Confidential Portions of this
document have been omitted and filed
separately with the Securities and
Exchange Commission
X.X. Xxxxxxxxx & Sons Co.
Terms of Agreement
X. X. XXXXXXXXX & SONS CO.
TERMS OF AGREEMENT
This agreement between X.X. Xxxxxxxxx & Sons Company (hereinafter referred to as
"Company") and Audio Book Club, Inc., (hereinafter referred to as "Client") sets
forth in terms and conditions for the warehousing and distribution by the
Company of materials from the Client.
DESCRIPTION
Subject to the provisions set forth herein, the Client will be obligated to
utilize and the Company will be required to provide warehousing and distribution
services as described herein. The Client will pay the Company for such services
at the rates set forth in Exhibit B, adjusted over time as described herein.
TERM OF AGREEMENT
The term of this agreement will commence November 1, 1996, and end on October
31, 1998. Thereafter, this Agreement will continue for three-year increments.
After six (6) months, from completion of Customer conversion from Dunmore, PA
warehouse into Louisville, KY warehouse, Client may terminate this Agreement (a)
upon giving the Company sixty (60) days prior written notice of its intent to do
so and paying the Company $20,000; or (b) upon giving the Company ninety (90)
days prior written notice of its intent to do so and paying the Company $10,000;
or (c) upon giving the Company six (6) months prior written notice of its intent
to do so. Company can also terminate this agreement upon giving the Client six
(6) months prior written notice of its intent to do so. Price increase to be
discussed sixty (60) days prior to the end of the agreement and to be agreed
upon by both parties. If parties cannot agree on new price, Client can terminate
this agreement. If parties cannot agree on price prior to the end of this
agreement, Company agrees to perform work at the old price plus the percentage
change in the Consumer Price Index from the fifteenth month preceding the date
of adjustment to the third month preceding the date of adjustment for a period
of at least one hundred-and-twenty (120) days after termination.
MATERIALS
Unless otherwise provided, the Company will supply the materials (cartons and
other shipping containers, etc.) specified herein or their equivalents. It is
understood and agreed that should the Company be unable to obtain such materials
or their equivalents in necessary quantities, the parties will select mutually
agreeable substitute materials. Should the use of such substitute materials or
services increase or decrease the cost of performing work, the prices will be
adjusted to fairly reflect any such increase or decrease in cost. Should there
be extraordinary increases in the costs of cartons or shipping containers
significantly beyond the CPI increase we reserve the right to adjust the pricing
to fairly reflect the increase in cost to the Company after discussion with the
Client. A "significant" increase would be considered an increase of 10% or
greater in a 12 month period with the first period beginning with the date of
the contract. The unavailability of materials will not be considered a breach of
this Agreement unless due to negligence of Company. Should
any volume or trade discounts be earned on materials or services, they will be
retained by the Company. All scrap and by-products will become the Company's
property.
MAILING
For any product, direct mail piece or similar item not associated with the day
to day dealings that the Company performs for the Client, such as generating
labels or shipping audio product. All address labels, mail sack labels, or
magnetic media for the preparation thereof, will be furnished by the Client in
compliance with the current specifications of the facility performing the
mailing and the current U.S. Postal service rules and regulations. The mailing
prices set forth herein are based on U.S. Postal Service regulations and
procedures in effect as of the date hereof. If postal regulations or procedures
change so as to affect the Company's cost of mailing, the prices herein will be
revised to fairly reflect any increase or decrease in such costs. The costs of
postage and permits will be paid by the Client, and the Client will be
responsible, if necessary, for establishing an account at the U.S. Postal Office
with funds sufficient to cover these costs. Nothing contained herein will
require the Company to perform anything in violation of U.S. Postal laws,
regulations, or procedures.
TRANSPORTATION
Unless the Client requests otherwise, the Company will arrange for shipment of
the Client's products from the Company's facility. In such event, the Client
will pay all transportation and/or postage charges, and the Company will be
entitled to retain any brokerage commissions or other service charges earned by
it or its wholly-owned subsidiaries.
TITLE
The Client warrants and represents that all property deposited or to be
deposited with the Company is owned by the Client.
