Document:

EXCLUSIVE
DISTRIBUTION AGREEMENT

 

This
Exclusive Distribution Agreement (“Agreement”) is made as of April 1, 2002 (the
“Effective Date”), between Alliance Pharmaceutical Corp., a New York
corporation, having its principal place of business at 3040 Science Park Road,
San Diego, California 92121 (“Client”), and CORD Logistics, Inc., an Ohio
corporation, having its principal place of business at 15 Ingram Boulevard,
LaVergne, Tennessee 37086 (“CORD”).

 

A. Client
is, among other things, in the business of developing and marketing
pharmaceutical products in the United States, the District of Columbia and
Puerto Rico (the “Territory”).

 

B. CORD is,
among other things, in the business of distributing pharmaceutical products to
wholesalers, specialty distributors, physicians, clinics, hospitals, pharmacies,
and other health care providers in the Territory, and of providing Information
Systems and other services that support its customers’ use of its distribution
capabilities.

 

C. Client
desires to engage CORD as its exclusive distribution agent for commercial sales
of lmagentTM in all formulations (collectively, the “Product”), and such other
pharmaceutical products agreed to by the parties in the Territory and to perform
certain other services described in this Agreement, all upon the terms and
conditions set forth in this Agreement.

 

THEREFORE,
in consideration of the mutual conditions and covenants set forth herein, CORD
and Client (collectively referred to as “Party” or “Parties”) agree as
follows:

 

1.  Appointment/Authorization.

 

1.1  Upon the
terms and conditions set forth in this Agreement, Client appoints CORD as its
exclusive distribution agent of Product in the Territory to Client’s customers,
including, but not limited to, wholesalers, specialty distributors, physicians,
clinics, hospitals, pharmacies and other health care providers in the Territory
(collectively, “Customers”).

 

1.2  Subject
to the terms and conditions set forth in this Agreement, CORD accepts the
appointment to represent Client as its authorized exclusive distribution agent
of Product to Customers in the Territory.

 

1.3  Client
shall provide CORD with a right of first negotiation with respect to the
distribution of new imaging agents or other pharmaceutical products acquired or
promoted by Client in the Territory after the Effective Date. Client shall grant
CORD an exclusive right of negotiation with respect to the distribution of such
new product for a period of sixty (60) days after Client’s notice to CORD that
such new product will be available for distribution. If the parties have not
reached an agreement with respect to the distribution of the new product within
sixty (60) days from the date of Client’s notice,
and entered into a definitive agreement within sixty (60) days thereafter, or if
Cord notifies Client in writing at any point during such negotiation period that
it is not interested or unable to distribute such new product(s), then Client
shall have no further obligation with respect to that new product under this
Section 1.3.

 

 

[****] Represents material which has been redacted
pursuant to a request for confidential treatment pursuant to Rule 24B-2 under
the Securities Exchange Act of 1934, as amended.

 

2.  Services.

 

2.1  CORD
shall provide the services set forth in the Operating Guidelines, which include,
without limitation, storage, distribution, returns, customer support, financial
support, EDI and system access support (“Services”). A copy of the Operating
Guidelines is attached hereto as Exhibit A and incorporated by
reference.

 

2.2  The
Operating Guidelines may be amended from time to time upon the mutual written
agreement of the Parties; provided, however, that any change, modification or
amendment to the Operating Guidelines may result in an increase in the fees
charged by CORD in Section 5.

 

2.3  CORD’s
services shall comply with the Operating Guidelines, provided Client’s shipment
of Products to CORD are within [****] of its
Forecast (as hereinafter defined).

 

2.4  All
Product Returns shall be processed and handled by CORD in accordance with the
Operating Guidelines; and, any customization or additional return services
requested by Client shall be performed at an additional fee as agreed by the
Parties.

 

2.5  Client is
solely responsible for all Product recalls. In the event Product is subject to
recall, or Client, on its own initiative, recalls any Product, CORD shall
provide assistance to Client as set forth in the Operating Guidelines, provided
that Client shall pay to CORD an amount equal to CORD’s actual costs incurred
with any, such recall services. Such cost shall be in addition to the Service
Fees described in Section 5 below.

 

3.  Product
Supply/Client Responsibilities.

 

3.1  Client
shall deliver Product to CORD at CORD’s facility located at 15 Ingram Boulevard,
Suite 100, La Vergne, TN 37086, or to such other distribution facility as may be
designated by CORD to Client in writing (“Facility”).

 

3.2  Client
shall be responsible for delivery of Product to the Facility, including all
costs, expenses and risk of loss associated with such delivery. Title to Product
shall remain with Client at all times, even when Product is stored or warehoused
at the Facility. Client shall at all times insure the Product for damage, loss,
destruction, theft or any such other property damage (“Loss”) as further set
forth in Section 17 below. Except for Loss resulting solely from the gross
negligence or willful misconduct of CORD, Client shall bear all risk of loss or
damage with respect to the Product stored or warehoused at the
Facility.

