular Rental Picture shall
consist, in whole or in part, of a percentage of the "Rental Revenues" (as
defined below) earned by Netflix from the rental of DVDs of such Rental
Picture.
8. "REVENUE SHARING PERIOD": The "Revenue Sharing Period" for each Rental
Picture shall be [*]. The Revenue Sharing Period for each applicable
Rental Picture shall commence on the Street Date for the applicable Rental
Picture. Netflix shall use commercially reasonable efforts to ensure that
all DVDs of the Rental Pictures subject to inventory levels and
month-to-month cycles) remain available for rental during the entire
Revenue Sharing Period applicable to such Rental Picture.
9. PROGRAM PRICE: In consideration for the rights granted hereunder, for each
DVD of a Rental Picture ordered by Netflix, Netflix shall pay CTHE a
"Program Price" as follows:
a. [*]; plus
b. Revenue Percentage Payment: A share of Rental Revenue derived from the
rental of DVDs ("Revenue Percentage Payment") determined as follows: [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3
[*].
The [*] and the Revenue Percentage Payment shall be hereinafter
referred to as the "Program Price."
c. Definitions.
i. A "Rental Transaction" shall mean each and every time DVD is
mailed or otherwise delivered to a customer. Netflix shall
independently determine and charge its customers whatever Rental
Transaction price it determines is in its own best business interests
and without agreement with CTHE. CTHE does not suggest any particular
Rental Transaction price.
ii. "Rental Revenues" shall mean the aggregate of all revenues
collected in connection with Rental Transactions occurring during the
Revenue Sharing Period, including any [*]
Netflix shall be solely obligated to pay all taxes, fees or
governmental charges required to be paid by Netflix in connection with
Netflix's activities undertaken pursuant to this Agreement. Netflix shall
pay all such taxes within the applicable time periods.
10. [*]: Netflix shall [*] ordered hereunder. At such time as Netflix orders
DVDs of a particular Rental Picture pursuant to the terms hereof, CTHE
shall [*] Notwithstanding the foregoing, Netflix shall discuss each title
with CTHE [*].
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4
11. ADVANCE: For each Rental Picture hereunder [*].
12. DELIVERY/SHIPPING: CTHE will cause a third party duplicator/distributor to
undertake direct distribution of all DVDs ordered by Netflix hereunder to
[*] distribution centers (which shall be designated in writing by Netflix
and which may only be changed upon 30 days prior written notice to CTHE).
CTHE shall determine, in its sole discretion, to deliver DVDs either: [*].
Netflix shall be solely responsible for making all DVDs "rental ready."
CTHE will use reasonable, good faith efforts to deliver all DVDS ordered by
Netflix hereunder to Netflix's distribution centers 7 days prior to the
applicable Street Date(s) for such DVDs.
13. PAYMENT: Netflix shall pay: [*].
14. MISSING DVDS: In the event that DVDs of a Rental Picture are sold, stolen
or otherwise uncounted for during the Revenue Sharing Period for the
applicable Rental Picture ("Missing DVD"), Netflix shall so inform CTHE and
shall pay CTHE a sum equal to [*] ("Missing DVD Fees"). Missing DVD Fees
shall be payable to CTHE [*].
15. REPORTING OBLIGATIONS: Netflix shall report electronically to CTHE, on a
weekly basis, complete and accurate daily information regarding the rental
of DVDs of the Rental Pictures acquired under this Agreement [*], in such
format as may be specified by CTHE from time to time. At CTHE's request,
Netflix shall provide CTHE with a copy of all tracking and other to the
information obtained by Netflix, insofar as such information relates
Rental Pictures. Notwithstanding the foregoing, the parties hereby agree to
work together during the first 90 days of the Term to set up a mutually
acceptable reporting format; provided, however, that in the event of any
disagreement,
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5
CTHE's decision shall prevail. As of August 31, 2000, the foregoing
information shall be provided in a consolidated FTP file.
16. MARKETING SUPPORT: In lieu of specific marketing support programs and as
consideration for services to be performed by Netflix hereunder,[*].
17. AUDIT:
a. Netflix grants CTHE the right, from time to time during the period
commencing on the date hereof and concluding on the date which is 12 months
after the expiration of the Term, upon not less than 7 business days prior
notice, but no more than once in any calendar year, to examine and audit
Netflix's records, invoices, books of account, computer or data base
information which relate to the rental of DVDs of the Rental Pictures
and/or the Revenue Sharing Program for the then immediately preceding 12
month period (including, without limitation, all appropriate information
provided to Netflix by customers, but which shall not include names,
addresses and/or any individual identifying data of such customers). All
such audits shall be conducted by an independent, qualified auditor of
CTHE's choice. All such audits shall be at CTHE's sole cost and expense;
provided however, that in the event such audit shall disclose an error or
errors which in the aggregate equal or exceed 5% of the amounts owed to
CTHE hereunder for the period being audited, Netflix shall promptly
reimburse CTHE for all outside costs and expenses actually incurred in
connection with such audit. CTHE may make copies of or make excerpts from
only such part of Netflix's records, invoices, books of account, computer
or data base information which relate to matters and time frames subject to
examination as herein provided. Such examination shall be at such place
where the relevant information is maintained and during reasonable business
hours and in such manner so as not to interfere with Netflix's normal
business activities. Such examination shall continue for such time as is
reasonably necessary (but in any event not more the 30 consecutive days,
provided that CTHE has been provided with the requisite access and
information) for CTHE to complete the examination. Such right to examine
hereunder is limited to the financial matters in connection with DVDs of
Rental Pictures and/or the Revenue Sharing Program (collectively, "CTHE
Product") and under no circumstances shall CTHE have the right to examine
records relating to Netflix's business generally or with respect to other
projects not related to CTHE Product, for purposes of comparison or
otherwise; provided, however, that where any original income or expense
document with third parties relates to CTHE Product and videocassettes or
DVDs of a third party's titles, CTHE shall have the right to examine such
document; provided, further that any information contained therein which
does not relate to CTHE Product shall be redacted therefrom. Any amounts
determined to be due and owing to CTHE following an audit
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6
shall be paid to CTHE [*].
