CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.62
DISTRIBUTION AND SUPPLY AGREEMENT
This DISTRIBUTION AND SUPPLY AGREEMENT ("Agreement") is made this 10th day of
May, 2005 (the "Effective Date"), by and among Levy Home Entertainment LLC
("LHE") and Source Interlink Companies, Inc. (together with its direct and
indirect subsidiaries,"Source").
RECITALS
Whereas, LHE is a full line distributor of hardcover, mass-market and trade
paperback books, bargain books, and children's coloring books, activity books
and storybooks (collectively "Book Product") purchased from the publishers
thereof for distribution and sale to the public within the United States of
America and, in connection with the conduct of its business, LHE maintains
facilities, machinery, equipment and an extensive inventory of Book Product to
satisfy the orders of retailers of Book Product;
Whereas, LHE has determined that the cost to service certain lower volume
retailers exceeds the benefits it may enjoy from making sales to such customers;
Whereas, Source Interlink Companies, Inc., through one or more of its direct and
indirect subsidiaries, is a full line distributor of home entertainment content,
including magazines, digital versatile disks (DVDs) and audio compact disks
(CDs), purchased from the suppliers thereof for distribution and sale to the
public within the United States of America and, in connection with its business,
maintains an extensive field force of trained personnel to provide in store
merchandising services to retailers;
Whereas, Source desires to procure Book Product from LHE and thereby avoid
making a significant investment in the facilities, machinery, equipment and
inventory necessary to adequately satisfy its customers demands for Book
Product; and
Whereas, LHE desires to engage Source to distribute Book Product to certain
class of retailers and thereby reduce expenses associated with the servicing of
these customers.
The parties, intending to be legally bound, hereby agree as follows:
1. Appointment. For and during the term of this Agreement, LHE hereby appoints
Source Interlink Companies, Inc. collectively with its direct and indirect
subsidiaries as its sole and exclusive subdistributor of Book Products to all
traditional supermarket chains (not including "super centers" or "hyper-markets"
such as those combined supermarket and general merchandise stores currently
operated by Wal-Mart, Target, Kmart and Meijer, among others), drug stores,
convenience stores, newsstands and terminals (the "Stores") except for such
Stores as affirmatively request to be served directly by LHE within the
geographic area serviced by Source with DVDs, CDs and/or magazines (as expanded
from time to time during the term of this Agreement, the "Territory") and, in
connection therewith, grants Source the right to sell, distribute and service
Book Product to Stores within the Territory. Nothing herein shall prohibit LHE
from directly servicing Stores that affirmatively request to be served directly
by LHE or
Stores outside the Territory; provided that if Source elects to expand the
geographic area in which it provides DVD, CD and/or magazine service it may
notify LHE and expand the Territory and as soon as practicable after receipt of
such notice LHE shall cease to directly service Stores within the expanded
Territory except for any Stores that affirmatively request to be served directly
by LHE. Nothing in this Agreement shall require Source to purchase any minimum
or specific amount of Book Product nor shall anything in this Agreement require
Source to distribute any Book Product to any person or entity.
2. Book Product Requirements. During the term of this Agreement, Source agrees
to purchase exclusively from LHE all of Source's requirements of Book Product
for resale to its existing and future customers that sell Book Product except
for such Book Product as LHE is (a) unable to supply to Source or (b) not
required and not willing to supply to Source. During the term of this Agreement,
LHE agrees to sell Book Product to Source for resale to the Stores except for
such Stores as affirmatively request to be served directly by LHE, and for
resale to any bookstores that are customers of Source. It shall be the
responsibility of Source to sell and deliver Book Product to its customers.
3. Returns. All Book Product purchased hereunder from LHE that is returnable by
LHE to its suppliers shall be fully returnable by Source for credit against
future purchases. In order to receive credit for unsold Book Product, Source
shall (a) return Book Product within a time period that permits LHE to return
such Product and obtain credit from its suppliers, and (b) comply with the
return procedures set forth in Exhibit A hereto.
4. Pricing and Service Terms. LHE shall sell Book Product to Source in
accordance with the discount terms set forth in Exhibit B attached hereto. If
and to the extent that LHE experiences a material change (favorable or adverse)
in its terms of purchase from the publishers from which it purchases Book
Product, LHE shall promptly notify Source and the parties shall renegotiate in
good faith the Exhibit B discount terms to remain in the same economic position
as it is in on the Effective Date of this Agreement. LHE shall perform the
services set forth in Exhibit A attached hereto at no additional charge to
Source except as set forth therein.