 

3.3  Client
shall provide CORD with a forecast of the volume of Product to be handled by
CORD under this Agreement, not less often than [****]
(“Forecast”). Upon execution of this Agreement, Client shall deliver to CORD a
customer list, which sets forth the Product prices (the “Customer Price List”).
Client shall notify CORD of any change in the Customer Price List not less than
[****] prior to
the effective date of any such change. CORD shall use commercially reasonably
efforts to implement such price change in accordance with Client’s
instruction.

 

3.4  CORD
shall visually inspect each shipment of Product for external damage or loss in
transit and notify Client of any such damage or loss within a commercially
reasonable period of time following discovery.

 

2

[****] Represents material which has been redacted
pursuant to a request for confidential treatment pursuant to Rule 24B-2 under
the Securities Exchange Act of 1934, as amended.

4.  Information
System Access.

 

4.1  CORD
shall provide Client access to an Operating System Base, which consists of the
software used by CORD to support the services provided to Client, including the
server and other components needed to execute the software and certain support
services associated therewith, as further set forth in the Operating Guidelines
(collectively, the “System”), upon the terms and conditions set forth in the
System Access Agreement. A copy of the System Access Agreement is attached as
Exhibit C and incorporated herein by reference. The software releases are
(i)
EliteSeries 6.1.2, as modified by CORD, supplied by Tecsys, Inc., a Montreal,
Quebec, Canadian company, and any upgrades, maintenance releases or
modifications implemented by CORD to support distribution services provided by
CORD; (ii) BACCS
3.0 as modified by CORD and any upgrades implemented by CORD to support
financial services provided by CORD; and (iii)
Impromptu 6.0, supplied by Cognos Inc., a Canadian company, and any upgrades,
maintenance releases or modifications implemented by CORD to support reporting
services provided by CORD.

 

4.2  The
System shall be made available to Client at the fees set forth in the Fee
Schedule, except that any custom enhancements requested by Client shall be
billed separately based on an hourly rate set forth in the Fee Schedule (as
defined in Section 5).

 

4.3  In
addition to the terms set forth in the System Access Agreement, Client shall
maintain (i) a local
area network sufficient to support Client’s terminals and personal computers
that have access to the System, all such personal computers shall meet the
minimum specifications necessary to support software needed to access the
system; (ii) a
centralized server sufficient for data storage, if data export requirements
exist; and (iii) a
connection to the internet sufficient to support system access. Client shall
also assign knowledgeable and qualified employees or representatives to
facilitate access to the System.

 

5.  Fees.

 

5.1  As
compensation for the Services, Client shall pay to CORD the fees (the “Fees”)
set forth on Exhibit B (the “Fee Schedule”).

 

5.2  CORD
shall issue an invoice to Client for the Services rendered under this Agreement
or for any other amounts due on a [****] basis.
Payment is due within [****] days of
the invoice date. If the Invoice is not paid within such [****] day
period, a service charge on the unpaid amount calculated at the rate of
[****] per
month (or the maximum rate permitted by law if such rate is less than
[****] per
month) shall be imposed until such amount is paid in full.

 

5.3  The Fees
shall be held firm for the [****].
Thereafter, CORD shall adjust the price not more often than once per contract
year by the increase in the Producer Price Index - All Commodities published by
the United States Department of Labor, Bureau of Statistics, as amended from
time to time. In the case of a decrease in the Producer Price Index — All
Commodities referenced above, Client’s pricing shall remain unchanged from the
immediately preceding contract year. For purposes of sub-Section (i), the base
point shall be the index level on the first day of the contract
year.

 

5.4  Notwithstanding
the terms set forth above in Section 5.3, if CORD can reasonably demonstrate
that the costs for providing the Services have materially increased, or are
likely to materially increase in the coming year due to the adoption of any
applicable law or regulation (or any material change in the interpretation or
administration thereof), or due to unforeseen circumstances beyond CORD’s
reasonable control, then upon notice from CORD, the Parties agree to meet in
good faith and negotiate a mutually acceptable adjustment to the
Fees.

 

 

3

[****] Represents material which has been redacted
pursuant to a request for confidential treatment pursuant to Rule 24B-2 under
the Securities Exchange Act of 1934, as amended.

 

6.  Term
and Termination.

 

6.1  The
initial term of this Agreement shall begin on the Effective Date and shall
continue for a period of [****] years
(the “Initial Term”), unless terminated earlier pursuant to this Agreement.
Thereafter, this Agreement shall automatically renew for additional terms of
[****] each,
unless written notice of termination is given by either Party at least ninety
(90) days prior to the end of the Initial Term, or such other term, in which
case this Agreement shall terminate at the end of the then current
term.

 

6.2  Either
Party shall have the right to terminate this Agreement:

 

(a)  upon one
hundred eighty (180) days prior written notice to the other Party, provided that
in the event Client terminates this Agreement, without cause, prior to the end
of the Initial Term, such termination shall be effective only upon payment to
CORD of six (6) months of the System Access Fees set forth on the Fee
Schedule;

 

(b)  upon the
breach by the other Party of a material provision of this Agreement and that
Party’s failure to cure such breach within thirty (30) days following written
notice thereof from the non-breaching Party, provided that, with respect to any
failure to make any payment when due under this Agreement, such period to cure
shall be reduced to ten (10) days; or

 

(c)  immediately
upon notice to the other Party following the commencement of any bankruptcy or
insolvency proceeding (whether voluntary or involuntary) with respect to such
other Party or its assets, which in the event of an involuntary proceeding, is
not dismissed within sixty (60) days, the general assignment for the benefit of
creditors by such other Party, or the appointment of a receiver, trustee or
liquidator by or for such other Party.

