Distribution Agreement - Warner Publisher Services Inc. and Playboy Enterprises Inc.
This agreement dated as of May 27, 1997 between Warner Publisher Services, Inc.,
a New York corporation (herein called "Warner") and Playboy Enterprises, Inc., a
Delaware corporation (herein called "Publisher"),
WITNESSETH:
In consideration of the premises and of the mutual covenants and agreements
herein set forth, the parties hereto hereby agree as follows:
1. Definitions
-----------
As used in this agreement, the following terms shall have the following
respective meanings:
a. "Publication(s)" shall mean the English language United States edition
of PLAYBOY Magazine, all PLAYBOY denominated magazine titles,
including PLAYBOY Specials, PLAYBOY Presents, PLAYBOY Lingerie,
PLAYBOY Private Collection and one-shots (as that term is generally
understood in the publishing industry) and PLAYMATE wall and desk
calendars.
b. "Territory" shall mean the United States, its territories and
possessions and Canada.
c. "Printer's Completion Notice" shall mean a notice delivered to Warner
and executed by the traffic manger shipping manager of the printer
of each issue of the Publication(s) specifying the number of copies of
the Publication(s) shipped in accordance with Warner's instructions.
d. "Net Sales" shall mean [with respect to each issue of the
Publication(s)] the number of copies of the Publication(s) specified
in each Printer's Completion Notice (as the same may be modified or
amended by additional information furnished by the printer or
Publisher) less the number of copies of that issue of the
Publication(s) returned to Warner pursuant to the provisions of
paragraph 8.
1
<PAGE>
e. "Cover Price" shall mean the suggested retail selling price of the
Publication(s) (as specified by Publisher on the cover of each copy
thereof), as the same may be increased or decreased by Publisher
during the term of this agreement.
f. (i) "Warner's Commission" shall mean a sum equal to a flat rate per
net sale copy multiplied by all Net Sales of the Publications as
follows:
Flat Rate Per Net Sale Copy Warner's Commission
--------------------------- -------------------
PLAYBOY Magazine Twelve (12) Cents
$0.12 USD
All other PLAYBOY Fifteen (15) Cents
Publications $0.15 USD
(ii) Except as provided in paragraph 1.f.(iii), a minimum commission
of $46,200 per issue will apply for PLAYBOY Magazine.
(iii) For issues with Net Sales less than 385,000 units and on sale
after the loss of authorized status in any one of the following
chains:
AAFES
Barnes & Noble
Bookstar
Bookstop
Border's
Circle K
Cumberland Farms
B. Dalton
Nexcom or
Waldenbooks,
Warner's commission shall be the sum equal to 2.4% of the United
States Cover Price of all Net Sales of PLAYBOY or the minimum
commission of $46,200, whichever is lower.
2
<PAGE>
g. "Wholesaler Discount" shall mean the discount off the cover price at
which Warner bills wholesalers for copies of the Publication(s).
h. "Gross Billings" shall mean the cover price, less the Wholesaler
Discount, multiplied by the number of copies of the Publication(s)
specified on a Printer's Completion Notice and less Warner's
Commission with respect to such number of copies.
i. "Final Billings" shall mean the cover price, less the Wholesaler
Discount, multiplied by the Net Sales and less Warner's Commission.
j. "On-Sale Date" shall mean the date (designated by Publisher) on which
each issue of the Publication(s) is to be placed for initial sale at
retail outlets.
k. "Off-Sale Date" shall mean the date (designated by Publisher) for
recall of issues of the Publication(s) from sale at retail outlets,
provided, however, that the Off-Sale Date shall not be later than one
(1) day prior to the On-Sale Date of the next succeeding issue of the
Publication(s).
1. (i) "Term" shall mean the period commencing with the On-Sale Date of
the August, 1997 issue of PLAYBOY Magazine and shall continue
thereafter for a period of two (2) years, terminating on the
Off-Sale Date of the July, 1999 issue of PLAYBOY Magazine,
unless earlier terminated as hereinafter provided.
(ii) Notwithstanding any termination of the Term, this agreement
shall continue in full force and effect after the termination
date for the purposes, and only for the purposes, of
distributing the last issue of the Publication(s) and of
handling and crediting returns of unsold copies and making
payments, adjustments and credits, with respect to such
termination date, until the same are completed, made and
settled.
3
<PAGE>
(iii) Publisher shall send Warner written notice of termination at
least ninety (90) days prior to the end of the Term (the "Notice
Date"). Warner shall have the right, upon the Notice Date, to
suspend any further payments to Publisher relating to the
Publication(s) in an amount not to exceed the total of (A) the
"Overdraft" (as hereinafter defined) as reported on the last
payment statement issued to Publisher pursuant to sub-paragraph
7.h. prior to the Notice Date and (B) the Overdraft as
calculated by Warner based upon the sales performance statement
last issued to Publisher pursuant to subparagraph 7.g. prior to
the Notice Date. The total amount of the Overdrafts as
calculated in accordance with (A) and (B) above, shall be
recalculated for each payment and sales performance statement
thereafter issued to Publisher until the parties are able to
effect a final settlement hereunder, provided, however, the
parties shall, in the event of such termination, effect final
settlement hereunder not later than one hundred fifty (150) days
after the Off-Sale Date of the last issue of PLAYBOY Magazine,
flat or special, and not later than one hundred eighty (180)
days after the Off-Sale Date of the last calendar distributed by
Warner hereunder.