5. Payment. Payment for Book Product supplied pursuant to this Agreement shall
be due [***]. Payment for any agreed upon service charge shall be due [***].
6. Fixture Reimbursement. In the event that Source or an affiliate begin
supplying Book Product to any customer previously supplied directly by LHE,
Source shall pay LHE the then current unamortized value (computed on the basis
of a three-year straight line amortization period) of any fixtures provided to
such customer by LHE within 30 days of receipt of LHE's invoice therefore. In
the event that LHE begins supplying Book Product to any customer previously
supplied by Source, LHE shall pay Source the then current unamortized value
(computed on the basis of a three-year straight line amortization period) of any
fixtures provided to such customer by Source/CLCC within 30 days of receipt of
Source's invoice therefore.
7. Term and Termination. The initial term of this Agreement shall commence on
the Effective Date of this Agreement and shall terminate on June 30, 2015.
Thereafter, the term
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[***] indicates confidential material redacted and filed separately with the
Commission
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shall automatically renew for successive one-year periods, unless either party
provides written notice of termination to the other party at least 120 days, and
not more than 180 days, prior to the expiration of the initial or any renewal
term. Either party may terminate this Agreement if the other party breaches its
material obligations hereunder, but only after (a) informing the other party in
writing of the precise nature of the breach and (b) allowing the other party at
least 60 days to correct the breach other than with respect to non-payment of
sums due for Book Product supplied, in which case the other party shall have 10
days to pay any such overdue sums. Termination of the Agreement for whatever
reason shall not affect or extinguish any obligation of either party that arose
prior to the termination. Source also shall have the right to terminate this
Agreement on 90 days notice in the event that 50 percent or more of the
ownership interest or assets of LHE is sold or transferred, directly or
indirectly to any of the following entities or their affiliates: Xxxxxxxxx
Company, Xxxxxxxx Merchandisers, LP, Xxxxxx Entertainment, Inc., Xxxxx & Xxxxxx,
Inc., Xxxxxxxx News Company, Xxxxxx News Company, News Group, and Xxxxxx Book
Group.
8. Confidentiality. (a) As used in this Section 8, the "CONFIDENTIAL
INFORMATION" of a party shall mean all information concerning or related to the
business, operations, financial condition or prospects of such party or any of
its Affiliates that is disclosed to the other party (or to which the other party
gains access pursuant to the transactions contemplated under this Agreement) as
of and after the date of this Agreement, regardless of the form in which such
information appears and whether or not such information has been reduced to a
tangible form, and shall specifically include (i) all inventions, discoveries,
trade secrets, processes, techniques, methods, formulae, ideas and know-how, if
any, of such party and its Affiliates and (ii) all financial statements, audit
reports, budgets and business plans or forecasts of such party and its
Affiliates; provided, that the Confidential Information of a party shall not
include (A) information which is or becomes generally known to the public
through no act or omission of the other party and (B) information which has been
or hereafter is lawfully obtained by the other party from a Third Party (as
defined below) so long as, in the case of information obtained from a Third
Party, to the Knowledge of such other party, such Third Party was or is not,
directly or indirectly, subject to an obligation of confidentiality owed to the
party to whom such Confidential Information belongs or any of its Affiliates at
the time such Confidential Information was or is disclosed to the other party,
and (C) information possessed by directors, officers, employees and agents of
the other party to the extent it consists of impressions or general learning.
For purposes of this Section 8(a), a "Third Party" shall be any Person other
than the Person to whom such Confidential Information belongs, any of its
Affiliates or any of their respective officers, directors, employees, equity
holders or agents.
(b) Except as otherwise permitted by Section 8(c) below, each party agrees
that it will not, without the prior written consent of the other party, for a
period of two years from the date any such Confidential Information if
disclosed, disclose or use for its own benefit any Confidential Information of
the other party.
(c) Notwithstanding Section 8(b) above, each of the parties shall be
permitted to: (i) disclose Confidential Information of the other party to its
officers, directors, employees, equity holders, lenders, agents and Affiliates,
but only to the extent reasonably necessary in order for such party to perform
its obligations and exercise its rights and remedies under this Agreement, and
such party shall take all such action as shall be necessary or desirable in
order to ensure that
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each of such persons maintains the confidentiality of any Confidential
Information that is so disclosed; (ii) report book sales by title to the New
York Times, Book Scan and similar services which report book sales; and (iii)
disclose Confidential Information of the other party to the extent, but only to
the extent, required by applicable law or government regulation; provided, that
prior to making any such disclosure, the party required to make such disclosure
shall notify the other party of the same, and the other party shall have the
right to participate with the disclosing party in determining the amount and
type of Confidential Information of the other party, if any, which must be
disclosed in order to comply with applicable law or government regulation.