 

6.3  Termination
or expiration of this Agreement shall not relieve either Party from any
liability or obligation that accrued prior to such termination or expiration.
Upon termination or expiration of this Agreement, all Product shall be returned
to Client or a designee of Client, at Client’s sole cost and expense. Sections
13 and 14 shall survive termination or expiration of this
Agreement.

 

7.  Audits. No more
than twice per calendar year, Client or its designee shall have the right during
normal business hours (i.e., 8:00 a.m. to 5:00 p.m. local time), upon fifteen
(15) business days prior written notice to CORD, to: (a) conduct
a physical audit of such parties of the Facility that relate solely to Product
stored and warehoused at the Facility under this Agreement; and (b) review
and audit records that relate solely to the storage and distribution of the
Product. Notwithstanding the foregoing, Client or its designee may, from time to
time and subject to CORD’s prior consent, perform additional physical audits of
the Product located at the Facility in the event of a reasonable, documented
concern related to the state of such Product. Such additional audits shall be
conducted during normal business hours (i.e., 8:00 a.m. to 5:00 p.m. local
time).

 

 

4

 

 

8.  Compliance
With Laws. Each
Party shall conduct its activities in connection with this Agreement in
compliance with all applicable laws, rules, regulations, and orders of
governmental entities.

 

9.  Representations
and Warranties.

 

9.1  Each
Party represents and warrants to the other that:

 

(a)  it has
full power and authority to enter into this Agreement and perform all
obligations and conditions to be performed by it under this Agreement without
any restriction by any other Agreement or otherwise;

 

(b)  the
execution, delivery and performance of this Agreement have been duly authorized
by all necessary corporate action of that Party; and

 

(c)  this
Agreement constitutes the legal, valid and binding obligation of that
Party.

 

9.2  Client
further represents and warrants to CORD that the Product:

 

(a)  is and
shall be manufactured in conformity with the Food, Drug and Cosmetic Act, as
amended from time to time, and all other applicable laws, rules, regulations and
orders of governmental entities relating to the manufacture, promotion, sale or
distribution of the Product;

 

(b)  does not
violate or infringe any patent, trademark, tradename or other interest of any
person or entity.

 

10.  Taxes. Client
shall pay when due all sales, use, gross receipts, excise, personal property
taxes associated with the Product (excluding any personal property tax
associated with CORD’s equipment used in connection with the Services), and
other taxes now or hereafter imposed as a result of the transactions
contemplated by this Agreement (other than taxes based on CORD’s net income),
none of which have been included in the fees payable to CORD under this
Agreement; provided that the amounts payable by Client under this section shall
not include taxes based on the net income of CORD.

 

11.  Trademarks. Neither
Party shall have the right to use the name of the other Party or any Affiliate
of the other Party, or the other Party’s or such Affiliates’ trademarks, service
marks, logos, or other similar marks in any manner except with the prior written
approval of that Party; provided that the foregoing shall not prohibit CORD’s
use of Client names or marks in connection with the performance of the Services
in a manner consistent with this Agreement. “Affiliate,” as used in this
Agreement, means any legal entity which, during the Term hereof, controls, is
controlled by, or is under common control with, such Party. For purposes of this
definition, an entity shall be deemed to control another entity if it owns or
controls, directly or indirectly, at least fifty percent (50%) of the voting
interest of all equity interests of the other entity (or other such comparable
ownership interest for an entity other than a corporation).

 

12.  Confidentiality.

 

 

5

 

12.1  Each
Party acknowledges that as a result of this Agreement it may learn and have
access to trade secrets and other confidential and proprietary information of
the other Party through employees, representatives and/or agents acting on
behalf of or subcontracted to either Party (collectively the “Representatives”),
including without limitation, financial information, information regarding
business practices and techniques, customer lists and systems and technology
information, or any information identified as confidential in writing by either
Party (the “Confidential Information”). For purposes of this Agreement,
Confidential Information shall not include information disclosed by one Party to
the other Party to the extent that such information can be proven by written
evidence: (a) to be in
the public domain or generally available in the industry in which the disclosing
Party engages in business without any violation of this Agreement by the other
Party; (b) is
already legally known to the other Party or any of its Affiliates at the time of
its disclosure by the disclosing Party; (c) becomes
known to the other Party or any of its Affiliates from a third party without any
obligation of confidentiality or limitation on use; or (d) is
independently developed by the other Party or any of its Affiliates prior to the
date of its disclosure. The specific material terms of this Agreement shall be
deemed to be the Confidential Information of each Party. Confidential
Information shall not be deemed to be in the public domain or publicly known or
in the receiving Party’s possession because it is embraced by more general
information in the receiving Party’s possession or because it is embraced in
general terms in publications.