(iv) The termination provisions set forth in this subparagraph 1.1.,
including the settling of accounts and suspension of payments,
shall be applicable to any termination of this agreement,
including any termination pursuant to subparagraphs 14.b., 14.c.
and 24. hereof.
2. Rights Granted
--------------
a. Publisher hereby agrees to grant, and does hereby grant, to Warner for
the Term of this agreement and throughout the Territory, the exclusive
right to sell and distribute the Publication(s).
b. The provisions of subparagraph 2.a. shall not apply to:
4
<PAGE>
(i) copies of the Publication(s) furnished by Publisher to
Publisher's entertainment operations and
(ii) Publications, whether in magazine or pamphlet form, prepared by
Publisher for third parties and not distributed in the normal
channels of the magazine distribution industry.
c. Anything in this agreement to the contrary notwithstanding, Publisher
shall have the right to service retailers with Publication(s), either
directly or through national jobbers, wholesalers and jobbers, should
Warner refuse to do so, subject to the following conditions:
(i) For any new retailer account (retail stores not serviced by
Warner's wholesale distributors), Publisher, to the extent it is
not prohibited from doing so, shall supply Warner with a list of
such accounts and shall allow Warner to submit a proposal to
compete for such business on a competitive service and cost
basis.
(ii) If Publisher shall be unable to reach an agreement with Warner
with respect to the servicing of any such new retailer accounts,
Publisher shall not grant the right to service any such accounts
to any third party on terms equal to or less favorable than
those offered by Warner, and shall give Warner the opportunity
to acquire said rights on the best terms offered to Publisher by
any third party [such matching right to apply whether or not
Warner submits a proposal as set forth in paragraph 2.c.(i)
above]. Warner shall have two (2) business days after notice
from Publisher to make a proposal which meets or exceeds such
third party terms. If Warner and Publisher agree that Warner
shall acquire said rights, then any such account shall be
serviced by Warner pursuant to the terms hereof, except as such
terms may be expressly modified or replaced in a fully
5
<PAGE>
executed written amendment hereto. In the event that Warner
cannot, does not or will not meet such third party terms,
Publisher may grant such rights to the third party, but in no
event may Publisher grant such rights to Curtis Circulation Co.,
Eastern News Distributors, Inc., ICD/Hearst Corporation, Kable
News Co., Inc., Murdoch Magazines Distribution Division, or a
current subsidiary or current affiliate of any such companies,
unless no other means of distribution are available.
(iii) For retail accounts that wholesaler(s) refuse to serve, or
retail accounts that refuse service from wholesaler(s),
Publisher, if it chooses to award the service of such business,
shall award such service on the same basis as set forth in
subparagraphs 2.c.(i) and 2.c.(ii) above, except as provided
otherwise in paragraph 23.
d. Publisher shall not be obligated to maintain the publication of any of
the Publication(s). Publisher shall have the sole discretion to
determine the frequency of any of the Publication(s).
e. In the event Publisher decides to distribute PLAYBOY denominated non-
magazine products through I.D. wholesalers, it will first negotiate
with Warner for such rights. If within thirty (30) days after notice
from Publisher that Publisher desires such distribution, Publisher and
Warner have not concluded an agreement, it will be conclusively
presumed that the parties cannot reach an agreement and Publisher will
be free to pursue such distribution free from obligation or liability
to Warner on the condition that if Publisher grants such distribution
rights it will be on terms more favorable to Publisher than the terms
offered by Warner.
3. The Publisher Agrees
--------------------
a. That upon receipt from Warner of the lists of wholesale distributors
to whom copies of the Publication(s) are to be shipped and the number
of copies, Publisher shall
6
<PAGE>
cause to be shipped such designated number of copies in accordance
with said lists and shall cause to be shipped as far enough in advance
of the On-Sale Date of the respective issues of the Publication(s) as
will enable distribution to and by wholesale distributors by the On-
Sale Dates. Publisher shall pay all transportation charges relating to
the shipment of the Publication(s) to wholesale distributors as
aforesaid, provided that if Publisher shall so request, Warner shall
advance such transportation charges, which transportation charges
shall be recovered by Warner as provided in subparagraph 9.b.(iv)
hereof.
b. That Warner may deduct from the payments due Publisher, as provided in
subparagraph 9.b.(ii) hereof, amounts attributable to any and all
copies of the Publication(s) lost or damaged in shipment to wholesale
distributors. Subject to the provisions of paragraph 16. hereof, all
such loss or damage adjustments made by Warner for the benefit of said
wholesale distributors shall be conclusive on the question of loss
and/or damage and binding upon Publisher.
c. That Warner shall allow wholesale distributors the privilege of
returning all unsold copies of the Publication(s) and receiving credit
at the rate charged therefor, in accordance with the terms, conditions
and limitations of paragraph 8. hereof.
4. Billings and Collections
------------------------
Publisher hereby grants and assigns to Warner a continuing security
interest in and to all sums which may be paid or are payable to Warner by
wholesalers or other parties as Gross Billings, Final Billings or otherwise
in connection with the exercise by Warner of its rights pursuant to this
agreement. Although Warner shall not be obligated to segregate any of the
aforesaid sums from any of its other funds, or to pay any interest thereon
to Publisher (other than as may be awarded to Publisher in the event of
non-payment or late payment of such amounts by Warner), Warner shall be
considered a trustee, pledgeholder or fiduciary of Publisher as to such
collected funds.
