Advertising Agency Agreement - Select Comfort Retail corp. and Messner Vetere Berger McNamee Schmetterer/EURO RSCG Inc.
As of July 1, 2000
Select Comfort Retail Corporation
10400 Viking Drive
Suite 400
Minneapolis, Minnesota 55344
Attention: Mr. William McLaughlin
Chief Executive Officer
Dear Bill:
This will set forth the terms and conditions on which Select Comfort Retail
Corporation ("you" or "your") agree to employ Messner Vetere Berger McNamee
Schmetterer/EURO RSCG Inc. ("we" or "us") and we agree to serve, as your
advertising agency in the United States.
I. BASIC SERVICES
Our services to you shall include services customarily performed by a general
advertising agency. Specifically, we shall do the following:
(a) Formulate and submit for your approval advertising campaigns and
recommendations.
(b) After approval by you, create and prepare advertising for consumer and
trade print, broadcast and outdoor media.
(c) Develop a media strategy and plan for an agreed upon number of test
markets (the "Test Markets") and support the proposed media plan with
advertising strategy and rationales.
(d) Purchase all materials and services necessary for the production of
finished advertisements and commercials.
(e) Execute advertising in finished form.
(f) Forward advertising material to media with proper instructions; it
being understood and agreed that you will be responsible for all media placement
and payment with respect to such advertising material and that for purposes of
our forwarding such material to such media and of
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our administering and monitoring any ongoing obligations, including talent and
other payments, you shall provide to us (or confirm that we have) a full and
accurate media schedule a reasonable time prior to the date that any such
material must be forwarded to the applicable media.
(g) Pay all charges incurred and assumed by us on your behalf in accordance
with the terms of this agreement.
(h) Endeavor to do all of the above on the most advantageous rates, terms
and conditions available.
(i) Develop and provide you with rough concepts for certain significant
collateral materials (such as sales promotion materials, brochures and store
signage).
II. MINIMUM GUARANTEED COMPENSATION
Our compensation for advertising services set forth in Section I above will be a
minimum annual fee of $2,500,000, which you agree to pay in equal monthly
installments of $208,333, on the first of each month commencing July 1, 2000.
(For purposes of clarity, the compensation set forth in this Section II does not
cover any of the services set forth in Section VI below, including without
limitation, media buying and checking services, and if you should desire us to
perform any of the services set forth in Section VI below, including, without
limitation, media buying and checking services, our compensation for such
services shall be negotiated and agreed upon at the time of each such request.)
If this agreement terminates on a date other than the first of a month, a
prorated share of the minimum fee will be due for the final month.
III. MEDIA, PRODUCTION AND OTHER CHARGES
(a) You also agree to pay us for all third party charges incurred on your
behalf for the production and purchase of advertising materials and programs,
including, without limitation, typography, engraving, printing, photographs,
artwork, comprehensive layouts, pasteups, mechanicals, photoboards, research,
film, video tapes, editing, musical compositions and arrangements, radio and
television programs and facilities, talent, props, scenery, sound and lighting
effects, rights, royalties, producers' or packagers' fees, at our net cost.
(b) You also agree to pay us in accordance with our standard charges, which
may be adjusted from time to time, for any studio functions performed by us
including, without limitation, for any paste-ups, mechanicals, comprehensive
production storyboards and photoboards, printing, typography, retouching,
illustration, graphics, animation, designs (including computer aided design),
digital image research, portable media, and color output and prints prepared or
produced by our personnel.
(c) You agree to reimburse us for travel expenses, including
transportation, hotels, meals, etc., of our personnel in connection with the
servicing of your advertising account and any special services; charges
originating with us for costs of forwarding, storing, shipping and mailing,
telephoning, telegraphing, telecopier, facsimile transmissions, duplicating,
courier and messenger services incurred in the servicing of your account;
charges for talent payment services; and charges for legal services authorized
by you, including without limitation, legal
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review of advertising and other materials, trademark and copyright advice and
registrations, negotiation of talent and other extraordinary contracts, and
representation before industry and governmental regulatory agencies.