9. Independent Contractor. The parties each acknowledge that each other party is
an independent contractor, and that nothing in this Agreement or the parties'
dealings hereunder shall be deemed to create any employment, partnership,
agency, or joint venture relationship among the parties.
10. Exhibits. The Exhibits attached hereto, and any amendments and supplements
thereto, are an integral part hereof and all references herein to this Agreement
shall include such Exhibits.
11. Force Majeure. No party hereto shall be liable in any manner for failure or
delay of performance of all or any part of this Agreement (other than the
payment of money), directly or indirectly, nor shall the other party be entitled
to terminate this Agreement, due to acts of God, applicable orders or
restriction by a governmental authority, strikes, lock-outs, or other labor
disputes, delays in receipt of Product from suppliers, delays of carriers,
riots, embargoes, power failures, telecommunication line failures, revolutions,
states of war or national emergency, acts of terrorism, fires, or any other
causes or circumstances beyond the reasonable control of any party. The affected
party, however, in the case of such delay or failure, shall give prompt notice
thereof and shall exert commercially reasonable efforts to remove the causes or
circumstances of nonperformance with reasonable dispatch.
12. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
13. Notices. All notices and other communications required or permitted under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by certified mail, return receipt requested, or (c) when received or
refused by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties).
14. Miscellaneous. This Agreement (a) may be amended only by a writing signed by
each of the parties; (b) may not be assigned, pledged or otherwise transferred,
whether by operation of law or otherwise, without the prior consent of the other
party; (c) may be executed in one or more counterparts, each of which shall be
deemed an original but all of which constitute one and
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the same instrument; (d) contains the entire agreement and understanding of the
parties with respect to the subject hereof and supersedes any prior agreements,
understandings, representations or communications, whether oral or written, and
any contemporaneous oral agreements, understandings, representations or
communications relating to the subject hereof; (e) shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois
without giving effect to any conflict of laws rules; and (f) is binding upon,
and will inure to the benefit of, the parties and their respective successors
and permitted assigns. The waiver by a party of any breach or violation of any
provision of this Agreement shall not operate as, or be construed to be, a
waiver of any subsequent breach or violation hereof.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first
above written.
SOURCE INTERLINK COMPANIES, INC. LEVY HOME ENTERTAINMENT LLC
00000 Xxxxxxxxx Xxxxxx Xxxx., Xxxxx 000 0000 Xxxxxx Xxxxxx, Xxxx 0
Xxxxxx Xxxxxxx, Xxxxxxx 00000 Xxxxxxx Xxxx, Xxxxxxxx 00000
Telecopier: (000) 000-0000 Telecopier: (000) 000-0000
By: /s/ S. XXXXXX XXXXXX By: /s/ XXXXXX XXXXX
----------------------------------- ----------------------------------
Name: S. Xxxxxx Xxxxxx Name: Xxxxxx Xxxxx
Title: Chairman & Chief Executive Title: President
Officer
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EXHIBIT A
LEVY HOME ENTERTAINMENT
SOURCE/CLCC BOOK SERVICES
LHE will provide the book-related services described below for both outbound
orders and Product returns to publishers on a product-based discount basis with
no additional charge for such services except as specified herein or as mutually
agreed by the parties.
SPECIFIED SERVICES:
The following specified services incorporate certain other functions, including
without limitation: maintaining customer databases and other information
services and office support as necessary; de-stickering and processing
non-paperback titles; managing inventory and processing vendor payments,
including all Source/CLCC co-op payments with respect to Book Product purchases
from LHE; processing reorders and canceling Product orders and purchases for
Source/CLCC that are no longer needed; receiving, handling, and warehousing
inventory; creating packing lists for Source/CLCC orders; creating paperback
grids and assembling pre-packs on a monthly basis; running various reports and
trend information based on past practice; and assisting with promotional items,
marketing, training, and special programs as needed.
MARKETING AND PRODUCT SELECTION SERVICES:
1. Interview publishers and make product selection to support bestseller,
plan-o-gram, and promotional product placement. Make specific
merchandise recommendations appropriate by retailer to drive maximum
sales.
2. Establish monthly best-seller list for hard cover and paperback titles
and provide best-seller signs for display at store level.
3. Manage relationships with publishers to insure proper publisher
support for key titles.
4. Collect all co-op funds made available by publishers and earned by
Source/CLCC based on required performance levels and transfer to
Source/CLCC 100% of the collected amount.