 

12.2  Neither
Party shall, directly or indirectly, at any time: (a) disclose
to any third person or entity any Confidential Information of the other Party
(whether learned before or after the date of this Agreement), or (b) use, or
permit or assist any third person or entity to use, any such Confidential
Information, excepting only: (i)
disclosures required by law, rule, regulation or order, as reasonably determined
by the disclosing Party or its legal counsel, and (ii)
disclosures on a confidential basis to directors, officers, employees, and
agents of that Party or its Affiliates who have a reasonable need to know such
Confidential Information in the normal course of business of that Party or any
of that Party’s Affiliates.

 

12.3  The
obligations of confidentiality hereunder shall survive the termination of this
Agreement for a period of three (3) years. Upon termination of this Agreement
(for any reason) each Party shall promptly: (i) return
to the other Party all documentation and other materials (including copies of
original documentation or other materials) containing any Confidential
Information of the other Party; or (ii) with the
other Party’s consent, which consent will not be unreasonably withheld, certify
to the other Party, pursuant to a certificate in form and substance reasonably
satisfactory to the other Party, as to the destruction of all such documentation
and other materials.

 

13.  Indemnification. Each
Party shall indemnify and hold harmless the other Party and its parent and
Affiliates, and each of their directors, officers, employees, agents, and
representatives from and against all claims, liabilities, losses, damages,
costs, and expenses, including, without limitation, reasonable attorneys’ fees
(“Liability”) to a third party or property arising directly or indirectly out of
any failure of that Party to perform fully all obligations and conditions to be
performed by that Party pursuant to this Agreement or any breach of any warranty
made by that Party in this Agreement. Client further agrees to indemnify and
hold harmless CORD, its parent and Affiliates and each of their directors,
officers, employees, agents and representatives from any and all Liability
arising directly or indirectly out of injury or death to person or property
alleged to have been caused by Client’s Product.

 

 

6

 

14.  Limitation
of Liability.
NOTWITHSTANDING THE FOREGOING PROVISIONS OF SECTION 13, OR ANY OTHER PROVISION
OF THIS AGREEMENT TO THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR ANY CONSEQUENTIAL (SPECIFICALLY EXCEPTING THOSE CONSEQUENTIAL DAMAGES
ARISING FROM EACH PARTY’S OBLIGATION TO INDEMNIFY THE OTHER FOR LIABILITY
ARISING OUT OF OR RELATING TO THIRD PARTY CLAIMS IN ACCORDANCE WITH SECTION 13
ABOVE), INCIDENTAL, INDIRECT, SPECIAL, OR OTHER SIMILAR DAMAGES ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT.

 

15.  Insurance. During
the term of this Agreement and for as long thereafter as necessary to cover
claims resulting from this Agreement, Client shall maintain: (i) product
liability and commercial general liability insurance having a limit of not less
than $5 million; and (ii) property
damage insurance at replacement value for the Product located at the CORD
Facility or in transit to or from the CORD Facility, pursuant to one or more
insurance policies with reputable insurance carriers. Cardinal Health, Inc. and
its subsidiaries shall be designated as “additional insureds” under the product
liability and commercial general liability insurance policy(ies) and under the
property damage insurance policy(ies). Prior to the Commencement Date, Client
shall deliver to CORD certificates evidencing such insurance. Client shall not
cause or permit such insurance to be canceled or modified to materially reduce
its scope or limits of coverage during the term of this Agreement or thereafter
as provided above. Except for any losses resulting solely from the gross
negligence or intentional misconduct of CORD, Client shall bear all risk of loss
or damage with respect to the Product, whether located at the Facility or
otherwise.

 

16.  Dispute
Resolution. The
Parties agree to use good faith efforts to resolve all disputes within ninety
(90) days of written notice that such a dispute exists. If dispute under this
Agreement cannot be resolved by the Parties within such sixty (60) day period,
the Parties agree to refer the matter to one executive from each Party not
directly involved in the dispute for review and resolution. A copy of the terms
of this Agreement, agreed upon facts and areas of disagreement, and a concise
summary of the basis for each side’s contentions will be provided to both
executives who shall review the same, confer, and attempt to reach a mutual
resolution of the issue within forty-five (45) days after receipt of the
materials referenced above. If the matter has not been resolved within such
forty-five (45) day period, either or both Parties may pursue resolution of the
matter through litigation or other process available under law or
equity.

 

17.  Miscellaneous.

 

17.1  Relationship
of the Parties. The
relationship among the Parties is that of independent contractors, and this
Agreement does not establish or create a partnership, joint venture, or other
agency relationship among the Parties.

 

17.2  Notices. Any
notice or other communication required or desired to be given to any Party under
this Agreement shall be in writing and shall be deemed given: (a) three
business days after such notice is deposited in the United States mail,
first-class postage prepaid, and addressed to that Party at the address for such
Party set forth at the end of this Agreement; (b) one
business day after delivered to Federal Express, Airborne, or any other similar
express delivery service for delivery to that Party at that address; or
(c) when
sent by facsimile transmission, with electronic confirmation, to that Party at
its facsimile number set forth at the end of this Agreement. Any notice
delivered by facsimile transmission will be deemed delivered upon electronic
confirmation provided the notice is also deposited in the U.S. mail, first-class
postage prepaid. Any Party may change its address or facsimile number for
notices under this Agreement by giving the other Parties notice of such
change.

