Distribution Agreement - Warner Publisher Services Inc. and Playboy Enterprises Inc.
This agreement dated as of July 2, 1999 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 or 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.
e. "Cover Price" shall mean the suggested retail selling price of the
Publication(s) (as specified by Publisher on the
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cover of each copy thereof), as the same may be increased or
decreased by Publisher during the term of this agreement.
f. "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
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PLAYBOY Magazine twelve (12 cents) cents ($0.12 USD)
per copy sold; on sales 15%-19.99%
above 500,000 copies the rate is
thirteen (13 cents) cents ($0.13
USD); on sales 20% and above 500,000
copies, the rate will be fifteen (15
cents) cents ($0.15 USD).
All other PLAYBOY fifteen (15 cents) cents ($0.15 USD)
Publications [these per copy sold; on sales 15%- 19.99%
are inclusive of: above 150,000 copies the rate will
PLAYBOY Specials be eighteen (18 cents) cents ($0.18
(38580) USD); on sales 20% and above 150,000
PLAYBOY Lingerie copies the rate will be twenty (20
(38581) cents) cents ($0.20 USD).
PLAYBOY Presents
(38590)
PLAYBOY Private Collection
(38597)]
Any titles launched during the term of the contract will be reviewed
and sales levels established as mutually agreed.
Such flat rates per copy net sale shall be adjusted annually for an
amount equal to the increase in the Consumer Price Index for Urban
New York plus two percent (2%) of the flat rate per net copy sold.
Such adjustments will be effective with the August 2000, August
2001, August 2002 and August 2003 issues. The compounding of such
annual adjustments shall not exceed eighteen percent (18%) over the
duration of the contract period (eighteen
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percent (18%) cap for adjustments to flat rates per copy sold).
A minimum commission of forty-six thousand two hundred dollars
($46,200 USD) per issue will apply for PLAYBOY Magazine.
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).
l. (i) "Term" shall mean the period commencing with the On-Sale Date
of the August, 1999 issue of PLAYBOY Magazine and shall
continue thereafter for a period of four and one-half (4-1/2)
years, terminating on the Off-Sale Date of the January, 2004
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.
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(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
subparagraph 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.l., 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:
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(i) copies of the Publication(s) furnished by Publisher to
subscribers or 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 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
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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 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
distri-
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bution 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.
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
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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 (l/3) of the
total savings recovered by Warner on behalf of the Publisher
from such audits.
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 War-
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ner 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
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.
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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.
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.
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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 two
hundred (200) 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.
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.
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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 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 transporta-
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tion 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
percent (60%) of the estimated Net Sales of the average of the
last three (3) issues of such Publication for which Final
Billings have been determined, payable not later than fourteen
(14) 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.
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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;
(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;
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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 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
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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
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
af-
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fecting 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,
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.
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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 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.
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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
(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.
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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.
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
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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
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.
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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
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 War-
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ner 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 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 ei-
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ther party from any obligation hereunder due and owing to the other party
up to the date of such termination.
26. Confidentiality
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/ Daniel Rubin
------------------------------
Its President
-----------------------------
PLAYBOY ENTERPRISES, INC.
By /s/ Alex Mironovich
------------------------------
Its President
-----------------------------
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EXHIBIT A
ATTACHED TO AND MADE A PART OF
AGREEMENT DATED JULY 2, 1999 BETWEEN
WARNER PUBLISHER SERVICES, INC. ("WPS")
AND
PLAYBOY ENTERPRISES, INC. ("PEI")
Warner Publisher Services
PEI Circulation Commitments
June, 1999
I. National Sales and Services Programs
1. Distribution Assignments
A. PLAYBOY
WPS will work the distribution in WPS' base, prime and
selected tertiary and secondary agencies, which should
represent approximately seventy percent (70%) of WPS' Net
Billing Dollars, two (2) times a year as mutually agreed upon
with WPS and Playboy.
B. Flats (Specials, Lingerie, Presents, Private Collection)
WPS will work the distribution of each of the above "flats" in
WPS' base, prime and selected tertiary and secondary agencies,
which should represent approximately seventy percent (70%) of
WPS' Net Billing Dollars, two (2) times a year as mutually
agreed upon with WPS and Playboy.
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.
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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.
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 two hundred (200)
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
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.
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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
Annually.
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.
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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
o Retail/whole/trade mailings support
o Local promotion support
o Material production support
o Advertising support
Censorship
o Maintain awareness of censorship activity
o Inform, advise and support WPS personnel
o Encourage programs for specific markets
o Periodic attendance of The Media Coalition meetings and
activity reporting
RDA
o Quarterly payment processing
o RDA contract maintenance
o On-line and/or batch reporting of RDA history and activity
o Targeted audits
Order Regulation
o Maintain print order regulation schedule
o Enter allotment changes
o Manage reorders and billing adjustments
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Traffic
o Provide shipping documentation to the bindery
o Investigate shortage claims/trace shipments
o Input and maintain poly-wrap editions
o Process Canadian brokerage claims
(additional traffic processing requests will be handled as a
premium service)
ABC Data Gathering and Reporting
o Conduct ABC audit mailings semiannually
o Recap and provide ABC county/state breakdown on request
o Provide WPS ABC sales analyses
E-Mail Communications Link
o WPS client services/PEI communications
o PEI/WPS field communications
(based on mutually agreed to restrictions)
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