b. Netflix grants CTHE the right to conduct, or to engage an auditor to
conduct, upon 48 hours notice, on location audits for purposes of
"spot-checking" transaction information relating to the CTHE Product;
provided; that CTHE shall not conduct such audits more than [*] at any
one warehouse or geographical location and shall not interfere with
the on-going business such that CTHE's activity would require Netflix
to shut down its operations at such location.
18. NOTICE: Any notice or communications provided for hereunder must be in
writing and delivered either personally, by messenger, overnight
courier, registered mail, postage prepaid, or facsimile upon proper
confirmation of receipt to the following addresses (or to such other
address as specified by like notice):
For Netflix:
Netflix, Inc.
970 University Avenue
Suite 100
Los Gatos, CA 95032-7606
Attention: Ted Sarandos, Vice President, Content Acquisition
For CTHE:
Columbia TriStar Home Entertainment, Inc.
10202 West Washington Boulevard, 8th Floor
Culver City, CA 90232
Attention: Robin Russell, Senior Executive Vice President
Facsimile: (310) 244-1289
19. REPRESENTATIONS AND WARRANTIES:
a. CTHE warrants and represents that it is a corporation duly
organized and validly existing in good standing under the laws of the
state of Delaware and has the full right, power, legal capacity and
authority to enter into and carry out the terms of this Agreement.
b. Netflix warrants and represents that it is a corporation duly
organized and validly existing in good standing under the laws of the
state of Delaware and has the full right, power, legal capacity and
authority to enter into and carry out the terms of this Agreement.
20. INDEMNIFICATION:
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
7
a. Netflix agrees to indemnify and hold CTHE, its parent, subsidiary and
affiliated companies (including any future parent entity) and their respective
officers, agents, directors and employees, harmless from any and all claims,
damages, liabilities, costs and expenses (including reasonable attorneys fees)
arising out of the breach by Netflix of any warranty, representation or other
term or provision of this Agreement. CTHE shall promptly notify Netflix in
writing of any third party claim or litigation to which this indemnification
applies, and Netflix shall assume the defense of any such claim or litigation
(and CTHE shall have the right to engage separate counsel of its choice and
participate in the defense, negotiation and settlement of such action or
proceeding, but shall bear the fees and expenses of such separate counsel
retained by CTHE and CTHE shall cooperate with Netflix in the defense of such
claim at no cost or charge to Netflix, other than for performing such acts as
Netflix shall request). If, for any reason, Netflix shall fail to appoint
counsel on a timely basis or otherwise fails timely to confirm its assumption of
the defense of any applicable claim, CTHE may engage its own counsel and the
reasonable costs and expenses made in connection therewith shall be paid by
Netflix. Netflix shall have the right to approve or disapprove the settlement or
disposition of any such claim or litigation proposed by CTHE, which right shall
expire 20 business days following Netflix's receipt of written notice with
respect thereto. Netflix shall not have the right to enter into any settlement
or compromise unless, in connection therewith, it shall obtain from the
claimants a full release of all related claims against CTHE.
b. CTHE shall indemnify and hold Netflix, its subsidiary and affiliated
companies and their respective officers, agents, directors and employees,
harmless from any and all claims, damages, liabilities, costs and expenses
(including reasonable attorneys fees) arising out of the breach by CTHE of any
warranty, representation or other term or provision of this Agreement Netflix
shall promptly notify CTHE in writing of any third party claim or litigation to
which this indemnification applies, and CTHE shall assume the defense of any
such claim or litigation (and Netflix shall have the right to engage separate
counsel of its choice and participate in the defense, negotiation and settlement
of such action or proceeding but shall bear the fees and expenses of such
separate counsel retained by Netflix and Netflix shall cooperate with CTHE in
the defense of such claim at no cost or charge to CTHE, other than for
performing such acts as CTHE shall request). If, for any reason, CTHE shall fail
to appoint counsel on a timely basis or otherwise fails timely to confirm its
assumption of the defense of any applicable claim, Netflix may engage its own
counsel and the reasonable costs and expenses made in connection therewith shall
be paid by CTHE. CTHE shall have the right to approve or disapprove the
settlement or disposition of any such claim or litigation proposed by Netflix,
which right shall expire 20 business days following CTHE's receipt of written
notice with respect thereto. CTHE shall not have the right to enter into any
settlement or compromise unless, in connection therewith, it shall obtain from
the claimants a full release of all related claims against Netflix.
c. Notwithstanding the provisions of Paragraph 20. hereof, Netflix hereby
indemnifies, defends and holds harmless CTHE and its successors, permitted
assigns, employees, officers and directors from and against any and all claims
(and any liability, loss, damage, cost and expense, including, without
limitation, reasonable outside attorneys' fees arising out of such claims)
brought by shareholders or potential shareholders of Netflix arising out of any
reference to this Agreement or
8
the terms hereof; Sony Pictures Entertainment, CTHE or any affiliated
entity in any of Netflix's disclosure documents.