DISPUTES
Should any portion of an invoice become disputed, the Client agrees to pay the
undisputed portion according to its terms and the Client will notify the Company
promptly of the dispute. Both parties agree to use their best efforts to resolve
the disputed portion of such invoice within thirty (30) days of learning of the
dispute.
INTEREST AND COLLECTION COSTS
If Client fails to pay Company's invoices in accord with these terms, Client
agrees to pay interest at the rate of one and one-half percent (1-1/2%) per
month, or the lawful limit if less, on all amounts past due as well as all costs
of collection including but not limited to reasonable attorneys' fees. Company's
failure to xxxx for interest due shall not constitute a waiver of Company's
right to charge interest. If you delay completion of manufacture beyond the
period contemplated by the production schedule, or if partial shipment is made
prior to the completion of the entire quantity, interim billing may be made.
page 2
CREDIT REVIEW
The above provisions may be reviewed by the Company, and should there be a
substantial adverse change in the Client's credit standing or in the event that
the Client does not comply with terms of these provisions, the Company will have
the right to change terms of payment, and the Company's obligation to perform
further work will be subject to reaching mutual agreement on revised terms.
LIEN ON PROPERTY
As security for payments of any sum due or to become due to the Company under
the terms of this Agreement, the Company will have the right, if necessary, to
retain possession of, and will have a lien on all property owned by the Client
and in the Company's possession, and all work in process and undelivered work.
PRICE ADJUSTMENTS
The warehousing and distribution prices stated in this Agreement will be
adjusted on (anniversary date) of each year (" the date of adjustment") during
the term as follows: In (Anniversary month -1) of each year during the term of
this Agreement, the Company will calculate the percentage of change in the
Consumers Price Index ("the CPI") from the fifteenth month preceding the date of
adjustment to the third month preceding the date of adjustment. Should this
calculation show that there has been an increase in the CPI, then effective on
the date of adjustment, each of the warehousing and distribution prices will be
increased by the percentage of increase in the CPI. In such event, at the next
date of adjustment at which the foregoing calculation indicates an increase in
the CPI, the percentage of change in the CPI for the purpose of determining the
price adjustment hereunder, if any, will be calculated from the CPI upon which
the last adjustment of warehousing and distribution prices was based. Any sales,
retailers occupation, service occupation, value added or use tax imposed on
account of these transactions will be added as an extra charge.
GUARANTEE AND LIMITATION OF LIABILITY
The Company will perform the work in a good and workmanlike manner and in
accordance with the requirements stated herein. In the event the work is
defective or delayed due to the Company's fault (including negligence), the
Company will not be liable for special or consequential damages, including, but
not limited to, lost profits or business as such terms are used in the Uniform
Commercial Code enacted in the State of Florida and without regard to whether
this agreement would be a sale of goods or a sale of services under Florida law.
Subject to this limitation, the Client will be entitled to any other rights and
remedies available at law or in equity.
SERVICE LEVELS
Company agrees to fulfill orders in the manner described in Exhibit A. At time
of physical inventory or end of annual certified cycle count, Company guarantees
physical inventory variances to be no greater than one percent (1%) of the total
number of Client's audio books in Company's possession. Company agrees to give
Client written notice whenever
page 3
the physical inventory variance exceeds this level. Company agrees to replace
inventory which exceeds one percent (1%) at the purchase cost from the publisher
to Client.
RESPONSIBILITY FOR SUBJECT MATTER
In furnishing the Company matter to reproduce or to have incorporated in the
completed product, or completed books the Company stores or ships, the Client
represents and warrants that none of such matter (either as furnished the
Company by the Client or as altered by the Company at the Client's direction)
infringes any copyright, is libelous, or otherwise violates the rights of or
will cause damage or injury to other persons, and the Client agrees to indemnify
and save the Company harmless from all losses, damages and expenses, including
attorney's fees, which the Company may suffer as the result of any claim of such
violation, damage or injury.