 

 

7

 

17.3  Governing
Law. This
Agreement shall be construed under the laws of the State of Tennessee, without
regard to its conflicts of laws provisions.

 

17.4  Severability. If any
term of this Agreement is declared invalid or unenforceable by a court or other
body of competent jurisdiction, the remaining terms of this Agreement will
continue in full force and effect.

 

17.5  Non-Waiver. No
failure by either Party to insist upon strict compliance with any term of this
Agreement, to enforce any right, or to seek any remedy upon any default of the
other Party shall affect, or constitute a waiver of, the first Party’s right to
insist upon strict compliance, to exercise that option, to enforce that right,
or to seek that remedy with respect to that default or any prior,
contemporaneous, or subsequent default. No custom or practice of the Parties at
variance with any provision of this Agreement shall affect, or constitute a
waiver of, that Party’s right to demand strict compliance with all provisions of
this Agreement.

 

17.6  Force
Majeure. If the
performance of any part of this Agreement by either Party shall be prevented,
restricted, interfered with or affected for any length of time by fire or other
casualty, government restrictions, war, riots, strikes or labor disputes, lock
out, transportation delays, acts of God, or any other causes which are beyond
the reasonable control of such Party, such Party shall not be responsible for
delay or failure of performance of this Agreement for such length of time,
provided, however, that the obligation of one Party to pay amounts due to the
other Party shall not be subject to the provisions of this Section.

 

17.7  Complete
Agreement. This
Agreement constitutes the entire understanding between the Parties and
supersedes any contracts, agreements or understanding (oral or written) of the
Parties with respect to the subject matter hereof. No term of this Agreement may
be amended except upon written agreement of both Parties, unless provided
otherwise in this Agreement.

 

17.8  Assignment. Except
as set forth herein, neither Party shall have the right to assign this
Agreement, or any of such Party’s rights or obligations under this Agreement,
without the prior written consent of the other Party, provided, however, that
CORD may assign its rights under this Agreement to any parent, subsidiary or
affiliate without obtaining such consent. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by and against the respective
successors and assigns of the Parties.

 

17.9  Independent
Contractor. The
relationship of the Parties is that of independent contractors, and neither
Party shall incur any debts or make any commitments for the other Party except
to the extent expressly provided in this Agreement. Nothing in this Agreement is
intended to create or shall be construed as creating between the Parties the
relationship of joint ventures, co-partners, employer, employee or principal and
agent.

 

 

8

 

 

IN
WITNESS WHEREOF, the undersigned acknowledge and accept the terms of this
Agreement and have duly executed this Agreement.

 

	CORD LOGISTICS, INC. 	 	 	ALLIANCE PHARMACEUTICAL
  CORP. 
	 	 	 	 
	 	 	 	 
	By: /s/  Frank C.
      Wegerson 	 	 	By: /s/  Jack
      DeFranco
	
      

      Frank C. Wegerson	 	 	
      

      B. Jack DeFranco 
	Vice President and
      General Manager
15 Ingram Boulevard
LaVergne, TN
      37086
 Facsimile No. (615) 793-4783	 	 	Vice President,
      Marketing & Business Development
3040 Science Park Road
San
      Diego, CA 92121
Facsimile No.: (858) 410-5201 

 

 

9

 

 

Exhibits

 

	 	 
	
      Exhibit A
	Operating Guidelines
	 	 
	
      Exhibit B
	Fee Schedule
	 	 
	
      Exhibit C
	System Access
Agreement

 

 

 

Alliance
Pharmaceuticals / CORD Logistics, Inc.
Exhibit
A
Operating
Guidelines

 

In
performing its obligations under the Distribution Services Agreement
(“Agreement”), CORD Logistics, Inc. (“CORD”) will follow the Operating
Guidelines as developed jointly with Alliance Pharmaceuticals Corp Inc.
(“Client”). These Operating Guidelines are in addition to CORD Standard
Operating Procedures (“SOPs”). Copies of these documents are maintained by both
parties and will be reviewed, and updated if necessary, from time to time as
mutually agreed, but not less than once per calendar year.

 

1.0       
 WAREHOUSING,

 

	1.1  	
      CORD
      will maintain its warehouse facility in accordance and comply with all
      federal, state and local laws, rules and regulations, including the
      Prescription Drug Marketing Act and current Good Manufacturing Practices
      (“cGMP”) as promulgated under the FDA.

 

	1.2  	
      CORD
      will maintain Standard Operating Procedures appropriate for a
      pharmaceutical distribution center operating
  environment.

 

	1.3  	
      CORD
      will maintain documented training programs.

 

	1.4  	
      CORD
      will comply with storage, handling and shipping conditions designated by
      Client for the “Products”.

 

	1.5  	
      Products
      with specific storage requirements must be identified by Client and the
      storage requirements must be expressly communicated by Client to CORD. The
      specific requirements must be identified on the package label in
      accordance with NWDA bar coding standards. Product so identified by Client
      will be stored in areas designed, continuously monitored and periodically
      validated for the temperature range specified for each product. CORD will
      maintain daily temperature recordings. CORD will provide such records to
      Client upon written request.