5. Assist Source/CLCC in sales presentations for new customers and annual
books reviews with retailers as requested.
INVENTORY MANAGEMENT SERVICES:
1. Monitor and manage inventory stock levels to appropriately support
Source/CLCC's book customers.
2. Provide and maintain order forms for use by Source/CLCC.
3. If Source/CLCC requests books that are not offered by a particular
publisher on a guaranteed-sale basis, no return privilege shall be
granted to Source/CLCC with respect to such Book Product.
4. LHE will accept EDI communications from Source/CLCC or directly from
their customers to facilitate ordering and managing "open to buy" and
inventory goals.
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5. Source/CLCC shall be responsible for all costs associated with any
warehousing facilities utilized for replenishment of Book Product for
airport accounts, including, but not limited to, any inventory
"shrinkage" or other loss or damage with respect to any Book Product
consigned by LHE to Source/CLCC stored at such locations. Source/CLCC
shall maintain adequate insurance covering such consigned inventory
naming LHE as an additional insured. Source/CLCC shall be responsible
for taking both cycle counts and physical inventories of consigned
Book Product based on LHE requirements. LHE also shall be allowed
reasonable access to the premises to perform its own cycle counts, if
desired, and annual physical inventories. LHE will provide support and
training regarding the start-up of any new warehouse for airport
accounts using LHE inventory management systems. Source/CLCC shall
follow established LHE policies and procedures pertaining to such
systems. LHE will also provide continuing training and support for all
airport warehouses.
WAREHOUSE-RELATED SERVICES:
1. Pick and pack all book orders, and stage book orders by route for
CLCC's Chicago distribution center. Source/CLCC shall transmit
necessary customer and routing information for their accounts. To the
extent stickers are required, the cost of stickering mass-market
paperback Book Product will be charged to Source/CLCC based on the
actual cost incurred, which will be billed on a monthly basis.
2. The cost of shipment and/or freight from LHE's warehouses is the
responsibility of Source/CLCC. If requested to drop ship direct to
customers, LHE will arrange for the freight cost to be charged to the
account of Source at a third party carrier designated by Source. If
Source shall fail to so designate an account, LHE will xxxx
Source/CLCC freight cost net of discounts on a monthly basis.
3. Source/CLCC shall process returns of Book Product by their respective
customers.
4. [***] LHE shall process the return credits to Source/CLCC, and provide
[***] to its suppliers. Source/CLCC shall establish and follow such
procedures as are required by the publishers to maintain [***] and
shall allow LHE and publisher representatives reasonable access to
perform random audits of the return handling process. Such [***] are
subject to continuing publisher approval and acceptance, and may be
changed at any time by the publishers.
5. Returned non-paperback Book Product shall be returned to LHE's
Hillside, Illinois, warehouse at the expense of Source/CLCC for
processing through LHE's "put to light" system and will be credited to
Source/CLCC on a daily basis.
6. Source/CLCC shall maintain their SKU set-up for their accounts. In
addition, they shall key in any replenishment orders directly into
LHE's system via their field reps call-in to Source/CLCC field
service.
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Commission.
SALES PROMOTIONAL SERVICES:
1. LHE will provide sales promotional support as appropriate, in the form
of author signings, trade shows, group meetings, and costumed
character events. All LHE national events will be made available to
Source/CLCC for participation.
2. LHE has developed national and regional events such as "Authors @ Sea"
and Author Bus Tours that will be made available for participation by
Source/CLCC as appropriate.
OTHER
Both parties shall use their best efforts to establish necessary and
appropriate EDI communication links between the parties and/or between LHE
and Source/CLCC customers.
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EXHIBIT B
PRICING DISCOUNT OFF SUGGESTED RETAIL COVER PRICE:
1. PAPERBACK [***]%
2. HARLEQUIN PAPERBACK* [***]%
3. PARRAGON [***]%
4. CHILDREN'S COLORING AND ACTIVITY BOOKS [***]%
5. HARDCOVER BEST-SELLERS [***]%
6. HARDCOVER BEST-SELLERS (AIRPORT ACCOUNTS) [***]%
7. ALL OTHER BOOK PRODUCT [***]%
* THE [***]% DISCOUNT APPLIES TO HARLEQUIN PAPERBACK BOOK PRODUCT THAT IS
DROPPED SHIPPED TO RETAILERS BY HARLEQUIN. ALL HARLEQUIN CHARGES INCLUDING
HANDLING, STICKER AND STICKERING, AND FREIGHT COST WILL BE PASSED ON IN
FULL TO SOURCE/CLCC ON A MONTHLY BASIS.
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