21. CONFIDENTIALITY: Other than as may be required (i) by applicable law,
governmental order or regulation or securities laws or by order or decree
of any court of competent jurisdiction, (ii) as part of its normal
reporting requirements or review procedures to its parent company,
auditors, attorneys or other advisors, (iii) in connection with a possible
sale, merger or other consolidation transaction involving it or its parent
company or (iv) in the case of CTHE, as may be disclosed to third party
"profit" participants in connection with the Rental Pictures: neither party
hereto (nor any agent acting on behalf of any party hereto) shall divulge
or disclose to any third party any of the material terms and conditions of
this Agreement (including, without limitation, the existence of this
Agreement or any reference to Sony Pictures Entertainment, CTHE, or any
affiliated entity), or any non-public information concerning the business
or operations of a party (including information concerning Netflix obtained
pursuant to Section 17 hereof) without the prior written consent of the
other party hereto. In the event that disclosure is required pursuant to
clause (i) above, the party so making disclosure shall so notify the other
party (if possible, prior to making such disclosure and in any event as
promptly as practical) and shall use its commercially reasonable efforts to
seek confidential treatment of such information. The initial press release
regarding the parties entering into this Agreement (if any) shall require
the mutual written approval of both parties. Notwithstanding anything to
the contrary contained herein, CTHE hereby acknowledges and agrees that
Netflix may be required to share financial and other reporting information
with respect to the Rental Pictures with the owner/operator of Netflix's
computer program system and certain data information services in order to
allow such owner/operator and/or such data information service to monitor,
update and approve their program and/or service. In the event Netflix is
required to share such information, Netflix shall so inform CTHE and shall,
at CTHE's request, obtain a confidentially agreement, in a form approved by
CTHE, signed on behalf of such owner/operator and/or data information
service. Without limiting the generality of its obligations this Paragraph,
Netflix agrees that it will not share with any third party any financial or
other reporting information with respect to the Rental Pictures which is
kept, maintained or compiled as part of the Revenue Sharing Program, except
as set forth in this Paragraph 21.
22. ASSIGNMENT/CHANGE OF CONTROL:
a. Assignment: CTHE shall be free to assign this Agreement and its rights
hereunder, and to delegate its duties at any time and from time to time, in
whole or in part, to any person or entity; provided, however, that CTHE
shall be released from its obligations under this Agreement only if such
assignment is (i) to a person or entity into which CTHE merges or is
consolidated or (ii) to a person or entity which acquires all or
substantially all of CTHE's business and assets or (iii) to a person or
entity which is controlled by, under common control with, or controls CTHE
or (iv) with Netflix's prior written consent. Netflix shall not assign this
Agreement nor its rights hereunder, nor delegate its duties under this
Agreement in whole or in part, without CTHE's prior written consent (not to
be unreasonably withheld); provided, however, that an assignment pursuant
to or resulting from a sale, exchange or transfer of all or substantially
all of Netflix's business and assets to any person or persons or any other
form of business combination, including, without limitation, a
9
reorganization, merger, consolidation or a sale to the public, shall not
require such consent so long as such assignment is not to a Competing Major
Studio, such party is a financially responsible party capable of performing
all of Netflix's obligations under this Agreement, such party orders DVD's
hereunder solely for the purpose of a rental-by-mail business and which
such party assumes in writing all of Netflix's rights and obligations
hereunder. In the event that Netflix or CTHE assigns its rights or interest
in or to this Agreement pursuant to the terms hereof, in whole or in part,
the assigning party will nevertheless continue to remain fully and
primarily responsible and liable to the other party for prompt, full,
complete and faithful performance of all terms and conditions of this
Agreement. For purposes of this Agreement, a "Competing Major Studio" shall
mean [*] or any division of any of the foregoing, or any entity which
controls, is controlled by or is under common control with any of the
foregoing.
b. Change of Control: For purposes of subparagraph 20.a. hereof, a
"change-of-control" of Netflix shall be deemed to be an assignment and
shall be subject to the provisions of subparagraph 23.a. For purposes of
this Agreement, a "change-of-control" of Netflix shall be deemed to have
occurred, if, following the applicable transaction: a Competing Major
Studio acquires [*] or more of the equity interests in Netflix.
23. REMEDIES: Subject to Paragraph 4.b. hereof, in addition to any and all
other rights and remedies available to it at law or in equity, a non-
defaulting party shall have the right to terminate this Agreement for any
material breach by a defaulting party (a "Material Breach") and/or in the
event of bankruptcy, insolvency, reorganization, assignment for the benefit
of creditors or any such similar proceeding on the part of either party,
or appointment of a receiver (or similar proceeding) for any of such
party's property (each, an "Insolvency Event"). Notwithstanding the
foregoing, in the event of a Material Breach, the non-defaulting party
shall notify the defaulting party of such Material Breach in writing and
the defaulting party shall have 30 days to cure such Material Breach;
provided, that in the event of Netflix's failure to timely report to CTHE
pursuant to Paragraph 15 hereof or to pay (CTHE sums due under this
Agreement, Netflix shall have 14 days to cure such Material Breach. The
non-defaulting party shall have the right to terminate this Agreement for
any such Material Breach that shall remain uncured for 30 (or, if
applicable, 14) days following such notice and/or for any Insolvency Event;
provided, that in the event that such Material Breach (other than
nonpayment) is of a nature that reasonably requires more than 30 (or, if
applicable, 14) days to cure, and the defaulting party is diligently in the
process of such cure, the non-defaulting party will not terminate this
Agreement unless the cure cannot be accomplished, or otherwise is not
accomplished, in 60 days.