IV. INCENTIVE COMPENSATION
In the event that we continue to provide advertising services to you after June
30, 2001 (i.e., beyond the end of the first contract year), you and we agree
that we shall be eligible to receive from you incentive compensation for the
second contract year and for each contract year thereafter. The amount and
manner of calculation of such incentive compensation shall be negotiated by you
and us in good faith prior to the commencement of the second contract year and
each contract year thereafter.
V. PAYMENTS
(a) We will bill you for charges in connection with our services upon your
approval of estimates for such charges, and you agree to pay these charges
within thirty (30) days, except that any payments we must make on your behalf
must be collected from you no later than the earliest dates on which we must
make payment on your behalf. In the event that we do not receive payments by the
date set forth above, we shall have the right to not purchase or contract on
your behalf or to cancel any contracts previously entered into on your behalf,
and, in the event that we cancel any such contracts, you shall be responsible
for any charges, commissions and fees incurred prior to, or as a result of, such
cancellation. Billing adjustments will be made for differences between estimated
charges previously billed and charges actually incurred upon completion of each
job or project. If any payment is not received on a timely basis we will have
the right to assess a finance charge of up to one and one-half percent (1 1/2%)
per month on the unpaid balance.
VI. SPECIAL SERVICES
In addition to the basic services, we are prepared to render special services to
you in support of traditional media advertising. Any special services agreed
upon will be rendered in accordance with any special terms agreed upon in
writing and charged to you in accordance with estimates which we will supply
you. Special services will not be credited against any minimum fees. Special
services include, without limitation, the following:
(a) Direct Response advertising and sales promotion material such as
point-of-sale materials, direct mail, leaflets, inserts, catalogs, brochures,
sales films, training films, sales manuals, and other material prepared for use
other than in traditional advertising media; provided, however, that the
development of rough concepts for significant collateral materials shall be
included in Basic Services, in accordance with Paragraph I(i) hereof.
(b) Research services, other than copy development, such as studies of your
products or services, studies of consumer or trade attitudes and behavior.
(c) Design services including packaging, trademarks and corporate identity
programs.
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(d) Special marketing services such as investigations of market potential
and distribution problems.
(e) Services relating to the testing of new product concepts from
pre-testing activities through active test marketing of new products.
(f) Staging or conducting sales or other company meetings and designing and
preparing exhibits for trade or industry shows.
(g) Services related to promotions and events, including, without
limitation, conducting and administering promotions and planning events.
(h) Designing, creating and producing interactive and on-line materials,
Web sites and Web advertising, and serving and maintaining Web sites and Web
advertising.
(i) Media buying and media checking services; provided, however, that if
our advertising campaign performs well in the Test Markets and you roll such
campaign out to additional markets, you and we will negotiate in good faith with
respect to our providing media buying services in connection with such roll out
(and thereafter) as well as the amount of the fee (or other compensation
arrangement) payable by you to us in connection with such media buying services.
VII. GENERAL
(a) We will obtain your written authorization before making any substantial
expenditures on your behalf. We are authorized to act on your behalf as an agent
for a disclosed principal in connection with our services hereunder provided
that such services are in connection with a job or project which has been (or
such services have otherwise been) authorized by you.
(b) If you should desire any advertising material or special material
created by us (or anything derived from such material) to be placed outside the
United States, you and we will agree upon the terms in advance.
(c) As between you and us, any plan, advertising material or special
material which we produce on your behalf will become your property when you have
paid our invoices. Any material or ideas prepared or submitted to you, which you
have chosen not to produce or for which you have not paid our corresponding
production invoices, will remain our property (regardless of whether the
physical embodiment of creative work is in your possession in the form of copy,
artwork, plates, recordings, films, tapes, etc.) and may be submitted to other
clients for their use, provided that such submission or use does not involve the
release of any confidential information regarding your business or methods of
operation. For purposes hereof, "produce' shall be defined as any material which
is created in tangible form pursuant to a signed production estimate.