7
<PAGE>
5. Retail Display Allowance
------------------------
a. Warner shall perform the work of receiving and collating information
from retail magazine dealers and issuing payments on behalf of
Publisher to them for amounts due to them under retail or checkout
display allowance ("RDA") programs conducted by the Publisher in
reference to the Publication(s) as previously authorized by Publisher
in writing for each retail outlet. Such payment to such dealers for
retail or checkout display allowances shall be charged to the
Publisher's account and recovered and received by Warner as provided
in subparagraph 9.b.(iii) hereof. Warner will perform such services
pursuant to the terms and conditions of the Publisher's RDA contracts
on a timely basis and will make such payments to such dealers on not
less than a calendar quarterly basis.
b. (i) For the services to be performed under subparagraph 5.b. and
Exhibit A attached hereto and made a part hereof, Publisher
agrees to pay Warner an annual fee of twenty-two thousand two
hundred dollars ($22,200 USD) for up to thirty-four (34) issues
with an average retailer base of four thousand (4,000) retailers
per issue. In addition, Warner is entitled to receive a pro rata
portion of the annual fee amount for any issue and/or retailer in
excess of the thirty-four (34) issues and the retailer base of
four thousand (4,000) retailers average per issue. Such annual
fee shall be adjusted annually for an amount equal to fifty
percent (50%) of the increase in the Consumer Price Index for
Urban New York and shall be paid to Warner in twelve (12) equal
monthly payments.
(ii) As a result of Warner's performing auditing services of RDA
claims, Warner is entitled to receive one-third (1/3) of the
total savings recovered by Warner on behalf of the Publisher from
such audits.
8
<PAGE>
c. Publisher, on not less than four (4) months prior written notice to
Warner to the claim form mail date for the final RDA quarter to be
administered by Warner, shall have the right to perform the work
related to and to administer its RDA program or use the services of a
third party to perform such work. In which case the payments to be
made under subparagraph 5.b.(i) will continue for four (4) months
after mailing of the claim forms for the final Warner administered RDA
quarter, but will in no event exceed eight (8) monthly payments after
such notice.
6. Credit to Wholesale Distributors
--------------------------------
a. Warner may extend such credit to wholesale distributors as it may
determine, and in connection therewith may take such collection
measures, including, among other things, stopping or holding up
shipment as it may deem advisable with respect to delinquent accounts.
Warner shall bear all losses from uncollectable accounts and any and
all legal fees or other costs or expenses of whatever nature
whatsoever incurred in respect of the Publication(s) for collection or
attempted collection, provided that in the event Warner gives
reasonable notice to Publisher in writing prior to shipment to stop or
hold up shipments to any wholesale distributor and Publisher
nevertheless directs such shipments, Publisher shall bear the
resulting losses of the uncollectable amount only and such amounts
shall be charged to Publisher's account and recovered by Warner as
provided in subparagraph 9.b.(v) hereof.
b. In the event Publisher shall direct shipment of the Publication(s) as
aforesaid, Publisher shall have the right, in its own name and at its
own expense, to institute collection proceedings for such sums against
any such wholesale distributor and to retain any sums so collected.
Nothing herein contained, however, shall require Warner to institute
any such legal action.
7. Warner Agrees
-------------
9
<PAGE>
a. To furnish shipping instructions and addressed labels to Publisher a
reasonable time prior to the shipping date for distribution of the
Publication(s).
b. To bill and collect from wholesale distributors for Warner's own
account and to designate wholesale distributors and other customers.
c. To pay to Publisher the sums specified in paragraph 9.
d. To in good faith consult fully with Publisher's designated
representative(s) with respect to the following, it being understood,
however, that Publisher shall have the final decision with respect to
such matters:
(i) the number of copies of each issue of the Publication(s) to be
printed;
(ii) the number of copies of each issue of the Publication(s) to be
allotted to each wholesale distributor;
(iii) the advertising and promotion campaign for the Publication(s).
e. To designate an employee as the "limited" exclusive Marketing Director
or Marketing Manager for Publisher's Publication(s) and to designate
such employee of Warner to work primarily on coordinating all
distribution relating to Publisher's Publication(s); it being
understood that such designated employee shall perform such services
under Warner's direction and control, that the designation of such
employee shall be in Warner's sole and absolute discretion, that
Warner shall have the sole right to change the employee so designated
and that such employee shall be subject to Publisher's reasonable
right of approval.
Additional activities for other Publishers or other projects shall be
assigned under Warner's direction, control and discretion, but not to
exceed more than twenty percent (20%) of such employee's total
activities.
10
<PAGE>
f. To have Warner's field personnel monitor the sales performance of the
Publication(s) by wholesale distributors.
g. To render to Publisher a sales performance statement for each issue of
the Publication(s) setting forth, in summary form, the issue date, On-
Sale Date and Off-Sale Date, number of copies distributed, returns
received, Net Sales (in both numerical and percentage terms) and the
sales trend of the Publication(s) by comparing, in numerical form, the
Net Sales of the issue of the Publication(s) for which such statement
is being rendered versus that of the one prior issue and the issue of
one year previous.
h. To render to Publisher a payment statement for each issue of the
Publication(s) setting forth, in summary form, the appropriate
calculations pursuant to this agreement.
i. Unless modified by Warner's marketing plan as agreed to by Publisher,
to make annual marketing calls on not less than three hundred (300)
retailer chains. Results of these marketing calls will be reported to
Publisher within seven (7) days of the time the calls are made.
j. That neither Warner nor any person, firm or corporation controlling,
controlled by or under common control with Warner, shall, during the
Term hereof, distribute the publication entitled Hustler or Penthouse
and/or any Hustler or Penthouse denominated products. For purposes of
this paragraph 7.j., any publication published by the publisher of
Penthouse or Hustler magazine which bears the name "Penthouse" or
"Hustler," as applicable, on its cover, shall be deemed to be a
Penthouse or Hustler denominated publication.
k. That Warner shall endeavor to require its wholesalers to promptly
notify Warner of any censorship claims regarding the Publication(s)
and Warner agrees to promptly so notify Publisher of such censorship
claims.