24. GOVERNING LAW/ALTERNATIVE DISPUTE RESOLUTION:
a. Governing Law. THE INTERNAL SUBSTANTIVE LAWS (AS DISTINGUISHED FROM THE
CHOICE OF LAW RULES) OF THE STATE OF CALIFORNIA AND THE UNITED STATES OF
AMERICA APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY IN CALIFORNIA
SHALL GOVERN (i) THE VALIDITY AND
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
10
INTERPRETATION OF THIS AGREEMENT, (ii) THE PERFORMANCE BY THE PARTIES OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER, AND (iii) ALL OTHER CAUSES OF
ACTION (WHETHER SOUNDING IN CONTRACT OR IN TORT) ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TERMINATION OF THIS AGREEMENT.
b. Legal Proceedings. The parties hereto agree that any dispute or
controversy relating to any of the matters referred to in clauses (i), (ii)
and/or (iii) of subparagraph 25.a., above, shall be decided by a
Rent-A-Judge, manually selected by the parties (or, if they cannot agree,
by the Presiding Judge of the Los Angeles Superior Court) appointed in
accordance with California Code of Civil Procedure Section 638, sitting
without a jury, in Los Angeles County, California, and the parties hereby
submit to the jurisdiction of such court. All such proceedings shall be
closed to the public and confidential and all records thereto shall be
permanently sealed.
25 MISCELLANEOUS:
a. Nothing contained herein shall be deemed to create a relationship of
partnership, joint venture, agency, fiduciary or employment between the
parties.
b. This Agreement sets forth the entire understanding of the parties
regarding the subject matter hereof and supersedes all prior oral or
written agreements between them.
c. No waiver of any default or breach of this Agreement by either party
shall be deemed a continuing waiver or a waiver of any other breach or
default, no matter how similar.
d. This Agreement may not be changed, modified, amended or supplemented,
except in a writing signed by both parties.
e. Paragraph headings are inserted herein for convenience only and do not
constitute a part of this Agreement.
f. Netflix and CTHE shall execute, acknowledge and deliver any and all
further documents that are necessary, expedient or proper to implement,
administer and effectuate the purpose and intent of this Agreement.
11
g. If any term or provision of this Agreement shall be found to be void
or contrary to law, such term or provision shall, but only to the extent
necessary to bring this Agreement within the requirements of law, be deemed
to be severable from the other terms and provisions of this Agreement, and
the remainder of this Agreement shall be given effect as if the parties had
not included the severed term herein.
Please confirm your agreement with the foregoing by signing below, and
return both copies to the undersigned, after which we will return a fully
executed copy to you.
Very truly yours,
COLUMBIA TRISTAR HOME ENTERTAINMENT, INC.
By: /s/ Robin Russell
--------------------------------------
Title: ROBIN RUSSELL
-----------------------------------
Senior Executive Vice President
Columbia TriStar Home Entertainment
|
AGREED TO AND ACCEPTED THIS 4 DAY OF March, 2002.
NETFLIX
By: /s/ Ted Sarandos
------------------------------
Title: VP Content Acquisition
---------------------------
|
12
Schedule A
Revenue Per Rental Picture Calculation
Scenario I - [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Schedule A
Revenue Per Rental Picture Calculation
Scenario II - [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Schedule A
Revenue Per Rental Picture Calculation
Scenario III - [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
EXHIBIT A
DVD EVENT TITLES
[*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
Exhibit 10.13
REVENUE SHARING
OUTPUT LICENSE TERMS
(RETAILER)
As of June____, 2000
The following (the "Agreement") sets forth the terms of the license agreement
(the "License") between Warner Home Video ("WHV"), a division of Time Warner
Entertainment Company, L.P. and Netflix.com (the "Retailer") for revenue sharing
on WHV's Rental Picture output (as defined below).
1. TERM: Five (5) year period commencing upon the "Street Date" of the first
"Rental Picture" (as such terms are defined below) released by WHV on or after
date of execution of this Agreement.
2. TERRITORY: United States and its territories and possessions only.
3. DEFINITIONS:
a. "Licensed Units" shall mean the total number of DVD units licensed to
Retailer hereunder.
b. "Month" shall be defined as each calendar month, and each Month shall
end on the last day of such month.
c. "Picture Term" means for each Rental Picture the [*](as defined below)
of a title in DVD format.
d. "Rental Picture" means [*], provided, however, that product controlled
by third parties who do not approve of the terms hereof shall be
specifically excluded from Rental Pictures. "New Release" refers to
the initial release of a title in the DVD format. WHV reserves its
right, upon notice to Retailer, prospectively to withdraw any Rental
Picture or distributed line from the terms hereof in the event WHV
ceases to own or control homevideo distribution in the Territory with
respect thereto.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
1
e. "Revenue" means [*] In the case of customer subscriptions (each, a
"Subscription"), Revenue shall be determined [*]. The parties agree
that Retailer's calculation of [*] shall be subject to review and
verification by WHV.
