Exhibit
10.2
Portions of this
Exhibit have been omitted pursuant to a request for confidential
treatment filed with the Securities and Exchange
Commission. The omissions have been indicated by
asterisks (“*****”), and the omitted text has been
filed separately with the Securities and Exchange
Commission.
CONTENT
LICENSE, MARKETING AND SALES AGREEMENT
This CONTENT LICENSE,
MARKETING AND SALES AGREEMENT (the “Agreement”) is
entered into and effective as of January 15, 2008, (the
“Effective Date”) by and between eFashion Solutions,
LLC, a New Jersey limited liability company having its principal
place of business at 80 Enterprise Avenue South, Secaucus, NJ 07094
(“EFS”) and Playboy.com, Inc., a Delaware corporation
with offices at 680 North Lake Shore Drive, Chicago, IL 60611
(“Client,” which shall include affiliates controlling,
controlled by or under common control with Playboy.com,
Inc.).
WHEREAS, Client is in
the business of, inter alia, developing, marketing, promoting,
distributing and selling branded and unbranded merchandise via
physical media, worldwide, via mail order catalogs (the
“Catalogs”) where orders are taken via multiple order
channels including online, phone, fax and mail and via the Internet
through its PLAYBOY-branded and BUNNY SHOP-branded e-commerce
websites as designated on Exhibit 1 (the “Websites”)
(the Catalogs and Websites shall be collectively referred to as the
“Playboy Commerce Business”).
WHEREAS, the parties
intend that EFS will operate under license from Client the Playboy
Commerce Business, including, but not limited to, the marketing,
promotion and distribution of branded, unbranded and co-branded
soft and hard goods which include but are not limited to
men’s and women’s apparel, home, lingerie, men’s
and women’s accessories, jewelry, books and DVD’s and
related products (collectively, “Merchandise”) via the
Catalogs and the Websites (including other Micro-Sites (as defined
in Section 1.1(d)(vii))).
NOW THEREFORE, in
consideration of the promises contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
each intending to be legally bound, agree as follows:
1.
Operation of the Playboy Commerce Business
1.1.
Obligations of EFS .
(a)
Operations . EFS, at its sole cost and expense,
shall be solely responsible for (i) developing, designing,
operating, maintaining and distributing the Catalogs; (ii)
developing, designing, operating, maintaining and hosting the
Websites; (iii) except as otherwise set forth in this Agreement,
the creation (except for that provided by Client) and use of all
content to be displayed in the Catalogs and on the Websites; and
(iv) marketing and promotion of the Playboy Commerce
Business. EFS shall be permitted to display on the
bottom of each page of the Websites “Powered by
eFashionSolutions” which shall appear substantially as set
forth in Exhibit 2, attached hereto and hereby incorporated by
reference.
(b)
Fulfillment Services . EFS, at its sole cost and
expense or (with respect to pass-through expenses such as shipping,
gift wrapping, etc.) at the consumer’s expense, shall be
solely responsible for conducting all business activities related
to the Playboy Commerce Business, including, but not limited to the
following activities: (i) setting the price consumers
will pay for Merchandise offered through the Catalogs and Websites
and for shipping thereof; (ii) processing all Catalog and Website
orders placed by consumers, including, but not limited to, all
picking, packing, billing, shipping, gift wrapping and other
value-added services necessary to process orders from order
placement to delivery, which shall be performed substantially as
set forth in Exhibit 3, attached hereto and hereby incorporated by
reference (collectively, “Fulfillment Services”); (iii)
providing pricing, billing and financial clearinghouse services in
connection with the Playboy Commerce Business; (iv) handling all
customer service matters (provided, however, that Client and EFS
shall agree upon a “hot transfer” process whereby
non-e-commerce-related customer calls will be rerouted); (v)
handling all financial transactions related to the Playboy Commerce
Business, including, but not limited to, establishing merchant
accounts with a banking institution to be approved by Client; (vi)
handling all aspects of procuring Merchandise to be made available
for sale through the Playboy Commerce Business, including, without
limitation, all warehouse and inventory maintenance and control;
and (vii) except as otherwise set forth in this Agreement, handling
all advertising, promotion and marketing relating to the Playboy
Commerce Business. Client acknowledges that the
efficient and cost effective fulfillment of orders on the Websites
will require that third parties that provide Merchandise to EFS
under a Playboy license adhere to certain shipping and packaging
guidelines provided by EFS, and which comply with Client’s
packaging guidelines as set forth in Exhibit 3. Client
agrees to provide reasonable assistance to EFS to enable EFS to
have such third parties agree to abide by the EFS
guidelines.