11
<PAGE>
l. To use all reasonable efforts to perform the specific distribution
services set forth in subparagraphs 7.i. and 7.k. above and the
Circulation Commitments attached as Exhibit A hereto and made a part
hereof, some of which services have already been implemented. Upon
Warner's receipt of a written notice by Publisher of Warner's failure
to adhere to a particular obligation set forth in subparagraphs 7.i.
and 7.k. above or Exhibit A hereto, Warner shall immediately commence
the cure of any such failure and shall complete such cure in
accordance with a mutually agreed upon timetable. Neither any failure
by Warner that is cured in accordance with the preceding sentence, nor
any such failure by Warner with respect to which Publisher does not
send Warner a written notice, shall be considered a material breach of
this agreement.
8. Returns
-------
a. In determining the sums payable to Publisher, Warner shall be entitled
to deduct returns of each issue of the Publication(s) shipped to
Warner from wholesalers located in the United States of America and
the Dominion of Canada at any time within one hundred twenty (120)
days of the Off-Sale Date of each Publication(s), but as to the last
issue of the Publication(s) distributed pursuant to this agreement, or
any one-shots or special issues which may hereafter be published by
Publisher and distributed by Warner, Warner may accept returns
shipped at any time within one hundred fifty (150) days of the Off-
Sale Date of such issues of the Publication(s). The aforesaid one
hundred twenty (120) and one hundred fifty (150) day periods shall be
subject to extension, if agreed to by Publisher in advance, by reason
of delay or delays in mail delivery, "acts of God" or any other cause
beyond the reasonable control of Warner and shall also be subject to
extension if Publisher shall consent in writing to such extension.
b. Accordingly, in the event Warner shall receive returns of any issue of
the Publication(s) after final payment of such issue has been
determined and paid pursuant to
12
<PAGE>
subparagraph 9.b. hereof, Warner shall be entitled to deduct such
return at the rate charged therefor from any remittance due Publisher
for any later issues (if any) of the Publication(s) or, if after
termination of this agreement, the Publisher shall make prompt payment
to Warner upon receipt of Warner's statement regarding such returns.
It is the intent and agreement of the parties that returns of a prior
issue can be deducted from payments made by Warner to Publisher, but
only if such returns are received by Warner within one hundred fifty
(150) days of the Off-Sale Dates of the Publication(s) for which such
deductions are made.
c. Warner may accept returns of unsold copies of the Publication(s) by
means of front covers, headings, affidavits or electronic notification
in form satisfactory to Warner. If Publisher shall request, in
writing, full copy returns, Warner shall use its reasonable efforts
to obtain same and, in such case, Publisher agrees to pay for return
transportation and such handling charges as are required, provided
that if Warner shall be unable to obtain such full copy returns from
any wholesaler or other customer, Publisher shall have the right to
require Warner to stop or hold up shipments of the Publication(s) and
subject to paragraph 16. hereof, same shall be accepted by Publisher
as conclusive evidence thereof and Warner is hereby authorized at its
sole cost and expense to destroy any and all front covers or headings
representing such returns.
9. Payment to Publisher
--------------------
In consideration of the rights granted to Warner by Publisher hereunder and
in consideration of Publisher's warranties and representations, Warner
shall make payment to Publisher of the following:
a. (i) As an advance against any and all sums which may become payable
to Publisher pursuant to subparagraph 9.b. with respect to each
issue of each Publication, except, as set forth in subparagraph
9.a.(ii) below, an amount equal to sixty-five percent (65%) of
the estimated Net
13
<PAGE>
Sales of the average of the last three (3) issues of such
Publication for which Final Billings have been determined,
payable not later than seven (7) days after the On-Sale Date of
the issue and upon receipt by Warner of the Printer's Completion
Notice. Warner may also withhold an amount equal to the actual
charges of the last three (3) net issues for which Final
Billings have been determined, for the items in subsections
9.b.(ii) through 9.b.(vi) below.
(ii) As an advance against any and all sums which may become payable
to Publisher pursuant to subparagraph 9.b. with respect to any
particular issue of the Publication(s) for which there is a
substantial increase in both the print run and the projected Net
Sales, an amount to be mutually agreed upon by Warner and
Publisher, payable at a mutually agreed upon time.
b. An amount equal to one hundred percent (100%) of Warner's estimate of
Final Billings [which estimate of Final Billings shall not project
estimated returns or other charges for the period sixty (60) to one
hundred twenty (120) days after the Off-Sale Date of the
Publication(s) not later than sixty (60) days from and after the Off-
Sale Date of that issue of the Publication(s)] after Warner shall have
deducted and retained from such Final Billings (to the extent that
such amounts have not previously been deducted and retained by
Warner) an amount equal to:
(i) All sums advanced to Publisher pursuant to subparagraph 9.a.