 

	1.5.1  	
      Frozen
      — minus 20 degrees Celsius

 

	1.5.2  	
      Refrigerated
      — 2 degrees to 8 degrees Celsius

 

	1.5.3  	
      Controlled
      ambient — 15 degrees to 25 degrees Celsius

 

	1.5.4  	
      Controlled
      ambient — 15 degrees to 30 degrees Celsius

 

	1.6  	
      CORD
      will report temperature excursions to Client within two (2) business days
      of occurrence.

 

	1.7  	
      Products
      will be stored in an area with secured access, accessible only to
      authorized CORD personnel as agreed to by Client and
  CORD.

 

2.0        
 RECEIVING

 

	2.1  	
      Client
      or Client’s contract manufacturing agent will arrange transportation
      services to transfer the product to CORD. Client will notify CORD of the
      specific delivery schedule. 

 

 

Page
1

 

	2.2  	
      Client’s
      carrier will contact CORD to arrange a delivery
    appointment.

 

	2.3  	
      Client
      retains title to the goods at all times. CORD signature on the carrier’s
      bill of lading is an acknowledgement only of CORD’s receipt of
      product.

 

	2.4  	
      Client
      will provide CORD with Material Safety Data Sheets for each product stored
      at CORD.

 

	2.5  	
      Client’s
      product must meet the following standards for carton identification,
      documentation, palletization, and
uniformity:

 

	2.5.1  	
      Each
      shipping carton and inner packaging of Client’s product must be labeled to
      meet NWDA standards for bar coding and human readable
      markings.

 

	2.5.2  	
      Client
      will provide the bill of lading, certificate of analysis and other
      documentation necessary. CORD and Client will mutually agree upon the
      receiving process.

 

	2.5.3  	
      Pallets
      will meet GMA standards for 40” x 48” dimensions with four-way entry; will
      be free of broken boards, treated for pests, and
clean.

 

	2.5.4  	
      Receipt
      of product on non-standard pallets may require restacking onto conforming
      pallets at Client’s expense.

 

	2.5.5  	
      Palletized
      product must be uniform and consistent with specifications set up in the
      product master for the number of cartons and
eaches.

 

	2.6  	
      CORD
      will receive each shipment into a secure Receiving
area.

 

	2.7  	
      CORD
      will count and inspect the exterior packaging of the product, noting any
      shortages, overages or damage on the carrier bill of lading. CORD will
      obtain the carrier’s signature on the bill of lading acknowledging the
      condition of the product upon receipt by
CORD.

 

	2.8  	
      CORD
      will compare the Client documentation to CORD’s receiving report.
      Discrepancies will be noted. CORD Quality Assurance will investigate and
      report all discrepancies to Client within 24 hours of receipt. Client and
      CORD will determine corrective actions, if
any.

 

	2.9  	
      CORD
      will post receipts in the computer inventory system within one business
      day of delivery unless count discrepancies, missing paperwork, damage
      investigation, and other receiving anomalies interfere with efficient
      receiving and documentation. CORD will use commercially reasonable efforts
      to receive product accurately and
efficiently.

 

	2.10  	
      CORD
      reserves the right to assess a fee for services required to hold
      non-conforming product in receiving, and to investigate, reconcile and
      report discrepancies to Client. Fees for receiving services are listed in
      the Fee Schedule, Exhibit C.

 

	2.11  	
      CORD
      will return partial case quantities -- defined as less than a saleable
      quantity - to Client at Client’s expense.

 

	2.12  	
      Client
      product in unapproved or quarantine status will be physically segregated
      and CORD’s computer system will be flagged accordingly to prevent
      unapproved product from entering approved picking areas of the warehouse.
      Client will provide written documentation to CORD to change quarantine
      product to approved status.

 

 

Page
2

 

[****]
Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 24B-2 under the Securities Exchange Act
of 1934, as amended.

 

 

	2.13  	
      CORD
      will move product from the Receiving area to bulk storage following CORD
      SOPs.

 

3.0         
INVENTORY

 

 

	3.1  	
      Inventory
      will be received, tracked and controlled on CORD’s computerized inventory
      system by item number, lot number, expiration date, quantity, and status.
      CORD’s system will meet all cGMP requirements for lot traceability and
      accountability, from receipt of product at CORD to shipment of product to
      Client’s customer.

 

	3.2  	
      Quarantined
      product will be physically segregated and appropriately labeled.
      Quarantined Product will be released from quarantine status in CORD’s
      inventory system upon written authorization by
Client.

 

	3.3  	
      CORD
      will assign unique locations for each product and lot in
      storage.

 

	3.4  	
      Inventory
      will be routinely verified by CORD through periodic cycle counts. CORD
      will use its best efforts to maintain accurate and timely inventory
      records.

 

	3.5  	
      Inventory
      deviations will be investigated by CORD and reported to Client. Corrective
      actions will be determined jointly by CORD and
Client.

 

	3.6  	
      Client
      may conduct a complete physical inventory once per calendar year, upon at
      least thirty-(30) days advance written notice prior to the start of a
      physical inventory.