(c)
Client Approval . All aspects of the Websites and
the Catalogs, including, but not limited to, their “look and
feel” (including as set forth in Section 1.1(d)(iii) below),
use of the Playboy Marks (as defined in Section 7.2),
functionality, models to be used and all Merchandise sold therein,
shall be subject to Client’s prior written approval, which
shall not be unreasonably withheld. Further, EFS
acknowledges that Client reserves the right to change the names of
the PlayboyStore and ShopTheBunny/BunnyShop Catalog and Websites to
new Client brands and/or to add names to be used provided that
Client provides EFS with no less than six (6) months prior written
notice. In the event that names are changed, except to
the extent that there is an extenuating reason for such name
change, EFS shall be permitted to continue to use domain names then
in use for purposes of Micro Sites and/or forwarding domains (
i.e., driving traffic to the new names).
(d)
Websites
(i) Unless
otherwise agreed by the parties and provided that this Agreement is
executed not later than January 15, 2008, EFS agrees that no later
than March 1, 2008, both Websites shall launch and be fully
operational, with the exception of the gift wrapping which EFS
shall make available as set forth in the time and action calendar
(attached hereto as Exhibit 12 and hereby incorporated by
reference) and local billing (pursuant to Section 3.1, below), and
EFS shall be ready to perform all aspects of administration of the
Website business, including, but not limited to, all Fulfillment
Services. In furtherance of this launch
date, EFS and Client
shall perform all activities and deliver all deliverables in
accordance with the time and action calendar. Client
acknowledges that if it is unable to perform any obligations within
the time period agreed to in the time and action calendar that the
launch of the Websites may be delayed accordingly.
(ii) Client
and EFS acknowledge that design and functionality of the Websites
consistent with best practices for e-commerce is critical to ensure
the maximum sales performance of the Websites and to maintain the
goodwill of Client’s customers. EFS will utilize
best industry practices to maintain the shopping areas of the
Websites in order to ensure that such areas feature functionality
that is deemed best practice in the e-commerce industry and is
updated with all content and brand imagery necessary to keep the
shopping areas of the Websites up-to-date and fresh, in all
instances maintaining the high level of brand integrity of the
PLAYBOY brand while focusing on customer
experience. From time to time, Client will provide
updated photo and brand elements for purposes of utilization by EFS
in Website design.
(iii) In
addition to any guidelines provided by Client, EFS shall use and
comply with any style guides provided by Client to ensure
consistency among retail channels ( e.g ., graphics,
patterns, colors, logos, etc.), visual brand displays and seasonal
color palettes. EFS shall maintain the shopping areas of
the Websites consistent with the style guides (as modified for
e-commerce) to maximize sales, brand appearance and
marketability. Client will provide new brand and content
assets from time-to-time along with updated style guides in both
digital and hard copies, and EFS will update the Websites and
future Catalogs accordingly within a commercially reasonable time
following receipt. As of the Effective Date hereof,
updated style guides are provided twice per year. EFS
will have not less than six (6) months advance notice of upcoming
new style guides.
(iv) EFS
will host all content displayed on the Websites on an EFS-hosted
server provided by EFS at its sole cost and expense. EFS
may at its election use a reputable third party hosting service to
host the Websites; provided, however, that EFS shall nevertheless
be responsible for ensuring the availability of the Websites as set
forth in this Agreement. EFS shall provide as required
all updates of content on the Websites, including enhancements,
modifications and additions thereto.
(v) EFS
agrees to at all times during the Term use its best efforts to
market the Websites no less diligently than it does other online
properties managed by EFS on behalf of third parties (including
without limitation, maintaining best practice functionality, search
engine optimization tactics, utilizing customer acquisition and
retention campaigns, etc.).
(vi) EFS
shall take all reasonable measures to ensure the performance of
each of the Websites, including, at a minimum, availability at
least ninety-nine and one-half percent (99.5%) of the time per
month as averaged over any one (1) month period, excepting
scheduled maintenance or a Force Majeure Event (as defined in
Section 14.7).
(vii) Subject
to the prior, written approval of Client, which shall not be
unreasonably withheld, EFS shall have the right at its sole cost
and expense to design and launch as many micro- and sub-domain
websites as EFS deems appropriate in order to take full
advantage of online
marketing channels (collectively, “Micro Sites”);
provided, however, that all such Micro Sites shall be designed and
maintained consistent with the terms of this
Agreement. At a minimum, EFS agrees to launch a version
of the PlayboyStore.com Website, which does not contain products or
content containing nudity, marital aid or massager Merchandise,
within forty-five (45) days following launch of the
PlayboyStore.com Website.
(viii)
Front-End Platform . In the event that EFS
chooses to use the Demandware, Inc. (“Demandware”)
front-end platform software and services for the Websites, EFS
shall enter into a separate agreement directly with Demandware;
provided, however, that the terms of any such agreement must be
approved by Client in advance in writing.
(e)
Catalogs
(i) EFS
agrees that (A) the first issue of each of the Catalogs shall be
sent to consumers by March 15, 2008; and (B) no later than March 1,
2008, EFS shall be ready to perform all aspects of administration
of the Catalog business, including, but not limited to, all
Fulfillment Services.
(ii) EFS
shall provide a copy of each Catalog to Client for review and
approval not less than five (5) business days prior to
printing. EFS shall promptly make any changes to the
Catalog as may be reasonably requested by Client. No
Catalog shall be sent to printing without the written approval of
Client, which shall not be unreasonably withheld.