above;
(ii) All loss and damage adjustments made by Warner pursuant to
subparagraph 3.c. above;
(iii) All amounts allowed as retail display allowances and related
administrative fees pursuant to paragraph 5.b. above, if
applicable;
14
<PAGE>
(iv) All transportation charges advanced by Warner pursuant to
subparagraph 3.a. above;
(v) All uncollectable amounts and other items properly chargeable to
Publisher referred to in paragraph 6. above;
(vi) The following special allowances which may be granted by Warner:
I. With respect to Reshipping Wholesaler Agencies [defined as
those wholesalers who deliver Publisher's Publication(s) to
retailers via mail or common carrier]:
1) there will be a charge of $14.25 USD per cwt. on all
second class and non-second class entry magazines
delivered via common carrier to retailers for US and
Canada Reshipping Wholesaler Agencies;
2) there will be a charge of $6.40 USD per cwt. on all
second class entry magazines delivered by mail for U.S.
and Canada Reshipping Wholesaler Agencies.
The charges referred to in subdivision 1) and 2) above are
subject to change only with Publisher's prior written
approval.
Publisher shall have the right to approve any Wholesaler
Agency defined as a Reshipping Wholesaler Agency for
Publisher's Publication(s) prior to any charges being
incurred by Publisher. Warner will document all reshipping
charges by publication issue and Reshipping Wholesaler
Agency. Warner agrees to monitor the accuracy of Reshipping
Wholesaler Agency claims by auditing each claiming
Reshipping Wholesaler Agency's records not less than every
15
<PAGE>
six (6) months. All reshipping charges determined by such
audit to be inaccurate will be adjusted within thirty (30)
days of the audit. Such adjustments may be waived only with
Publisher's prior written approval.
II. A charge of $2,000 USD will be made if any analysis of
circulation by population for the Publication(s) is
requested and required for the Audit Bureau of Circulation
report. No charge will be made for the State Circulation
analyses which are customarily made twice a year for the
Publication(s).
(vii) All other proper charges, payments or other reimbursements due
Warner pursuant to the terms of this agreement, including all
returns and other charges of the Publication(s) not charged to
Publisher's account at the time of the payment specified in this
paragraph 9.b. is made, shall be charged against any subsequent
payment pursuant to this paragraph 9.b.; provided, however, that
without Publisher's prior approval no such charges may be
deducted from any payment made more than one hundred twenty
(120) days after the Off-Sale Date of the issue to which the
charges relate.
10. New Titles
----------
In the event that during the Term hereof Publisher enters into any third
party agreements for non-PLAYBOY denominated English language publications,
or Publisher itself publishes such a publication, then such publication(s)
shall be included under the terms and conditions of this agreement,
provided that Publisher has the right to so include the publication(s) in
question. Warner's Commission on such publications will be a sum equal to
2.4% of the U.S. Cover price of all Net Sales.
11. Cross-Collateralization/Overdrafts
----------------------------------
16
<PAGE>
The estimated Final Billings of each issue of all Publication(s)
distributed by Warner pursuant to this agreement shall be treated as a
unit, it being the intention hereof that if the total of the advance
payments made by Warner pursuant to subparagraph 9.a. with respect to any
Publication(s) and the deductible distribution expenses incurred by Warner
pursuant to subdivisions (ii) through (vii) of subparagraph 9.b. with
respect to any issue of such Publication(s) shall exceed the Estimated
Final Billings for the same issue of that Publication(s) (the "Overdraft"),
the Overdraft may be deducted by Warner from any advance and/or payment of
Final Billings which Warner may be required to make on any succeeding issue
or issues of the same Publication(s), or any other Publication(s), the
distribution rights to which have been granted to Warner by Publisher under
this agreement between Warner and Publisher, or shall be refunded or paid
by Publisher immediately upon demand.
12. Publisher's Warranties; Indemnity
---------------------------------
a. Publisher represents and warrants that the rights herein granted to
Warner have not been granted to any other person, firm or corporation;
that it has the right and authority to enter into this agreement and
to perform the obligations hereunder to be performed by Publisher; and
that to the best of Publisher's knowledge, there are no suits or
proceedings pending or threatened against or affecting Publisher
which, if adversely determined, would impair the rights granted to
Warner.
b. Publisher undertakes to indemnify and hold harmless Warner and its
officers, agents or representatives and its wholesalers and retailers
from and against any damages, costs, expenses, judgments, settlements,
penalties, liabilities or losses of any kind or nature (excluding
consequential damages, but including reasonable attorneys' fees)
resulting from any claim, cause of action, suit or other proceedings,
arising out of claims of copyright or trademark infringement, libel,
violations of rights of privacy, publicity or other proprietary rights
in the title, contents or any printed matter of the Publication(s),
including, but not limited to,
17
<PAGE>
advertisements, pictures, photographs, cartoons, caricatures, either
on the cover or in the text thereof or arising out of the breach or
alleged breach of any of the foregoing representations or warranties.