(d) We hereby agree to indemnify and hold you harmless from and against any
and all claims, demands, regulatory proceedings and all damages, costs
(including, without limitation, settlement costs) and expenses (including,
without limitation, reasonable attorneys' fees) arising from any claim
pertaining to libel, slander, defamation, copyright infringement, invasion of
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privacy, piracy and/or plagiarism arising from your use consistent with releases
and agreements with third parties of any materials we create or supply to you,
except to the extent that such claims arises from materials created or supplied
by you.
(e) Other than that for which we agree to indemnify and hold you harmless
pursuant to Section VII(d) above, you hereby agree to indemnify and hold us
harmless from and against any and all claims, demands, regulatory proceedings
and all damages, costs (including, without limitation, settlement costs) and
expenses (including, without limitation, reasonable attorneys' fees) arising
from or relating to any activities undertaken by us on your behalf, the use by
you, your retailers or dealers, or anyone else of any materials we create or
supply to you, or your products or services.
(f) We will use our reasonable best efforts to guard against any loss to
you caused by the failure of media, suppliers or others to perform in accordance
with their commitments, but we will not be responsible for any such loss or
failure on their part, or any destruction or unauthorized use by others of your
property.
(g) You have the right at any time to direct us to cancel any plans,
schedules or work in progress, but you agree to indemnify us against any loss,
cost or liability we may sustain as a result of such action. We will be entitled
to our commissions, fees and payments for services performed prior to your
instructions to cancel, and for advertising and materials placed or delivered
thereafter if we are unable to halt such placement or delivery. Under no
circumstances will we be obliged to breach any lawful contractual commitment to
others.
(h) In the event that we are required to resort to collection procedures or
litigation for the collection of any compensation due us, we shall be entitled
to collect from you reasonable attorneys' fees and costs in addition to such
compensation.
(i) At reasonable times and on reasonable notice to us, you may examine our
files and records which pertain specifically to your advertising.
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VIII. TERMINATION
(a) We shall continue to serve as your advertising agency until you or we
shall terminate our services with or without cause, or with respect to specified
products or services assigned to us by giving not less than ninety days' prior
written notice by registered mail to the principal place of business of the
other. However, you agree not to give notice of termination prior to April 1,
2001. Notice of termination shall become effective upon receipt of such notice
by the party to whom it is addressed.
(b) Our rights and duties hereunder shall continue in full force during the
ninety day notice period, but our responsibilities shall be limited to
supervising and administering then existing advertising campaigns.
(c) Any reservation, contract or arrangement made by us for you prior to
the termination date which continues beyond the termination date will be carried
to completion by us and paid for by you in accordance with this agreement unless
you direct us to transfer such reservation, contract or arrangement to another
entity and you release and indemnify us, in which event we will attempt to make
such transfer, subject to obtaining any necessary consent of third parties. We
will be entitled to our commissions, fees and payments for services performed
prior to accomplishing the transfer. Upon termination, provided that you have no
outstanding indebtedness to us and you assume any third party obligations
(including, without limitation, any applicable union or guild obligations
relating to the production and use of commercials), we shall transfer in
accordance with your instructions all property and materials owned by you which
are under our control.
(d) All indemnification obligations shall survive the termination of our
services or the termination or expiration of this agreement.
IX. MISCELLANEOUS
(a) This agreement contains the entire understanding between the parties
and may not be altered or waived except by a writing signed by both parties. No
waiver by either party of the breach of any term or condition of this agreement
will constitute a waiver of, or consent to, any subsequent breach of the same or
any other term or condition of this agreement.
(b) This agreement will be governed by the law of the State of New York to
contracts executed and to be performed entirely in the State of New York.
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Please indicate your acceptance of the terms and conditions by
signing the enclosed copy of this letter and returning it to us.
Very truly yours,
MESSNER VETERE BERGER MCNAMEE
SCHMETTERER/EURO
RSCG INC.
By: /s/Larry Dexheimer
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Authorized Officer
AGREED TO:
SELECT COMFORT RETAIL CORPORATION
By: /s/William R. McLaughlin
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Authorized Officer
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