(f)
Models and Photography . EFS agrees that all
female models depicted in or in connection with the Playboy
Commerce Business shall be approved by Client and shall be
Playmates (or other Playboy models, including, but not limited The
Girls Next Door) as requested by the Client unless otherwise
mutually agreed in advance in writing by the parties. In
addition, EFS agrees to shoot major photography in connection with
the Playboy Commerce Business in Los Angeles and in coordination
with Client, as requested by Client and in line with current and
past practices (taking into account changes in Client’s
Catalog-related strategy) with respect to process, cost and
frequency. EFS shall be responsible for all costs and
expenses in connection with such photography, including, but not
limited to, payments to models and photographers, based upon an
estimated schedule of costs attached as Exhibit 4. EFS
shall secure model and photographer releases in a form provided by
Client and shall provide all content created under this Section
1.1(f) to Client within thirty (30) days of
creation. All such photographs shall be deemed Playboy
Content for purposes of this Agreement, for which EFS shall have a
license to use during the Term solely in connection with the
Playboy Commerce Business and as is necessary to promote the
Websites. During the Term, Client shall not be permitted
to sell or otherwise provide such photographs to third party
retailers (except for those retailers operating under the PLAYBOY
brand) or Licensees (as defined in Section 2.4), without the prior
written approval of EFS.
(i) Client
shall own all content produced pursuant to Section 1.1(f) (whether
or not actually used), and EFS hereby assigns to Client all right,
title and interest, including all rights in copyright, in and to
the photographs and materials, and agrees to cooperate with all
reasonable requests by Client, and take all reasonable actions, to
effect or perfect such assignment. EFS hereby provides
Client with an irrevocable power of attorney appointing Client as
its irrevocable attorney-in-fact coupled with an interest to
execute all such assignments on
behalf of EFS in the
event that EFS fails to do so within thirty (30) days following
written request by Client. Client hereby grants to EFS a
limited and perpetual right and license to use such photographs and
materials for research and forecasting purposes, including, but not
limited to, combining the same with reports and analytics
concerning the performance of the Websites, providing information
to strategic partners to better define consumer purchasing habits,
and for trend forecasting and planning purposes. In
addition, during the Term, EFS may use such photographs and
materials to provide information to Client Licensees to better
define consumer purchasing habits, refine the design and
performance of the Websites and EFS Portals on which the
Merchandise is sold in connection with any EFS Analysis (as defined
below), and for marketing and planning purposes. For the
avoidance of doubt, no information provided to third parties under
this Section 1.1(i) shall: (i) specifically or by inference
identify or in any way reference Client; (ii) disclose any
proprietary information of Client; or (iii) disclose any personally
identifiable information of or otherwise identify any consumer of
the Websites or the Catalogs.
(g)
Compliance with Guidelines . EFS shall at all
times comply with the provisions and limitations set forth in
Client’s editorial and advertising guidelines, which are
attached hereto as Exhibit 5 and hereby incorporated by reference,
as the same may be amended from time to time at Client’s sole
discretion, effective upon fifteen (15) business days prior written
notice to EFS (the “Guidelines”).
(h)
Compliance with Laws . Throughout the Term, EFS
shall be solely responsible for knowledge of and compliance with
all applicable international, federal, state and local laws, rules,
regulations, ordinances, industry guidelines and similar
restrictions (collectively, “Laws”) in connection with
operation of the Playboy Commerce Business. EFS shall be
responsible for monitoring such Laws and taking any actions
necessary to keep compliant all aspects of the Playboy Commerce
Business, including, but not limited to, the Privacy Policy (as
defined in Section 5.1(a)), as well as best practices relating to
Direct Marketing Association (“DMA”) Guidelines (as
they relate to the DMA Privacy Promise, pander files,
etc.).
(i)
Product Placement . At no additional cost to
Client, EFS will provide preferential placement in the Catalogs
and/or on the Websites, as requested by Client, for certain
Merchandise from time-to-time, e.g. apparel, magazines, books,
DVD’s, etc. or marketing campaigns that tie to events and
initiatives of Client and its affiliates, consistent with
Client’s past practices in the prior placement of such items
in the Catalogs and/or on the Websites.
(j)
Staffing/Retention of Client Employees . EFS
agrees to staff the Playboy Commerce Business sufficiently to
operate and grow the Playboy Commerce Business. An
initial organizational chart approved by both parties is attached
as Exhibit 6, attached hereto and hereby incorporated by
reference. EFS agrees to employ certain individuals who
are currently employed by the Client (names, titles and current
salaries are listed in Exhibit 6), the hiring of whom shall be
complete no later than March 1, 2008. Client shall
coordinate with EFS regarding the termination of these employees
and their subsequent hire by EFS. Each of the hired
employees shall be required to comply with all policies and
procedures of EFS which are generally applicable to its employees;
provided however that levels of seniority and tenure of hired
employees (as they relate to vacation time, etc.) will carry over
to EFS. Client shall have
input and approval
rights regarding the hiring of key positions in connection with the
Playboy Commerce Business, including replacement personnel, which
approval shall not be unreasonably withheld. EFS agrees
that ***** primary responsibilities will continue to be the Playboy
Commerce Business.