If any such suit, proceeding, claim or demand is brought or made
against Warner, Publisher shall undertake the defense thereof at its
expense, provided that if Publisher shall fail so to do, Warner shall
undertake the defense thereof at Publisher's expense.
c. Warner represents and warrants that it has the right and authority to
enter into this agreement and to perform the obligations hereunder to
be performed by Warner; and that to the best of Warner's knowledge,
there are no suits or proceedings pending or threatened against or
affecting Warner which, if adversely determined, would impair the
services herein to be provided to Publisher.
d. Warner agrees to indemnify, defend and save Publisher harmless of and
from any and all loss, claims, damages, excluding consequential
damages, but including reasonable attorneys' fees, which Publisher may
suffer or incur based on a claim, charge or suit instituted against
Publisher as a result of any act or omission or commission of Warner
in performing its services hereunder, other than acts, omissions or
commissions of Warner undertaken in accordance with Publisher's
instructions.
e. Anything in this paragraph 12. to the contrary notwithstanding,
neither party shall be liable to the other party for any such
indemnification unless the party seeking indemnification has notified
the other party of said claim, action, proceeding or demand as soon as
practicable upon receipt of knowledge of same and afforded the other
party the opportunity to defend or participate in the defense of said
claim, action, proceeding or demand, and further, that no settlement
or payment of any claim, action, proceeding or demand shall be binding
on the indemnifying party unless prior approval and consent is
obtained from the indemnifying party, which said consent will not be
unreasonably
18
<PAGE>
withheld. Each of the parties agrees to cooperate with the other in
the defense of any said claim, action, proceeding or demand.
13. Wholesaler/Customer Bankruptcy -- Computation of Net Sales
----------------------------------------------------------
In the event that a designated wholesale distributor or other customer to
which Warner distributes the Publication(s) on Publisher's behalf shall
take advantage of any federal or state insolvency laws for relief of
debtors, including reorganization, or shall cease its business operation
with the effect that such wholesale distributor or other customer shall
not return its unsold copies of the Publication(s), Warner shall use the
average percent of Net Sales of the Publication(s) as reported by such
wholesale distributor or customer for the twelve (12) months (or such
lesser period if applicable) prior to those months for which such
wholesale distributor or customer shall not return unsold copies of the
Publication(s) shipped to such wholesale distributor or customer for said
months.
14. Assignment
----------
a. This agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that no
assignment of this agreement, voluntary or by operation of law, shall
be binding upon either of the parties hereto without the prior written
consent of the other, which consent shall not be unreasonably
withheld.
b. Notwithstanding the above, Publisher shall have the right, upon one
hundred twenty (120) days' written notice to Warner, to terminate
this agreement subject to the provisions of subparagraph 1.l. above,
in the event of a sale or transfer (by merger or otherwise) of:
(i) any portion of the stock of Warner to the business entity that
publishes or distributes Penthouse or Hustler magazines or
anyone holding a direct or indirect equity interest in such
business entity; or
19
<PAGE>
(ii) all or substantially all of the assets of Warner or more than
fifty percent (50%) of the stock of Warner to a third party
whose relationship to Warner immediately prior to such sale or
transfer is other than that of a parent, subsidiary, affiliated
or related company. If Publisher does not elect to terminate
this agreement, the new owners of Warner shall assume this
agreement and carry out all of its terms and provisions.
c. Notwithstanding subparagraphs 14.a. and b. above, Publisher shall
have the right to terminate this agreement if:
(i) Warner's business operations and organization is acquired,
merged or otherwise combined with another national distributor;
or
(ii) Warner combines its "back room" functions (e.g., billing,
collections, RDA processing, data processing) with another
national distributor other than Time Distribution Services.
Warner shall notify Publisher not less than thirty (30) days prior to the
effective date of (i) or (ii) above. Publisher may terminate this
agreement at any time within the six (6) month period after the ninety (90)
days immediately following the effective date of (i) or (ii) above. The
effective date of such termination will be the Off-Sale Date of that issue
of PLAYBOY Magazine closest to ninety (90) days following the date of such
notification by Publisher.
15. Notices
-------
All notices which either party hereto is required or may desire to give to
the other shall be in writing and sent to the address hereinafter in this
paragraph set forth, or at such other address as may be designated in
writing by any such party in a notice to the other given in the manner
prescribed in this paragraph.
20
<PAGE>
Any notice sent by facsimile shall be deemed received on the date that is
set forth on the confirmation of receipt obtained by the sender, unless
within two (2) business days thereafter the recipient shall have sent to
the sender notice that the facsimile was illegible, in which event the
facsimile shall not be deemed received until the facsimile has been resent
and a new confirmation of receipt has been received by the sender. Any
notice sent by registered mail, return receipt requested, DHL, or other
similar express mail courier, shall be deemed conclusively to have been
given when actually received or refused or upon notification of non-
deliverability by the postal authorities, as the case may be.
To Warner: To Publisher:
Warner Publisher Services, Inc. Playboy Enterprises, Inc.
Attention: President Attention: Publisher
1271 Avenue of the Americas 730 Fifth Avenue
New York, NY 10020 New York, NY 10019
With a copy to: With a copy to:
Warner Publisher Services, Inc. Playboy Enterprises, Inc.
Attention: Vice President and Attention: General Counsel
General Counsel 680 North Lake Shore Drive
1271 Avenue of the Americas Chicago, IL 60611
New York, NY 10020
16. Audit Rights
------------
Publisher may, at its own expense, audit the books and records of Warner
relative to the distribution of the Publication(s) pursuant to this
agreement at the place where Warner maintains such books and records in
order to verify statements rendered to Publisher hereunder. Any such audit
shall be conducted by a reputable public accountant or Publisher's
accountant during reasonable business hours in such manner as not to
interfere with Warner's normal business activities. As true copy of all
reports made by Publisher's accountant shall be delivered to Warner at the
same time as such respective reports are delivered to Publisher by said
accountant. In no event shall audits be made hereunder more frequently
than twice annually.