 

	3.7  	
      CORD
      will notify Client of all expired or short dated Product (as specified by
      Client to be “X” number of months prior to expiry
date).

 

	3.8  	
      Disposition
      of returned, rejected or expired Product will be handled according to
      Client’s specific written direction.

 

4.0         
DISTRIBUTION

 

	4.0  	
      Orders
      approved and available for processing (pick & pack) by 2:00 p.m.
      Central Time will be shipped before the close of business the same day,
      Monday through Friday. Orders received by EDI and approved for inventory
      allocation by 12:00 noon will be shipped by close of business the same
      day. Orders received and processed after the cutoff times will be shipped
      the following business day.

 

	4.1  	
      Recognizing
      that order volume may fluctuate from time to time, CORD will staff to meet
      [****] of
      the rolling average number of Client orders processed over the previous
      [****]
      calendar months. CORD will use commercially reasonable efforts to meet the
      shipping schedule outlined herein when order or unit volume exceeds
      [****] of
      the rolling average number of orders or units; provided, however, that
      CORD cannot guarantee daily on-time shipping standards will be achieved
      during such increased activity periods.

 

	4.2  	
      CORD
      will measure the timeliness of shipments and will report this attribute
      periodically according to Section 19 of the Operating
      Guidelines.

 

	4.3  	
      Emergency
      shipments and other exceptions will be authorized in writing by Client.
      CORD will separately invoice Client for emergency shipments, which are
      defined as shipments occurring on weekends, holidays, and non-standard
      hours, as defined in the Fee Schedule, Exhibit
C.

 

 

Page
3

 

 

	4.4  	
      CORD’s
      inventory system will comply with First-to-Expire, First-Out (FEFO)
      inventory allocation. Any exceptions from FEFO must be approved by Client
      in writing prior to shipment.

 

	4.5  	
      CORD
      will provide the system, equipment and procedures, along with trained
      personnel and supervision to services related to picking product for
      Client’s customer orders.

 

	4.6  	
      CORD
      will perform quality verification on all Client shipments by an individual
      other than the employee who picked the order. CORD will use commercially
      reasonable efforts to pick, check and ship accurately all Client customer
      orders.

 

	4.7  	
      CORD
      and Client will mutually determine and agree in writing on the packaging
      requirements for shipping Client’s finished product(s). CORD’s Quality
      Assurance will assist Client and CORD will issue appropriate guidelines
      and training to the Distribution department to assure compliance with
      Client specifications.

 

	4.8  	
      Client
      and CORD will mutually determine and agree on special shipping conditions,
      such as for refrigerated product, which may be limited to Monday through
      Thursday shipping, or as otherwise instructed by the
    Client.

 

	4.9  	
      CORD
      will provide shipment confirmation information to Client through CORD’s
      information system on the same business day on which the shipment
      occurs.

 

	4.10  	
      CORD
      will manage shipping supplies - including vendor selection, ordering,
      inventory record keeping, and storage. CORD will invoice Client for all
      shipping materials — corrugated cartons, insulated coolers (if specified),
      address labels, inner packing — as may be required by Client’s packing
      specifications, per CORD’s proposal.

 

	4.11  	
      All
      Products will be shipped utilizing packaging and shipping carton(s) as per
      Client’s packaging instructions, or as deemed appropriate by CORD in the
      absence of Client specifications. Unless instructed otherwise by Client,
      shipping will occur based on the shipping procedures provided by
      Client.

 

	4.12  	
      CORD
      personnel will be available for emergency product shipments, via phone
      request, 24 hours per day, 365 days per year. For emergency shipments
      called in after the carrier’s cutoff time (approximately 8:00 p.m. for
      overnight airfreight), CORD will ship the product the following day,
      except Sunday, unless otherwise directed by the Client. CORD’s fees for
      emergency shipments are set forth in the Fee Schedule, Exhibit
      C.

 

5.0         
TRANSPORTATION

 

	5.1  	
      CORD
      and Client will mutually agree upon a common carrier (s) based on shipment
      size, destination, freight rates, availability of standard and special
      services, reliability of delivery, and claim history among other
      requirements.

 

	5.2  	
      CORD
      shall provide, if Client agrees, carriers under contract with
      Cardinal-Allegiance for discounted rates. Client and CORD will share the
      savings according to a formula acceptable to both parties, or , if Client
      so chooses and CORD agrees, CORD shall charge a freight management fee
      according to the Fee Schedule, Exhibit C.

 

 

Page
4

 

	5.3  	
      Shipping
      charges, including all special charges for insurance, proof of delivery,
      hazardous materials, service upgrades, and so forth, will be billed
      directly to CORD’s account with the carrier and passed through to Client
      per terms of the Distribution Agreement, inclusive of CORD’s
      transportation management fees as defined in the Fee Schedule, Exhibit
      C.

 

	5.4  	
      Freight
      terms will be F.O.B. Origin, Freight Prepaid where title passes to the
      customer when the shipment is tendered to the common
    carrier.

 

	5.5  	
      CORD,
      at the request of the Client, will provide proof of delivery for specific
      customer shipments. Fees charged by carriers for proofs of delivery, if
      any, will be passed directly to Client.