(k)
Keywords . EFS may use Playboy Marks as
keyword-targeted advertising on any portal, search engine or other
website; provided, however that such use is directly related to the
Merchandise available on the Playboy Commerce Business or the
promotion of the Websites. Any use of Playboy Marks as
keywords not directly related to Merchandise shall be subject to
Client’s prior written approval.
(l)
Service Model Option . Client shall have the
right upon not less than six (6) months prior written notice to
request that, at any time as of the third anniversary of the
Effective Date, EFS provide its services to Client via a
“service model,” in which case, upon effective date of
transition to a service model, EFS will no longer be a licensee but
rather a vendor. In such transition to a service model,
the parties will work in good faith to establish a reasonably
equivalent economic benefit for EFS (adjusting for operational
responsibilities and economic risk being transferred to
Client). The parties agree that Client will not be
charged a higher fee than what is being made available by EFS to
its other Clients for similar services. The terms of
such arrangement will allow for Client to recognize the top-line
revenues from the Playboy Commerce Business as well as assume
responsibility for various operations of the business as determined
by Client, with the remaining services to be provided by
EFS. In such event, EFS shall provide Client with all
best practice services and tools that are provided to EFS’
largest clients. The parties further agree that in the
event Client elects to receive services hereunder via the
“service model,” during the transition to the service
model, the operation of the Websites will remain on the EFS core
technology platform.
(m)
Insurance . EFS shall maintain at all times
during the Term of this Agreement insurance as provided below and
shall name Client, its parent company, subsidiaries and affiliated
entities and their respective officers, directors, shareholders,
agents and employees as additional insureds to the extent of
indemnity provided herein under its liability policies as
follows:
(i) Commercial
general liability insurance including premises/operations, broad
form property damage, independent contractors, and contractual
liability covering EFS’ obligations hereunder for bodily
injury and property damage, with a combined single limit of not
less than $1,000,000 each occurrence and $6,000,000 umbrella
coverage;
(ii) Workers’
compensation insurance in statutory amounts covering EFS and its
employees; and
(iii) Errors
and omissions insurance, and employer’s liability insurance
in an amount not less than $1,000,000 per
accident/disease.
(iv) All
insurance required above shall be carried with insurance companies
licensed to do business in the state(s) where operations are
maintained with a rating
of no less than
A-. EFS shall deliver to Client, upon execution of the
Agreement, certificates of insurance as evidence of the required
coverages. EFS agrees that these policies shall not be
canceled or materially changed without at least thirty (30)
days’ prior written notice to Client. Such notice
shall include written confirmation and details of replacement
insurance coverages and other material revisions to the policies,
which shall be effective immediately upon any cancellation or
material change in EFS’ policies in order that no gap in
coverage results.
1.2.
Obligations of Client .
(a) Client
will provide instructions and specifications for linking to the
Licensed Domain Names (as defined in Section 7.3) from the
EFS-hosted server.
(b) Client
will provide image and descriptive content, the selection of which
shall be at Client’ discretion, related to the Client
Inventory (as defined in Section 2.2) as may be in Client’s
possession, subject to rights availability and the license grant
contained in Section 7.1 (collectively, the “Playboy
Content”), for use by EFS in connection with the Playboy
Commerce Business. Client shall use commercially
reasonable efforts to ensure that all digital images provided to
EFS conform to the file format and size requirements specified by
EFS. Client will use commercially reasonable efforts to
provide EFS with at least six (6) months notice prior to providing
any new brand imagery, brand elements or style guides, and EFS will
prepare a time and action calendar for the updating of respective
sections of the Websites and/or Catalogs.
(c) Client
shall be solely responsible for the design and maintenance of
www.playboy.com (the “Playboy Site”). Client agrees to
place a persistent shopping button on the main navigation bar of
the Playboy Site (with “Shop Playboy” or such other
wording as may be mutually agreed upon by the parties), and Client
further agrees that the shopping button will be located on the main
navigation bar of all sub pages. Client will also
promote the Playboy Commerce Business with calls to action in its
rotation of house ads throughout the Playboy Site (the placement of
which to be determined by Client in its sole reasonable discretion,
taking into account conversion rates and click-through success),
with creative to be provided by EFS and approved by
Client. EFS acknowledges that the Playboy Site is
currently undergoing a redesign. The parties will work
together in good faith to provide additional promotion on the
Playboy Site of the Playboy Commerce Business, which shall fit
within context of the new design of the Playboy
Site. Notwithstanding the foregoing, Client agrees that
the shopping button directing customers to the Websites will
continue to be located on the main navigation bar appearing above
the fold on the Playboy Site and all sub pages. Client and EFS will
work together in good faith to provide additional promotion of the
Websites licensed by EFS.