17. Integration; Waiver; Modification
---------------------------------
21
<PAGE>
This agreement, including Exhibit A, sets forth the full understanding of
the parties and supersedes all earlier understandings and agreements with
respect to the subject matter hereof. No waiver, modification or
cancellation of any term or condition of this agreement shall be effective
unless executed in writing by the party charged therewith. No written
waiver shall excuse the performance of any act other than those
specifically referred to therein.
18. No Partnership, Etc.
--------------------
This agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Warner and Publisher.
Neither party shall have any right to obligate or bind the other party in
any manner whatsoever, and nothing herein contained shall give, or is
intended to give, any rights of any kind to any third persons.
19. Force Majeure
-------------
Neither party shall be liable to the other for the failure to fulfill their
obligations hereunder due to reasons beyond their control, including, by
way of example, governmental restrictions, strikes, war, invasions, civil
riot, breakdown of market distribution facilities or shortages of labor or
material. If any such force majeure event shall prohibit either party from
publishing or distributing (as the case may be) six (6) consecutive issues
of the Publication(s), either party shall have the right to terminate this
agreement upon ten (10) business days' written notice, which notice shall
be in accordance with paragraph 15.
20. Headings
--------
The headings in this agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
21. Governing Law
-------------
22
<PAGE>
This agreement shall be interpreted and construed in accordance with the
laws of the State of New York applicable to agreements entered into and
entirely performed therein.
22. Arbitration
-----------
Any controversy or claim arising out of or relating to this agreement, or
any breach of it, shall be settled by arbitration to be held in New York,
New York in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrators shall
be entered in any court having jurisdiction.
23. Wholesaler Relationships
------------------------
a. If Warner decides to change a wholesaler with which it currently has a
distribution relationship and at least ten percent (10%) of the retail
stores that sell the Publication(s) in the effected area (the
"Effected Stores") refuse to be serviced by the new wholesaler and
such refusal continues for longer than sixty (60) days following the
change in wholesaler, then within ten (10) days following the end of
such sixty (60) day period Warner shall submit to Publisher a proposal
to compete for the business of the Effected Stores on a competitive
service and cost basis.
b. If Publisher shall be unable to reach an agreement with Warner with
respect to the servicing of the Effected Stores, then Publisher shall
not grant the right to service the Effected Stores to any third party
on terms equal to or less favorable than those offered by Warner, and
shall give Warner the opportunity to acquire said rights on the best
terms offered to Publisher by any third party (such matching right to
apply whether or not Warner submits a proposal as set forth in
paragraph 23.a. above). If Warner and Publisher agree that Warner
shall acquire said rights, then the Effected Stores shall be serviced
by Warner pursuant to the terms hereof, except as such terms may be
appropriately modified or replaced in a fully executed written
amendment hereto. In no event may Publisher grant such rights to
Curtis Circulation Co., Eastern News
23
<PAGE>
Distributors, Inc., ICD/Hearst Corporation, Kable News Co., Inc.,
Murdoch Magazines Distribution Division or to a current subsidiary or
current affiliate of any of such companies.
24. Defaults and Right to Cure
--------------------------
If either party shall violate any of its obligations or warranties under
the terms of this agreement, the other party shall have the right and
option, but not the duty, to terminate this agreement upon not less than
ninety (90) days' prior written notice; but no neglect or failure to serve
such notice shall be deemed to be a waiver of any breach of any covenant or
stipulation under this agreement. Such termination of this agreement shall
become effective unless the violation complained of shall be completely
remedied to the satisfaction of such other party within such ninety (90)
day period. If the violation complained of shall be of a kind that a remedy
or cure cannot effectively restore the prior circumstances, then this
agreement, at the option of such other party, shall terminate forthwith
upon service of such notice without any period of grace as aforesaid. The
termination of this agreement shall be without prejudice to any rights that
such other party may otherwise have against the defaulting party under
this agreement or under law.
25. Bankruptcy
----------
If either party shall be adjudicated a bankrupt, shall make any assignment
for the benefit of creditors, shall institute proceedings for voluntary
bankruptcy, shall apply for or consent to the appointment of a receiver, or
if an order shall be entered approving a petition seeking its
reorganization or appointing a receiver of it or its property, then upon
the happening of any one or more of such events, the other party to this
agreement shall have the right to terminate this agreement by giving
written notice of its intention to do so. Any termination of this agreement
pursuant to this paragraph 25. shall not release either party from any
obligation hereunder due and owing to the other party up to the date of
such termination.
26. Confidentiality
---------------
24
<PAGE>
a. Publisher and Warner agree to treat this agreement as proprietary
information and each agrees not to reveal any of the terms hereof to
any third party, for any purpose, without the prior written approval
of the other party, except that each party may disclose this
agreement to outside accountants performing auditing services for such
party or except to the extent required by law. Publisher and Warner
each agree that, after the date hereof, they will take whatever steps
they deem necessary to carry out the intent of this paragraph.
b. Any confidential or proprietary information obtained by either party
from the other in connection with the furnishing of services pursuant
to this agreement shall be kept confidential and shall not be
disclosed to any third party without the prior written approval of the
other party, except to the extent required by law.
WARNER PUBLISHER SERVICES, INC.
By /s/ Dan Rubin
----------------------------
Its President
----------------------------
PLAYB0Y ENTERPRISES, INC.