(i) "Bad Debt" shall mean, for purposes hereof [*].
(ii) "Taxes" shall mean any and all sales, excise, value added or
other taxes which meet the following qualifications: (A) the
taxes are separately stated, (B) the taxes are required by law
to be collected from Retailer's customers, and (C) the taxes are
actually paid by Retailer to taxing authorities.
f. "Street Date" means the first day Retailer is permitted by WHV to make
a title available for rental to consumers.
g. "Turn" shall mean [*].
4. LICENSED RIGHTS:
a. Homevideo Distribution License: WHV licenses to Retailer on a limited
and nonexclusive basis homevideo distribution rights to the Rental
Pictures in the DVD format only for rental only in the retail market
in the Territory during the Term, subject to the terms hereunder and
subject to Retailer's agreement to [*] subject to Paragraph 5(a)
below.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2
b. Credit Worthiness: WHV and Retailer agree that this License is and
shall during the Term be conditioned upon and subject to timely
payments by Retailer to WHV in accordance with the terms and
provisions of Paragraphs 5 through 8 below.
c. Reservation of Title: Legal title to, and risk of loss of, the
Licensed Units hereunder shall remain vested in WHV, subject to
disposition of Licensed Units pursuant to Paragraph 8 below. Retailer
shall not permit any encumbrance to attach to any Licensed Units
delivered pursuant to this Agreement.
d. Limitations on Bundling: In the event Retailer elects to bundle Rental
Pictures with any other of Retailer's products, the effective retail
price of the Rental Picture(s) shall be proportionate to the effective
rental and/or retail price of each of the other products in the
bundle, subject to WHV's [*], pursuant to Paragraph
6.a. below.
5. INITIAL PAYMENT TO WHV:
a. Initial Payment: For each Rental Picture licensed hereunder, Retailer
shall [*] aggregate amount (the "Initial Payment") as follows:
(i) [*] or
(ii) [*]
b. Payment Terms. For each Rental Picture, the Initial Payment shall be
due and payable by Retailer [*].
c. [*]: [*] No Initial Payment or any other amount due or owing on any
Rental Picture shall be cross-collateralized with the Initial Payment
or any other amount due or owing on any other Rental Picture(s).
Retailer shall not [*] Initial Payments.
6. REVENUE SHARING: For each Rental Picture, subject to Paragraph 5.c. above,
WHV's share of the Revenue shall be calculated as follows:
a. During the Picture Term: During the Picture Term, [*] WHV's Revenue
Share shall equal [*], as defined in Paragraph 3.e. above.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
3
For purposes of clarification, the parties agree that WHV's share of
Revenue per Subscription shall be calculated as: [*];
[*]
[*]
b. Post-Picture Term: After the Picture Term, [*], subject to Paragraphs
8.a. and b. below.
7. STATEMENTS AND PAYMENTS:
a. Statements: On a Monthly basis, within ten (10) business days after
the Month, for each Rental Picture, Retailer shall provide to WHV, in
the formats reasonably requested and as periodically amended by WHV,
a statement (the "Statement") which reflects the rental and related
activities for such Month, including, without limitation, [*].
b. Payments: For each [*], to the extent any amounts are due
pursuant to the Statements, such amounts shall be due and payable
within [*].
8. TREATMENT OF LICENSED UNITS DURING AND AFTER PICTURE TERM:
a. [*]: The parties agree that in the event a customer of Retailer fails
or refuses to return any Licensed Unit to Retailer, Retailer shall
[*] pursuant to the terms of Paragraph 7 above.
b. Retailer's Rental Inventory: For each Rental Picture, at the
expiration of the Picture Term, Retailer may elect [*] subject to
Paragraph 8.d. below. In such event, Retailer agrees that [*]. The
parties agree that any sale by Retailer of Rental Inventory [*].
In the event a customer of Retailer fails or refuses to return any
Rental Inventory unit to Retailer, [*] pursuant to the terms of
Paragraph 7 above. The parties agree that such amount shall be [*].
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
4
c. Rental Inventory Payment: For each Licensed Unit retained as "Rental
Inventory" within [*] business days after the end of the Picture
Term, Retailer shall pay to WHV [*].
d. Effect of Non-Compliance; Penalty: The parties agree that failure by
Retailer to comply with this Paragraph 8 shall constitute a material
breach of this Agreement. In such case, Retailer shall pay a penalty
(the "Penalty") equal to [*], due to WHV pursuant to the terms of
Paragraph 7 above.
9. MARKETING/PROMOTION: Retailer agrees (i) to keep all Rental Pictures in
a "new release" section for, at minimum, [*] and (ii) to develop, create,
install and maintain in consultation with WHV a WHV-dedicated web page on
Retailer's website with a direct link from Retailer's home page. Retailer
agrees that WHV's positioning (as set forth above) shall be no worse than
the positioning for the video product of any other Studio (as defined
below). Both parties agree to review Retailer's marketing/promotion of
WHV's product on an on-going basis during the Term.