2.
Merchandise .
2.1.
Merchandise Assortment .
(a) The
Merchandise mix shall be determined by EFS in its reasonable
discretion in operating the business with input and collaboration
from Client, provided that EFS agrees it will merchandise
individual items as directed by Client based on factors such as
alignment with Client’s retail stores (for Bunny Shop only)
or for new Client media initiatives ( e.g ., a new book,
special edition of PLAYBOY Magazine, etc.) with unit decisions made
by
EFS in its reasonable
discretion. The parties agree that there will be regular
merchandising meetings between the parties to discuss sales
performance, fashion, brand and retail trends, and
initiatives. It is contemplated that such meetings shall
take place no less than once per month during the first year of the
Term and then no less than quarterly thereafter.
(b) The
parties agree that the Merchandise mix as of the Effective Date for
each of the Websites and Catalogs is an approved baseline of
categories and the general mix of Merchandise and that there will
be no material deviations from such mix without the mutual
agreement of Client and EFS, provided however that (i) EFS shall
use commercially reasonable efforts to work with Client to align
the merchandising of the Bunny Shop with that of Client's retail
stores and (ii) EFS shall collaborate with Client to reduce the
amount of unbranded ( i.e. , non-Playboy branded) apparel
from its current levels (currently ***** of all apparel and *****
of the total Merchandise mix), which shall in no event comprise
more than ***** of EFS’ total Merchandise mix. For
the avoidance of doubt, Merchandise shall not include ticket sales
to Client-sponsored or other events. For purposes of
this Agreement, the term “branded Merchandise” shall
refer to Merchandise which contains or references any of the
Playboy Marks or is otherwise branded or labeled with a Playboy
Mark, and the term “unbranded Merchandise” shall refer
to Merchandise which does not contain or make reference to any of
the Playboy Marks.
(c) Notwithstanding
the provisions of this Section 2.1, if Client determines in its
sole discretion that certain Merchandise must be removed or altered
for legal reasons, EFS shall promptly take such action required by
Client. If Client requests that EFS change or
discontinue any Merchandise for reasons other than legal, Client
will provide EFS with sufficient notice and a reasonable sell-off
period to minimize any disruption to the Playboy Commerce Business
and EFS shall comply. In the event that the Merchandise
required to be removed is a current item being sold and such
removal results in an actual material impact on revenues or
Merchandise Gross Margin as demonstrated by EFS, EFS and Client
will work together to agree on an equitable adjustment to the
Minimum Royalty.
2.2.
Purchase and Use of Existing Inventory . EFS will
purchase from Client all existing product inventory of Merchandise
held by or on behalf of Client in connection with the Playboy
Commerce Business, including, but not limited to, back issues of
PLAYBOY Magazine held by Client as of forty-five (45) days after as
of the Effective Date hereof, as determined by Client
(collectively, the “Client Inventory”), as set forth in
Section 6.6. During the Term, Client Inventory supplied
to EFS shall be sold by EFS solely through the Playboy Commerce
Business.
2.3.
Transition Period . In addition, prior to launch
of the Websites, Client (in collaboration with EFS) shall purchase
new and replenishment Merchandise on behalf of EFS for March 1,
2008 orders, with such Merchandise to be shipped to EFS directly.
For such orders, EFS shall pay the vendor in full, with such
payments to be made directly to each vendor in accordance with such
vendor’s payment terms, and therefore, the Merchandise
purchased in connection with March 1, 2008 orders shall not be
subject to the discount for Client Inventory set forth in Section
6.6.
2.4.
Licensees . Client shall notify each of its
Licensees (as defined below) of the provisions of this Agreement
relating to the sale and provision of Merchandise to
EFS. EFS
shall be permitted to
deal directly with and purchase Merchandise directly from those
third parties licensed by Client to produce products under the
PLAYBOY brand (“Licensees”). EFS shall be
free to negotiate directly with Licensees, and Client will use
commercially reasonable efforts to assist EFS in securing favorable
terms on pricing and service levels. EFS acknowledges,
however, that Client cannot guarantee that EFS will secure such
favorable terms. EFS shall enter into separate agreements with
all Licensees and any such agreements shall supersede any agreement
between Client and such Licensee solely with respect to EFS’
relationship with such Licensee, as approved by Client.
2.5.
International Sales . For a period of one (1)
year after launch of the Websites, EFS shall be permitted to
fulfill orders placed by customers in the UK and Australia *****;
provided, however that: (a) EFS is solely responsible for the
collection and remittance of all regulations, tariffs, VAT and any
other taxes or charges; and (b) during this period, EFS may not
sell or otherwise ship EFS Produced Merchandise
apparel. During the foregoing one (1) year period (the
“US Shipping Period”), EFS shall be permitted to
initiate negotiations for the terms of purchase of Merchandise from
local Licensees in the territories. In the event
that EFS has not entered into meaningful negotiations with any
Licensee within three (3) months following the end of the US
Shipping Period, or if negotiations do not result in an actual
agreement within six (6) months following the end of the US
Shipping Period, then Client may remove such market(s) from the
Territory (as defined in Section 3.4) in its sole
discretion.