By /s/ Marianne Howatson 6/3/97
-------------------------------
Its President. Publishing Division.
-------------------------------
25
<PAGE>
EXHIBIT A
ATTACHED TO AND MADE A PART OF
AGREEMENT DATED MAY 16, 1997 BETWEEN
WARNER PUBLISHER SERVICES, INC. ("WPS")
AND
PLAYBOY ENTERPRISES, INC. ("PEI")
Warner Publisher Services
-------------------------
PEI Circulation Commitments
---------------------------
June, 1997
----------
I. National Sales and Services Programs
------------------------------------
1. Distribution Assignments
------------------------
A. PLAYBOY
-------
WPS will work the distribution in WPS' prime agencies, which
should represent approximately seventy percent (70%) of WPS' Net
Billing Dollars, two (2) times a year and will work sixty (60)
agencies targeted by PEI, and mutually agreed upon with WPS, two
(2) times a year.
B. Flats (Specials, Lingerie, Presents, Private Collection)
--------------------------------------------------------
WPS will work the distribution of each of the above "flats" in
WPS' prime agencies, which should represent approximately seventy
percent (70%) of WPS' Net Billing Dollars, one (1) time a year
and will work sixty (60) agencies targeted by PEI, and mutually
agreed upon with WPS, one (1) time a year.
C. Calendars (wall and desk)
-------------------------
WPS will work the distribution of each of the above calendars in
WPS' prime agencies, which should represent approximately seventy
percent (70%) of WPS' Net Billing Dollars, one (1) time a year.
26
<PAGE>
D. New Magazine Launches
---------------------
WPS will work the distribution of any new PEI publication with a
frequency of monthly or greater in accordance with the above
distribution commitments for PLAYBOY.
WPS will work the distribution of any new PEI publication with a
frequency of less than monthly in accordance with the above
distribution commitments for the flats or the calendars as
appropriate.
E. Publisher Sales Programs ("PSP")
--------------------------------
The above distribution assignments will be scheduled in
conjunction with WPS' quarterly Publisher Sales Programs
assignment schedule.
F. Blitzes (Team Surveys)
----------------------
WPS will include all pertinent PEI titles, as directed by PEI, in
survey agencies as determined by WPS on a quarterly basis.
2. Marketing Assignments
---------------------
WPS will complete a targeted marketing assignment quarterly. Targets
will be determined by PEI and mutually agreed upon with WPS. WPS will
make annual marketing calls on not less than three hundred (300)
retailer chains.
3. Point-of-Sale ("POS")
---------------------
WPS will complete targeted point-of-sale assignments determined by PEI
and mutually agreed upon with WPS.
4. Telemarketing
-------------
27
<PAGE>
WPS will continue to use the Telemarketing Department to accomplish
specific objectives in agencies not visited as prime or targeted, as
mutually agreed upon by PEI and WPS.
5. Wholesale Redistribution Program
--------------------------------
WPS will attempt to ensure redistribution of all stock and provide a
stock and redistribution report for every issue of each flat in all
agencies with a draw of five hundred (500) copies or more of that
respective flat.
6. Distribution Maintenance Report
-------------------------------
To be provided for each issue of each PEI title in all agencies
worked.
7. Authorization Confirmation Report
---------------------------------
As mutually agreed upon.
8. Men's General Interest Magazine Sales Trend Report
--------------------------------------------------
Monthly.
9. Magazine Category Sales Trend Reports
-------------------------------------
Quarterly.
10. Retail Class of Trade Report
----------------------------
Annually.
11. "Unreasonable Sales" Program
----------------------------
As mutually agreed upon.
12. Affidavit Audit Program
-----------------------
PLAYBOY will be included on every affidavit audit. Audit agencies will
be determined and scheduled by WPS quarterly and publisher will be
advised in advance of each quarter.
28
<PAGE>
13. Updated WPS Field Training on PEI Procedures and Policy and Sales
-----------------------------------------------------------------
Techniques
----------
Publisher access to Warner field staff sales meetings as mutually
agreed upon.
14. Trade Show Support
------------------
WPS will provide personnel support at mutually agreed upon trade
shows.
15. All Assignments Will Be Recapped and Analyzed Promptly
------------------------------------------------------
II. Operational Support Services
----------------------------
Promotion Services
------------------
. Retail/whole/trade mailings support
. Local promotion support
. Material production support
. Advertising support
Censorship
----------
. Maintain awareness of censorship activity
. Inform, advise and support WPS personnel
. Encourage programs for specific markets
. Periodic attendance of The Media Coalition meetings and activity
reporting
RDA
---
. Quarterly payment processing
. RDA contract maintenance
. On-line and/or batch reporting of RDA history and activity
. Targeted audits
Order Regulation
----------------
29
<PAGE>
. Maintain print order regulation schedule
. Enter allotment changes
. Manage reorders and billing adjustments
Traffic
-------
. Provide shipping documentation to the bindery
. Investigate shortage claims/trace shipments
. Input and maintain poly-wrap editions
. Process Canadian brokerage claims (additional traffic processing
requests will be handled as a premium service)
ABC Data Gathering and Reporting
--------------------------------
. Conduct ABC audit mailings semiannually
. Recap and provide ABC county/state breakdown on request
. Provide WPS ABC sales analyses
E-Mail Communications Link
--------------------------
. WPS client services-PEI communications
. PEI-WPS field communications (based on mutually agreed to
restrictions)
30