10. DELIVERY: WHV, at its cost, shall use its good faith reasonable efforts
to deliver product to distribution centers designated by Retailer not less
than [*] business days prior to Street Date for each Rental Picture,
subject to timely placement of purchase orders by Retailer (i.e., by
standard order due date).
11. INFORMATION TO BE PROVIDED BY RETAILER: To the extent reasonably
available to Retailer and with respect to WHV product only, Retailer agrees
to provide the following information to WHV at Retailer's expense:
a. Revenue Share Reporting: On a [*], no later than [*] for activity
through the [*], Retailer shall deliver to WHV, via EDI or as
reasonably requested by WHV, reports detailing the number of copies,
the number of [*], in each instance, by format, by warehouse, provided
that for the first ninety (90) days of the Term, the parties will work
together to establish an appropriate reporting system for Retailer.
b. Other Information: Retailer and WHV shall mutually agree on other
information, reporting formats and/or tracking or information formats
and systems to be provided to each other.
12. [*]:
a. Retailer's Warranty: [*]
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
5
[*].
b. WHV's Representation and Warranty: WHV represents and warrants that
the material terms and conditions relating to Term, Revenue splits,
Initial Payments, Rental Inventory payments and/or payment terms as
set forth in this Agreement are [*], Retailer conveys to WHV a
percentage of Retailer's total equity, on a fully diluted basis
immediately prior to the Effective Date (as defined below), comparable
to that percentage granted to WHV by any such other internet retailer.
13. AUDIT RIGHTS: Upon not less than seven (7) days advance written notice to
Retailer, WHV, or its representatives or designees, shall have the right
during normal business hours but not more than one (1) time per year during
the Term and all the Picture Terms and two (2) times after the expiration of
the Term and all the Picture Terms to inspect, audit and make extracts of
the books and records of Retailer insofar as said books and records relate
to the calculation or determination by Retailer of (a) Revenue, (b) WHV's
Revenue Share, (c) Bad Debt, (d) customer freight charges, (e) the rights
licensed hereunder, and (f) Favored Nations compliance and any and all other
obligations of Retailer under this Agreement throughout the duration Term
and all Picture Terms. Such rights of audit shall continue for a period of
one (1) year following the expiration of the last Picture Term, as provided
for under this Agreement. For purposes of clarification, there shall be no
more than one (1) audit per year during the auditable period. The parties
agree that Retailer shall have the right reasonably to approve independent
auditors hired by WHV to conduct an audit, provided that the internal
auditors of WHV and/or Time Warner and the accounting firm of Ernst & Young
or WHV's then existing auditors shall be deemed pre-approved for any and all
audits conducted pursuant hereto.
14. EQUITY POSITION: In partial consideration for the rights granted hereunder,
Retailer agrees to grant to WHV or its designee on the date hereof
___________ shares of Retailer's Series F Non-Voting Convertible Preferred
Stock (the "Shares") representing 1.204% of Retailer's outstanding equity
on a fully diluted basis as of the date hereof; provided, however,
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6
that in the event the Shares represent less than 1.204% of Retailer's
outstanding equity on a fully diluted basis at any time prior to the
effective date of Retailer's registration statement filed under the
Securities Act of 1933 in connection with an initial public offering of
Retailer's shares (the "Effective Date"), then Retailer shall grant
additional equity to WHV for no additional consideration, as necessary,
to maintain WHV's equity position at such percentage. In addition, WHV
shall be entitled to the same information and registration rights with
respect to the Shares, and the Shares will be subject to the same
restrictions related to such rights, as provided in Retailer's Amended
and Restated Stockholders' Rights Agreement dated as of April 13, 2000 to
Holders (as defined therein). Retailer represents and warrants that the
charter documents of Retailer or other documents setting forth the rights
and preferences of the Shares will provide that the Shares are
convertible to common stock of Retailer with full voting rights at any
time that WHV elects to sell or transfer the Shares to a non-affiliated
third party in a registered sale or a private transaction. The parties
agree to execute and deliver in a timely manner all documentation
required to effect the foregoing.
15. CONFIDENTIALITY: Each of WHV and Retailer acknowledges that (i) the terms
and conditions of this Agreement, and (ii) all information and data
(including, without limitation, rental and revenue forecasts, projections
and estimates and actual results, in whatever form or medium)
(collectively, the "Confidential Information") provided by each party to
the other under this Agreement are highly proprietary and confidential.
Each of WHV and Retailer agrees that it shall not use Confidential
Information (other than in connection with the performance of its
obligations under this Agreement or the exercise of its rights under this
Agreement) or disclose Confidential Information to any person (other than
its officers, employees, agents, representative and licensors and
licensees on a need-to-know basis only and who agree to be bound by the
confidentiality obligations hereunder) or unless compelled by subpoena or
court order or state or federal securities laws to disclose any such
Confidential Information. This Paragraph 15 shall survive expiration or
earlier termination of this Agreement.
16. INDEMNIFICATION:
a. Indemnification by Retailer: Except as otherwise provided in
Paragraph 16.b. below, Retailer shall defend, indemnify and hold
WHV, its parent company, their affiliates and subsidiaries, and the
officers, directors, agents and employees of each, free and
harmless from all suits, claims, demands and other liabilities and
expenses (including reasonable attorneys' fees) (each, a "Claim")
which may arise directly or indirectly out of or by reason of (i)
the unauthorized use by Retailer of any patented invention, or of
any copyrighted material provided by WHV, (ii) a Claim from a
customer arising out of Retailer's rental or retail practices or
course of dealing with respect to such customer, and/or (iii) a
breach or violation of this Agreement or any obligation, covenant,
representation or warranty made hereunder by Retailer.