2.6.
Manufacture of Merchandise .
(a) Subject
to provisions in existing agreements as disclosed herein on Exhibit
7, which shall be updated from time-to-time, Client’s prior
written consent and the Licensees’ right of first refusal as
set forth below, EFS shall be permitted to design and manufacture,
or arrange for third parties (which have been approved by Client in
advance in writing, said approval not to be unreasonably withheld)
to manufacture on its behalf, products branded with the Playboy
Marks to be sold on the Websites and/or through the Catalogs
(“EFS Produced Merchandise”). EFS agrees
that it shall approach Licensees regarding any planned EFS Produced
Merchandise and give such Licensees a seven (7) day right of first
refusal with respect to the design and manufacture thereof, whereby
EFS may set forth commercially reasonable requirements with respect
to pricing, delivery and product specifications. If such
Licensee is unwilling or unable to comply with EFS’ request,
EFS shall be free to proceed with the manufacturing of EFS Produced
Merchandise as set forth in this Section
2.6. *****
(b) In
EFS’ discretion, EFS Produced Merchandise may be created in
any product categories where there is no exclusivity conflict with
a Client Licensee, as set forth in Exhibit 7.
(c) Subject
to Sections 2.6(a) and (b), EFS may subcontract the manufacture of
EFS Produced Merchandise, provided: (i) EFS notifies Client in
advance of any intended supplier/subcontractor and obtains
Client’s prior written approval of such
supplier/subcontractor, which shall not be unreasonably withheld;
(ii) EFS obtains from each such supplier/subcontractor an executed
written agreement in the form substantially identical to that
attached hereto and made a part hereof as Exhibit 8; and (iii)
furnishes a copy of each such executed agreement to
Client. EFS shall abide by, and shall ensure that any
third-party
supplier/subcontractor
it uses to design and/or manufacture any EFS Produced Merchandise
abides by any design, manufacturing and other guidelines of
Client. At the end of each Year of the Term hereof and
at any other time so requested by Client during the Term, EFS shall
provide Client with an updated list of the names and addresses of
all manufacturing sources, subcontractors, suppliers and others
which have been engaged in the design and/or manufacture of EFS
Produced Merchandise.
(d) EFS
understands and agrees that any and all EFS Produced Merchandise
and any other items bearing the Playboy Marks or intended for use
in connection with the EFS Produced Merchandise must be
approved in accordance with the approval process as set forth in
Exhibit 9, attached hereto and hereby incorporated by
reference. In the event Client fails to provide its
approval or disapproval of any or all things submitted to Client
pursuant to this Section 2.6(d) within fourteen (14) days of
Client’s receipt thereof, EFS may send written notice to
Client advising no response was received. If Client does
not respond within five (5) days of Client’s receipt thereof,
then Client shall be deemed to have given disapproval.
2.7.
Co-branding . EFS shall have the right to
co-brand or co-market certain Merchandise, combining a Playboy Mark
with other current EFS clients, subject to Client’s approval
at Client’s sole discretion as to the co-brand partner, the
Merchandise that will be co-branded and the appearance of the
branding on the Merchandise. Any co-branding with non-EFS clients
will be subject to prior written approval by Client on a case by
case basis. The parties agree that the co-branding or
co-marketing of any Merchandise shall be subject to a separate
agreement to be negotiated between the parties, including
provisions regarding the royalties to be paid to Client for such
Merchandise and any approval process to be followed.
2.8.
Shopping Portal . EFS shall be
permitted to sell Merchandise on EFS owned and operated shopping
portal websites (“EFS Portals”) subject in all respects
to the standards, approvals and requirements applicable to the sale
of Merchandise on the Websites and provided that integration with
third party brands and products is acceptable to Client, approval
not to be unreasonably withheld. EFS agrees that it will
use the merchandising presence on the EFS Portals to also market
the Websites in order to drive additional customer
acquisition.
2.9.
Mass-Customized Merchandise . Client
agrees that mass-customized Merchandise ( i.e ., Merchandise
allowing consumers to choose customizable options, including, but
not limited to, color) shall be available for sale on the Websites
and/or through the Catalogs, such that customers may select and
order pre-configured semi-customized Merchandise based upon
specifications that shall be agreed upon in advance by Client and
EFS. EFS shall be responsible for fulfilling orders of
all semi-customized Merchandise, including fulfilling any
build-to-order or special features requested by the customer, as
permitted during the order process.
2.10.
Exclusive Merchandise . Subject to Client’s
prior written approval in each case, EFS shall have the right to
work with Client’s manufacturers for the production of
Merchandise that will be designed and offered for sale exclusively
via the Playboy Commerce Business.
2.11.
Merchandise . All EFS Produced Merchandise,
co-branded Merchandise, mass-customized Merchandise, exclusive
Merchandise and Client Inventory shall be deemed
“Merchandise” for purposes of the calculation of
Royalties (defined below) to be paid by EFS.