WORK STOPPAGES
The Company will not be liable for delays or non-performance of this agreement
occasioned by strikes, fires, accidents, or by causes beyond its control
including, but not limited to, the unavailability of materials, purchased
services, utilities or fuel. In the event of a stoppage or delay resulting from
any such cause, the Client at its option may immediately terminate the agreement
or at the Client's election it will permit the Company to perform such parts of
the work as it is capable of performing, and in the event the Client does not
terminate this agreement but instead places any other part of the work
elsewhere, the Company will be entitled to resume the same as promptly as
practicable.
INSURANCE
The Company will carry at it's expense fire, sprinkler leakage and extended
coverage insurance, subject to the usual exclusions, limitations, and conditions
of such policies on the actual cash value of all our materials, work in process,
and all production completed and not shipped, and on the actual cash value of
all other materials furnished by Client, while in Company's care, custody and
control. If Client's property is damaged as a result of an insured peril under
the applicable insurance policy, then, at Company's option, it will either
replace Client's damaged property or reimburse Client for the actual cash value
of the damaged property. If Company elects to reimburse Client for the damaged
property's actual cash value, the amount payable to Client shall be limited to
the proceeds of such policy plus any related deductible, if any, applied to the
claim for damage to your property. For film positives, audio cassettes, compact
discs and other media Company's insurance coverage and Company liability shall
be limited to the cost of blank film, blank audio cassettes, blank compact discs
or blank other media and the cost of duplication from an original or other copy
approved by the Client. Subject to this limitation, the Company agrees they will
carry adequate insurance both in amount and coverage so that the Client will be
reimbursed for its actual losses.
BANKRUPTCY
If either party shall be adjudicated a bankrupt, institute voluntary proceedings
for bankruptcy or reorganization, make an assignment for the benefit of
creditors, apply for or consent to the appointment of a receiver for it or its
property, or admit in writing its inability to pay debts as they become due, the
other party may terminate this Agreement
page 4
by written notice. Any such termination shall not relieve either party from any
accrued obligations hereunder.
CONFIDENTIAL DISCLOSURES
The parties agree that to accomplish the purposes of this agreement, it may be
necessary for the parties to exchange certain information considered
confidential and proprietary. In order to protect the confidential and
proprietary nature of such information, the parties agree as follows:
a. Subject to the provisions of the following paragraph, the term "Confidential
Information" means all information disclosed by either party in a tangible
medium and clearly marked "Confidential", "Restricted", "Secret" or other
similar term; and information disclosed orally by either party or observed by
either party during a visit to the other s facility, clearly identified as
confidential at the time of disclosure, and subsequently confirmed in writing as
confidential. Notwithstanding the foregoing the list of Clients customers and
information related to those customers (i.e. sales, returns, payments) will be
considered to be Confidential Information without any marking. Company will
provide monthly computerized information relating to the Client s customers and
products. Additional reports, reports requiring customized format or reports
involving information which is more than twelve (12) months old will be subject
to mutual agreement on format and prices.
b. Confidential Information does not include information that (a) is or becomes
available to the public through no breach of the Confidential Disclosures
provisions of this Agreement, (b) is already known to the recipient at the time
of disclosure, (c) is or becomes available to one party and the other agrees in
writing is not confidential, or (d) is independently developed by personnel of
the recipient that have no knowledge of information disclosed under the
Confidential Disclosures provisions of this Agreement.
c. Each party agrees that it will (a) only use Confidential Information of the
other for the purposes described in this Agreement, (b) not disclose
Confidential Information to any employees who do not have a reasonable need for
such information, (c) instruct all employees who have access to Confidential
Information of the necessity to maintain the confidentiality of such
information, and (d) use the same degree of care it would use with its own
information of equal importance, but in no event less than reasonable care, not
to disclose to any third party and Confidential Information of the disclosing
party without the prior written consent of the disclosing party.
d. All Confidential Information in the form of record bearing media and all
copies will be resumed to the disclosing party promptly upon its written
request.
e. All rights that the disclosing party may have in Confidential Information,
such as rights of patent, copyright, trade secret or similar intellectual
property right, shall be retained exclusively by the disclosing party. Nothing
in this Agreement shall be construed as granting any license, waiver or right to
the recipient with respect to any Confidential Information disclosed under this
Agreement.