7
b. Indemnification by WHV. Except as otherwise provided in Paragraph
16.a. above, WHV shall defend, indemnify and hold Retailer, its
parent company, their affiliates, subsidiaries, and franchisees, and
the officers, directors, agents, and employees of each, free and
harmless from all Claims (including reasonable attorneys' fees)
which may arise directly or indirectly out of or by reason of (i)
copyright or trademark infringement by, or other third party Claim
against, WHV or Retailer with respect to the content of any Rental
Picture, provided such Claim or infringement is not the result of
the negligence of Retailer or any employee or agent of Retailer,
(ii) a physical defect in any Licensed Unit provided to Retailer
hereunder by WHV, provided such defect was not caused by the
negligence of Retailer or any employee or agent of Retailer, and/or
(iii) a breach or violation of this Agreement or any obligation,
covenant, representation or warranty made hereunder by WHV.
17. REMEDIES:
a. General: Each of WHV and Retailer acknowledge and agree that a
material breach by either party of any of its obligations under this
Agreement, gives the other party the right to terminate this
Agreement upon thirty (30) days prior written notice; provided that
in the event the breaching party cures such breach within the notice
period, the termination notice shall be void with respect to such
cured breach only. Retailer acknowledges that (i) a failure by
Retailer to pay WHV in accordance with the provisions of Paragraphs
5-8 above and (ii) the failure by Retailer validly to issue the
Shares to WHV and to grant certain rights with respect to such
Shares as set forth in Paragraph 14 above in accordance with all
applicable securities laws and regulations shall constitute a
material breach of this Agreement. Retailer waives any rights to
seek injunctive relief with respect to the sale, license and/or
other distribution of any Rental Picture, provided that Retailer
does not waive any right it may have to seek specific performance
under this Agreement with respect to any Rental Picture being
distributed by WHV in the rental retail marketplace. The termination
of this Agreement shall not relieve the parties of any obligations
incurred prior to such termination.
b. Cap on Damages: Retailer specifically waives whatever rights it may
have to seek consequential or punitive damages and/or lost profits
resulting from a breach by WHV of its obligations under this
Agreement; provided, however that this provision shall not limit
Retailer's right to seek and/or obtain actual or direct damages
suffered as a result of any breach by WHV of its obligations under
this Agreement.
18. REPRESENTATIONS AND WARRANTIES:
8
a. Representations and Warranties of Retailer:
(i) Authority: Retailer hereby agrees, warrants and represents that
Retailer has full authority, capacity and ability to execute
this Agreement and to perform all of its obligations hereunder.
(ii) Equity: Retailer hereby agrees, warrants and represents that
Retailer has not and shall not grant to any Studio (as defined
below) as consideration for entering into a revenue sharing
arrangement (for a term of five (5) years or less) an equity
position larger than that held by WHV at the time of such grant.
b. Representations and Warranties of WHV: WHV hereby agrees, warrants and
represents that WHV has full authority, capacity, ability and right to
execute this Agreement, to perform all of its obligations hereunder
and to license the rights to Retailer hereunder pursuant to Paragraph
4 above.
19. TRADEMARKS:
a. NetFlix Trademarks: WHV acknowledges that the Retailer's trademarks
(the "NetFlix Trademarks") belong to Retailer and that WHV shall have
no rights in such NetFlix Trademarks except for the purposes set forth
in this Agreement. WHV shall not use the NetFlix Trademarks in any
manner that is disparaging or that otherwise portrays Retailer in a
negative light. WHV may not alter, modify or change the NetFlix
Trademarks. Any goodwill arising out of the use of the NetFlix
Trademarks hereunder shall inure to the benefit of Retailer. At no
time during or after the term of this Agreement will WHV challenge or
assist others to challenge the NetFlix Trademarks or the registration
thereof or attempt to register any trademarks, marks or trade names
confusingly similar to those Trademarks established as of the
execution or during the term of this Agreement. At Retailer's
reasonable request, all depictions of the NetFlix Trademarks that WHV
intends to use will be submitted to Retailer for approval of design,
color, or other details or will be exact copies of those used by
Retailer. In the event Retailer does not approve of such depiction,
WHV shall cease using such depiction upon reasonable notice.
b. WHV Trademarks: Retailer acknowledges that WHV's trademarks (the "WHV
Trademarks") belong to WHV and that Retailer shall have no rights in
such WHV Trademarks. Retailer shall not use the WHV Trademarks in any
manner that is disparaging or that otherwise portrays WHV in a
negative light. Retailer may not alter, modify or change the WHV
Trademarks. Any goodwill arising out of the use of the WHV Trademarks
hereunder shall inure to the benefit of WHV. At no time during or
after term of this Agreement will Retailer challenge or assist others
to challenge the WHV Trademarks or the registration thereof or attempt
to register any trademarks, marks or trade names confusingly similar
to those Trademarks established as of the execution or during the term
of this Agreement. At WHV's reasonable
9
request, all depictions of the WHV Trademarks that Retailer intends to
use will be submitted to WHV for approval of design, color, or other
details or will be exact copies of those used by WHV. In the event WHV
does not approve of such depiction, Retailer shall cease using such
depiction upon reasonable notice.