2.12.
Merchandise Supplied to Client and Employees
. EFS agrees to make Merchandise available to Client for
Client’s own use, such as for events, photo shoots, gifts,
etc. ***** when at least two (2) weeks’ notice is provided,
and ***** when less than two (2) weeks’ notice is
provided. In addition, employees of Client and EFS shall
be permitted to purchase Merchandise through the Playboy Commerce
Business and shall receive a ***** discount on posted
prices. Further, EFS acknowledges that Client may offer
discounts of up to ***** to Client’s premium customers at
Client’s discretion as part of a loyalty program or other
promotional incentive, and EFS shall honor such
discounts.
2.13.
Product Quality. EFS hereby warrants and agrees
that: (a) the Merchandise designed, manufactured, advertised,
promoted, sold or distributed under this Agreement shall meet the
high standards of quality, workmanship, material, design, size,
color and style established by Client from time to time and in
accordance with the terms and conditions of this Agreement,
provided that EFS can rely on the approvals granted by Client
pursuant to Section 2.6; (b) EFS will not knowingly or negligently
cause or authorize any or all of the Merchandise not conforming to
this Agreement to be sold or distributed, as doing so may adversely
affect Client’s goodwill in the Playboy Marks; and (c) any
such non-conforming Merchandise shall be destroyed at EFS’
expense. All of the Merchandise shall conform to and
comply with, in all respects, all Laws governing the design,
quality, labeling and safety of such Merchandise and shall not
violate the rights of any third parties. EFS shall not
cause, condone or authorize: (x) the use of any substandard or
offensive materials in or in connection with any of the
Merchandise; (y) any violation of any Law, including, but not
limited to, provisions thereof imposing advertising standards or
requiring trade or content description of the Merchandise; or (z)
the use of any Playboy Mark or any other word, device or symbol
associated in any way with any or all of Client and its
subsidiaries and affiliates in connection with any product or
activity that is not the subject of this Agreement.
3.
Territory .
3.1.
International Sales . Upon the launch of
Websites, the exclusive territory for the Websites will include the
USA, Canada, UK and Australia (collectively, the “Website
Territory”). For any market that is included in
the initial Website Territory or is added later, EFS agrees to (a)
actively market, including, but not limited to, via SEO (optimizing
the Websites and creating custom pages to maximize search engine
optimization in local markets), search engine marketing and
affiliate marketing, (b) provide local billing and customized
Websites for local audiences, vis a vis language and targeted
merchandising, and (c) provide competitive and timely
fulfillment. Client agrees to register and maintain the
applicable domain name extensions in each such market, including
.ca, .au, .com, and .uk for the Websites; provided that such domain
names are available. Client acknowledges that the
functionality for local billing will not be deployed by March 1,
2008, but will be deployed for the UK and Australia not later than
ninety (90) days following launch of the Websites.
3.2.
Pilot Program . Client agrees that within six (6)
months of the launch of the Websites, Client and EFS will use
commercially reasonable efforts to collaborate on a strategy for an
international expansion of the customer base for the Websites
beyond the established Website Territory and to identify up to two
(2) markets for a pilot test to actively market. If the
test is successful as determined by Client in its reasonable
discretion, these markets will be added
to the Territory under
the terms of the Agreement.
3.3.
Continuation of Current Online Business
. Client agrees that, barring cultural sensitivities, or
regulatory or legal circumstances, EFS shall be permitted to
continue operating the Websites to fulfill international online
business as is currently being conducted.
3.4.
Catalog Territory . Upon the launch of the
Catalogs, the exclusive territory for the Catalog will include the
USA and Canada (“Catalog Territory”). The
Website Territory and the Catalog Territory shall be collectively
referred to as the “Territory.” The parties
agree that the Catalog Territory is the initial territory for the
Catalogs and, within a reasonable time period after the launch of
the Websites, to discuss and agree upon the strategy for the
distribution of the Catalogs throughout the Website
Territory. In the event that if within one (1) year of
launch of the Websites, EFS has not begun distribution of the
Catalogs in the UK or Australia, Client may, in its sole
discretion: (a) rescind EFS’ right to pursue such
distribution; and (b) either by itself or through third parties,
effect Catalog distribution in those countries; provided that in
either case, EFS shall perform all order fulfillment in
connection therewith in accordance with the terms and conditions of
this Agreement and provided the parties can reach agreement on the
financial terms associated with such services.
3.5.
Pre-Existing Domestic and International Partners
. EFS understands that Client has pre-existing
agreements internationally and domestically ( e.g. , product
Licensees, retail store partners, location-based entertainment
venues and media partners). EFS agrees that it will work
in good faith with such Client partners to identify areas of cross
promotion and other synergies.
3.6.
International Products . EFS understands that
certain markets will have their own product Licensees, and EFS will
comply fully with all restrictions (including, but not limited to,
with respect to regulatory and brand issues) and exclusive
arrangements for all markets. Given that there may be
different product margins in such territories, the associated
Royalty will be computed separately for international markets
(pursuant to Section 6.1(c)), as necessary.