f. The confidentiality obligations of this Agreement shall terminate with
respect to each individual disclosure of Confidential Information on the third
anniversary of the date of disclosure of such Confidential Information except
for the list of Client s customers and
page 5
information related to those customers (i.e. sales, returns, payments) which
shall terminate on the tenth (10th) anniversary of the date of disclosure.
g. The Confidential Disclosures provisions of this Agreement shall govern all
communications between the parties during the term of this Agreement.
h. The parties acknowledge that breaches of the Confidential Disclosures
provisions of this Agreement may result in irreparable injury and that temporary
and permanent injunctive relief shall be available along with any other remedies
provided by law.
ASSIGNMENT
Both parties reserve the right to assign, transfer, set over or sell their
rights in and to this Agreement without the consent of the other party to a
successor to all or substantially all of its business or to an entity with which
the party is merged or consolidated. Subject to the prior written consent of the
other party, either party may assign, transfer, set over or sell their rights in
and to this Agreement to an affiliate or a third party. In the event of such an
assignment, the assignee shall be solely responsible for all obligations of the
assigning party upon the assignee's written assumption of the obligations of the
assignor. In addition, Company may assign its right to payment to any wholly
owned subsidiary.
WAIVER
No waiver by either party hereto of any default by the other in the strict and
literal performance of or compliance with any provision, condition, or
requirement herein will be deemed to be a waiver of, or in any manner release
such party from, strict compliance with any provision, condition or requirement
in the future; nor will any delay or omission of either party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter. Except when otherwise expressly stated, no remedy expressly
granted herein to either party in the event of a default by the other will be
deemed to exclude any other remedy which would otherwise be available.
GOVERNING LAW
This Agreement shall be governed by the internal laws of the State of Florida.
EXHIBITS
This Agreement includes the following exhibits:
Exhibit A - Description of Services
Exhibit B - Prices Schedules
page 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective duly authorized officers, as of the date written above. The
signature of both parties mean that all the terms and conditions on the
preceding pages, and the attached pages, are incorporated herein and made part
of this agreement.
Audio Book Club. Inc. X.X. Xxxxxxxxx & Sons Company
By: By:
Title: Title:
Date: Date:
page 7
EXHIBIT A - DESCRIPTION OF SERVICES
1) Company will pay National Fulfillment Services ("NFS") entire Client
conversion fee as agreed for converting Audio Book Club to NFS.
2) Company agrees to credit Client the differential of the distribution and
fulfillment costs associated with the picking and packing of product from
warehouse in excess of Louisville, KY rates beginning November 1, 1996 until
such date that Clients inventory is transferred to the Louisville, KY
facility. During this period of time, the differential will be based upon
the projected hand-pack to machine pack work-mix for Louisville, KY,
outlined below. Louisville, KY rates are attached hereto and agreed upon by
both Company and Client. All product shipped from the Louisville, KY
facility will be manifested and co-mingled with other outgoing shipments to
obtain the lowest possible postage rate.
3) Company agrees to machine pack all products to the extent that: 1) It is a
machinable package, i.e. is within the capabilities of the machine. 2) That
the order quantity per machine occurrence is a minimum of 500 units of
like-size (same make-ready). Examples of #2 are: A. Five (5) orders of one
hundred (100) pieces, five (5) different sku's that are all the same size
would qualify for the five hundred (500) like-piece minimum because the five
(5) orders can be run sequentially on the same machine makeready. B. One (1)
order of five hundred (500) pieces all the same sku would qualify as
machinable also.
An item that would not qualify for machine pack rates is a one (1) sku order
with three hundred and fifty (350) pieces. If the order cannot be ganged
with a like-size (machine specifications) item, it will be cartoned by hand.
As of 10/31/96, RRD hand packs seventy-two percent (72%) of A.B.C.'s orders,
with the remaining twenty-eight percent (28%) being done by machine.