20. MISCELLANEOUS:
a. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement
shall be effective against any party unless such modification,
amendment or waiver is approved in writing by both Retailer and WHV.
The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce each
and every provision of this Agreement in accordance with its terms.
b. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
c. Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes
and preempts any prior understandings, agreements or representations by
or between the parties, written or oral, which may have related to the
subject matter hereof in any way.
d. Assignment:
(i) Retailer Assignment: This Letter Agreement shall not be assigned
by Retailer without the prior written consent of WHV, which
consent shall not be unreasonably withheld or delayed, provided
that WHV has the right not to approve an assignment in the event
of a sale of Retailer to a Studio (as defined below) or to a
Third Party Retailer (as defined below).
(ii) WHV Assignment: This Letter Agreement shall not be assigned by
WHV without the prior written consent of Retailer, except to any
corporation or entity which controls, is controlled by, or under
common control with WHV.
(iii) Purchase of Retailer by a Studio or Third Party Retailer.
10
(A) Purchase by Studio: In the event [*] enters into an agreement to
acquire Retailer, WHV shall be given prompt notice of such agreement
and shall have the option to terminate this Agreement immediately upon
written notice to Retailer. Promptly following such notice of
acquisition agreement, Retailer, in consultation with WHV, shall
undertake to provide adequate assurance in writing to WHV that
proprietary and confidential information of WHV shall not be disclosed
to, or otherwise made accessible to, the management or other employees
of such Studio following such acquisition. As used in this Paragraph
20.d.(iii)(A), the term "Studio" shall also include, without
limitation, the respective affiliated corporations which control, are
controlled by, or are under common control with, any such Studio. The
term "control" shall refer to the ownership of at least fifty percent
(50%) of the outstanding voting power of the corporation or entity
which is subject to such "control".
(B) Purchase by/of Third Party Retailer: Subject to Paragraph 20.d.(i)
above, in the event a third party retailer (a "Third Party Retailer")
enters into an agreement to acquire Retailer, or Retailer enters into
an agreement to acquire Retailer, or Retailers enters into an
agreement to acquire a Third Party Retailer, then WHV and Retailer
agree that in such event, the terms of this Agreement shall apply only
to Retailer, unless and until WHV approves in writing inclusion of
such Third Party Retailer hereunder.
(C) Definition of "Purchase": For purposes of this Subparagraph 20.d.(iii)
the term "Purchase" shall include acquisition, merger and/or other
consolidation.
e. Counterparts. This Agreement may be executed in separate counterparts each of
which shall be an original and all of which taken together shall constitute
one and the same agreement.
f. Due Authorization. Each of WHV and Retailer represents and warrants that the
officer executing this Agreement has been duly authorized and that this
Agreement when executed and delivered shall be valid and binding and
enforceable in accordance with its terms.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
11
g. Notices. All notices provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the parties as follows:
If to Retailer:
NetFlix.com, Inc.
750 University Avenue
Los Gatos, CA 95032
Facsimile: (408) 399-3737
Attention: W. Barry McCarthy, Jr., C.F.O.
with a copy to: Robert Sanchez
Wilson, Sonsini, Goodrich & Rosati
Facsimile: (650) 493-6811
If to WHV:
Warner Home Video
4000 Warner Boulevard
Burbank, CA 91522
Attention: Jim Cardwell, Executive Vice President
North American Operations
Beth Baier, Senior Vice President, Business and Legal Affairs
and General Counsel
h. Governing Law. This Agreement and all matters or issues material thereto
shall be governed by the laws of the State of California, applicable to
contracts performed entirely therein.
i. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this
Agreement.
j. Relationship of Parties. Nothing contained herein shall constitute a
partnership, joint venture, association or principal and agent relationship
or be construed to evidence the intention of the parties to constitute such.
Retailer and WHV are independent contractors and neither has any authority
to act on the other's behalf or to bind the other in any way.
k. Force Majeure. Whenever performance by any party of its obligations under
this Agreement, other than any of Retailer's payment obligations hereunder,
is substantially prevented by reason of any act of God, strike, lock-out, or
other industrial or transportational disturbance, fire, lack of materials,
law, regulation or
12
ordinance, war or war conditions, or by reason of any other matter
beyond such party's reasonable control, then such performance shall be
excused and this Agreement shall be deemed suspended during the
continuation of such prevention, and the term shall be extended for a
period equal to the time of such suspension.
l. Third Parties. None of the provisions of this Agreement is intended for
the benefit of or shall be enforceable by any third parties, including
creditors of Retailer or WHV.
m. Survival: The rights, licenses and obligations in the Agreement of
Sections 7, 8.a. and b., 13, 15, 17 and 19 shall survive and continue
after termination or expiration of this Agreement and shall remain in
full force and effect and shall bind the parties hereto and their legal
representatives, successors, heirs and assigns.
In WITNESS WHEREOF, this Agreement was executed by the parties on the date
first written above.
Netflix.com, Inc. WARNER HOME VIDEO, a division of
Time Warner Entertainment Company,
L.P. ("WHV")
By: /s/ Ted Sarandos By: /s/ [ILLEGIBLE]
----------------------------- -----------------------------
Its: Ted Sarandos Its: S.V.P Sales
----------------------------- -----------------------------
VP of Content ACQ.
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