4.
Advertising Commitments .
4.1.
Catalog Budget . EFS will commit to an annual
Catalog budget equal to or greater than *****, which represents
***** of the actual amount spent by Client on the Catalogs for
2007. In addition, EFS shall use commercially reasonable
efforts to achieve a target in 2008 of not less than ***** of 2007
Catalog circulated pages. It is EFS’ intent to
maximize both Website and Catalog sales, and the parties agree that
they will collaborate during the Term to define the budget and
sales matrix to maximize sales in both channels to bring the
greatest overall sales growth. EFS shall have the
right to decrease the Catalog budget below the ***** minimum only
if EFS can demonstrate that online marketing activities yield a
higher return-on-investment and provided all such reduced dollars
are then reinvested in online marketing spend over and above the
minimum online marketing commitment described in Section 4.2,
below.
4.2.
Online Marketing Budget . EFS understands and
acknowledges that agreement to an online marketing plan is critical
to the success of the Playboy Commerce
Business. Accordingly, EFS agrees it will spend annually
a minimum of ***** of Net Website Sales (as defined below) on
online marketing (“Online Marketing
Budget”). “Net Website Sales” shall
mean total Merchandise sales derived through the Websites via any
order channel less applicable, actual Merchandise returns, if any,
during the applicable period. In the event such online
marketing yields a ***** return or more on spend at an average
gross margin return on advertising of *****, then EFS will increase
the Online Marketing Budget as it deems appropriate to maximize
sales of Merchandise. The Online Marketing Budget will
be used by the EFS marketing team to promote the PLAYBOY and BUNNY
SHOP brands online, drive traffic to and sales on the Websites,
purchase search engine placement, drive affiliate sales and to
participate in other online marketing initiatives. In
addition, EFS commits to continuous SEO efforts during the Term to
maximize discovery of, and algorithmic search results for, the
Websites.
4.3.
Corporate Marketing Commitments . Client agrees
that the following marketing activities shall be
performed:
(a) Client
and EFS shall jointly issue a press release following the execution
of this Agreement announcing Client’s selection of EFS as its
end-to-end ecommerce services and platform provider for the
Websites; which release shall be subject to Client’s final
approval not to be unreasonably withheld;
(b) Subject
to confidentiality obligations hereunder, EFS may prepare and
distribute a case study upon launching the Websites with respect to
the business arrangement between EFS and Client, subject to
Client’s prior written approval not to be unreasonably
withheld;
(c) Subject
to confidentiality obligations hereunder, EFS may to prepare and
distribute a second case study within three (3) to six
(6) months of the launch of the Websites detailing the return on
investment resulting from the business relationship between Client
and EFS, subject to Client’s prior written approval not to be
unreasonably withheld;
(d) Client
shall provide a reasonable and appropriate reference on behalf of
EFS to EFS customers and potential customers contingent upon
EFS’ successful implementation of services
hereunder;
(e) Client
shall provide reasonable press and investment analyst (in the event
that EFS becomes a publicly traded company) support for articles,
interviews, and other public relations activities relating to the
relationship between EFS and Client.
(f) EFS
may not issue any press release or make any public statement
concerning the subject matter of this Agreement or the
parties’ relationship without Client’s prior review and
written approval, which shall not be unreasonably
withheld. EFS agrees to promptly make any changes
reasonably requested by Client to any public announcement,
statement or use of Client’s name and/or intellectual
property prior to any public release.
4.4.
Third Party Advertising . Client grants EFS the right to:
(a) sell and place on the Websites promotional banner
advertisements (the frequency, placement and volume of which to be
mutually agreed upon by the parties) that advertise and market
third party products and services that do not compete with
Client’s products or services and comply with Client’s
advertising guidelines (“Advertisements”), provided
that such advertising efforts are mutual ( i.e ., equivalent
promotion of Client and its affiliates on third party websites) and
are executed in a manner that minimizes adverse impact on sales;
and (b) send emails containing Advertisements to customers who
specifically opt in to receive email notifications from EFS and
Client. All Advertisements on the Websites and emails to
Playboy Commerce Business customers will require the prior written
consent of Client (which will not be unreasonably withheld or
delayed). EFS shall provide quarterly reports detailing
page exits, abandonment rates and overall Website conversion
rates. If Client determines based upon such reports that
any such advertising is adversely impacting Website conversions,
EFS will, at Client’s direction, cease placing Advertisements
on the Websites and/or sending third party Advertisement
emails. Client shall be entitled to receive an
Advertising Fee in connection with the sale of Advertisements as
set forth in Section 6.4.
(a)
EFS shall be responsible for maintaining the Advertisements
on the Websites. EFS shall ensure that the
Advertisements do not violate any Law or right of any third party
or otherwise contain content reasonably likely to diminish the
value of Client’s brand or detract from the goodwill of the
Client. Upon written reque