Our commitment, when A.B.C.'s inventory is relocated to Louisville, will be
as follows: at least seventy-five percent (75%) of the orders will be done,
and billed at, machine/ semi-auto; and not more than twenty-five percent
(25%) will be done, and billed at hand rates. Continual efforts will be made
to improve upon this percentage breakdown so that a greater percentage of
orders will be done machine/ semi-auto.
4) Company agrees not to use, in the Louisville, KY facility, metered postage
strips on outgoing shipments that are 3rd class, special 4th, or BPM. 1st,
APO, FPO, and 2nd class will still be metered. All mail classes will be
electronically manifested through either the Accu-sort or Tandata manifest
systems. Outbound packages must be in complete compliance with all U.S.
Postal regulations to qualify for a specific mail class, i.e. BPM or special
4th, etc.
Postage will be billed back to Audio Book Club through an X.X. Xxxxxxxxx
established postal permit account, or can be charged to Audio Book Club's
own permit account providing sufficient funds are maintained to the account
to not disrupt the flow of outbound mail.
page 8
5) NFS will print invoices for client and courier them to X.X. Xxxxxxxxx,
Dunmore PA, Distribution Center-Key warehouse for pick, pack, and ship until
such time stock is transferred to the Louisville, KY facility. In
Louisville, company will continue to receive preprinted enveloped invoice
label bills until such time a local invoice printer/lettershop can be
identified and qualified as a certified X.X. Xxxxxxxxx business partner.
Once these capabilities are available in Louisville, which shall not be
later than 3/31/97, Company will receive electronic transmission of invoices
from NFS and will print them locally. Orders/invoices need to be received no
later than 2 p.m. EST, to be in compliance with the forty eight (48) hour
service level agreement.
Company will transmit a shipping confirmation file immediately to NFS
confirming product was picked, packed, and shipped per service level
agreement, within 48 hours of receipt of orders/invoices.
SERVICE LEVEL: Forty eight (48) hour turnaround from time of order and
invoice receipt to mailing. Overnight and priority requests received prior
to 2 p.m. will be shipped out the same day they are received, whether
received by telephone, fax, electronically, regular mail.
6) TRANSPORTATION. Company shall arrange and incur all costs associated with
transporting Client's complete inventory from Haddon Craftsman- Key
Warehouse to the Louisville, KY facility at such time that transfer occurs,
to be no later than February 1, 1997.
7) SHIPPING PREPARATION AND ORDER ACCURACY. Company will carton, label address,
and affix correct postage for each order. Manifest documentation and exact
mailing/shipping costs will be captured and reported. The company guarantees
that 99.5% will be shipped accurately, over a rolling 12-week period. An
accurate shipment is defined as the correct product(s), cartoned as
specified with the correct address placement and postage affixed.
8) RETURNS. Company will process returns and return salable units, as defined
by Client to inventory. Damaged units will be sorted and separately held for
Client to inspect prior to destruction or other disposition as prescribed by
Client and Client's criteria. Returns include receiving the returned package
from the customer, opening the carton, standard inspection of material as
prescribed by Client, capturing the customer account number, product number
of a "clean" return, restocking good merchandise, updating inventory files,
refurbishing required to restock any product and any materials associated
with repackaging or refurbishing. One hundred percent (100%) of clean
returns will be processed within seventy two (72) hours and reported by
electronic means to the data processing center.
Whitemail returns, returns other than clean returns, will have all available
information "cut-out" and forwarded to client or designated service bureau,
such as NFS.
9) RECEIPT OF UNITS. Company will receive units and related materials from
shippers, including unloading units, verifying receipts, placing units in
easily accessible and retrievable storage, and forwarding receiving reports
to Client daily. All units will be
page 9
recorded into inventory and available for shipping within twenty-four (24)
hours of receipt by Company.
10) INVENTORY STORAGE. Company will store all products and materials in a dry,
easily accessible area and take all reasonable measures to protect all
products and materials.
11) An annual physical inventory will be performed at Company's expense after
one (1) year of activity. All subsequent physical inventories are at
Client's expense and must be scheduled ninety (90) days in advance of
inventory date.
Cycle counting will be relied upon as the inventory control methodology and
therefore annual physical inventories are not required after year one (1).
12) In the event of termination of this agreement, company agrees to fully
cooperate in preparing the inventory for relocation. All preparation will be
billed at full skid shipping prices as outlined in exhibit B.
page 00
XXXXXXX X
Xxxxx XX -
XX
Effective
11/1/96
XX XXXXXXXXX 1996 STORAGE OF AUDIO BOOKS
Standard size audio books, per pallet, per month* $
* Minimum storage charge, per month $
The month in which items are delivered into the warehouse, either from
our bindery or from outside sources, will be the beginning month used
to calculate storage charges.
BILLING
An invoice will be issued monthly, listing title and the quantity of
audio books in storage, aged by month and year.
A monthly inventory of audio books in storage will also be issued. This
monthly inventory will provide a detailed record of all audio books in
storage by title, and will show the quantity shipped and received by
title.
page 11
EXHIBIT B
Table MM - AU
Effective 11/1/96
XX XXXXXXXXX 1996 DIRECT RESPONSE MAILING
Includes: Sortation for 4th class mail.*
Affixing a sealed envelope to the carton.
Packing in unprinted suitable shipping container
Machine Packing Per Carton Shipped
Single Additional Units
Quantity per Mailing Selection in Ctn
---------------------- ----------- ------------------
Machine 100M or greater
Machine 50M to 99,999
Machine 25M to 49,999
Machine 1OM to 24,999
Machine 5M to 9,999
Machine 4M to 4,999
Machine 500 to 3,999
Semi-automated Packing Per Carton Shipped
Single Additional Units
Quantity per Mailing Selection in Ctn
---------------------- ---------- ------------------
Machine/Semi Auto 20 to 1,999
Hand Packing Per Carton Shipped
Hand Pack Single Selection
Hand Pack Dual Selection
Hand Pack 3-Book Selection
Hand Pack 4-Book Selection
Hand Pack 5-Book Selection
Hand Pack Over 5 books add for each audio book over 5
Additional for each insert placed in the carton on top of the audio book:
* For 3rd Class mailing see additional sorting charges per Table PO-AU
page 12
EXHIBIT B
Table RM - AU
Effective
11/1/96
XX XXXXXXXXX 1996 RETURNS AND MISCELLANEOUS PRICES
---------------------------------------------------
1) Process returns - Includes removing audio book from carton, separating
usable from unusable audio books, and resuming usable audio books to
inventory, per audio book
- Received in individual cartons - (includes uncartoning, inspection,
and data entry of returns information)
2) Affix a label onto the outside of the case, per audio book
- Manual
- Mechanical
3) Packing audio books on pallets for a remainder sale or move,
- per pallet
- Pallet included in above
4) Transfer audio books - from one publisher's account to another, or transfer
one publisher's internal account to another (i.e., sales or market region),
per title, per transfer
5) Receiving audio books, one title per pallet
- Pallets not requiring re-piling, per audio book
- Pallets requiring re-piling, per audio book
- Additional if titles are mixed on a pallet, per audio book
6) Destroying audio books
- Without confirmation, per pallet plus applicable
landfill charge
7) Pull full cartons from inventory, at client's request, per carton (does not
include regular shipping)
page 13
EXHIBIT B
Table PO - AU
Effective 11/1/96
XX XXXXXXXXX 1996 - 3RD CLASS MAIL SORTING PRICES
---------------------------------------------------
Labels Envelopes
1) Received in random sequence
a. Sort to 5 digits, for mailing of at least $ $
5,000 identical pieces per day
b. Sort to 3 digits, for mailing of at least
1,000-4,999 identical pieces per day
2) Received in alphabetized State sequence
a. Sort to 5 digits, for mailing of at least
5,000 identical pieces per day
b. Sort to 3 digits, for mailing of at least
1,000-4,999 identical pieces per day
3) Received in numerical Zip Code sequence
a. Sort to 5 digits, for mailing of at least
5,000 identical pieces per day
b. Sort to 3 digits, for mailing of at least
1,000-4,999 identical pieces per day
4) Receive pre-sorted labels and a suitable bag
list, any quantity
page 14