 

	5.6  	
      Client
      will approve payment of all credits to Client customers for overage,
      shortage and damage claims related to transportation. CORD, if handling
      Accounts Receivable for Client, will issue a credit to Client’s customer
      accordingly, or CORD will provide freight claim documentation to Client
      when Client is responsible for the Accounts
Receivable.

 

6.0          CUSTOMER
SERVICE

 

	6.1  	
      CORD
      will provide a dedicated inbound phone line (or lines) for Client’s
      customers to phone in purchase orders, for inquiries, and for general
      information.

 

	6.2  	
      CORD
      will staff the Client Customer Service inbound phone line from 7:00 a.m.-
      6:00 p.m. central standard time, Monday through Friday, except for the
      following holidays: Christmas Day, New Year’s Day, Memorial Day,
      Independence Day, Labor Day, Thanksgiving
Day.

 

	6.3  	
      CORD
      will be responsible for the training of the customer service
      representative and backup representative(s). Client will provide company
      and product specific information for training of the customer service
      representatives assigned to Client.

 

	6.4  	
      CORD
      will be responsible for initial set up and on-going maintenance of
      customer master files. The initial customer master file will be approved
      and signed by Client. Client may add customers by completing the customer
      profile form and forwarding to CORD for system
entry.

 

	6.5  	
      CORD
      will accept customer orders by electronic data interchange (EDI), phone,
      mail or fax. 

 

	6.6  	
      CORD
      will use commercially reasonable efforts to answer inbound phone calls
      within the first thirty (30) seconds, and enter orders
      accurately.

 

	6.7  	
      Orders
      received by phone, mail or fax that are entered and approved for shipment
      by 2:00 p.m. Central Time will be shipped the same day. Orders received by
      EDI and approved for inventory allocation by 12:00 noon will be shipped
      the same day. Orders received and processed after the cutoff times will be
      shipped the following business day.

 

	6.8  	
      As
      a backup to the customer service representatives, a voice mail system will
      be maintained to accept telephone orders and to collect messages from
      customers.

 

 

Page
5

 

[****]
Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 24B-2 under the Securities Exchange Act
of 1934, as amended.

 

	6.9  	
      CORD’s
      dedicated customer service line for Client will incorporate programming to
      forward calls to a Client designated clinical service phone number if
      calls of a clinical nature are received outside of regular customer
      service hours.

 

7.0         
ORDER
ENTRY

 

	7.1  	
      Client
      will determine minimum order and order line quantity and CORD will enter
      orders accordingly.

 

	7.2  	
      Client
      will instruct its customers and trading partners to place orders based on
      the Client’s Distribution Agreement.

 

	7.3  	
      Client
      will determine when customers shall pay for premium freight, special
      handling, and emergency order processing.

 

	7.4  	
      Client
      reserves the right to limit quantities, to hold or to refuse orders. These
      decisions will be executed by CORD.

 

	7.5  	
      CORD
      will use commercially reasonable effort to enter orders accurately. CORD
      measures the accuracy of orders entered and will report this attribute
      periodically according to the conditions set forth in Section 19 of the
      Operating Guidelines.

 

8.0          CUSTOMER
CREDIT

 

	8.1  	
      Client
      will determine the customers to whom it will sell on a direct basis and
      will assign each to a customer class, sales territory, and other sort
      classifications, as applicable, based on definitions mutually acceptable
      to Client and CORD.

 

	8.2  	
      Client
      will establish credit limits for each customer or groups of
      customers.

 

	8.3  	
      CORD’s
      system will monitor orders and outstanding account receivable against the
      customer’s credit limit and hold orders where credit limits are
      exceeded.

 

	8.4  	
      Client
      may elect to place a customer’s account on credit hold so that all orders
      are reviewed prior to shipment.

 

	8.5  	
      Client
      will review and approve all customer orders held for credit limits prior
      to shipment.

 

9.0          PRICING
AND TERMS

 

	9.1  	
      Client
      will publish terms and conditions of sale to wholesalers and warehouse
      chains. Standard terms are [****]
      days, net [****]
      days. Contracted customers may have non-standard
terms.

 

	9.2  	
      Client
      will publish list prices for wholesalers and warehouses chains and are
      subject to change from time to time at the sole discretion of
      Client.

 

	9.3  	
      Client
      will determine contract prices on a contract by contract basis. Client
      will notify CORD of such price changes with seven-(7) days notice for
      update of the CORD system files. Client will develop and forward customer
      notifications to CORD and CORD will provide printing and mailing services
      on behalf of Client.

 

 

Page
6

 

	9.4  	
      CORD
      will perform system maintenance of pricing and terms. Client will provide
      to CORD in writing any changes to prices or terms. CORD will be
      responsible for updating the CORD system within 48 hours of receipt of
      such notice or as Client may otherwise
instruct.

 

	9.5  	
      CORD
      employees are bound by the confidentiality provisions of the Agreement
      between CORD and Client and as such, shall not disclose Client sales data
      or pricing information outside the specific CORD employees who have a need
      to know of this information in the course of performing their routine job
      responsibilities.

 

	9.6  	
      CORD
      will provide the necessary reports within stipulated time frames to ensure
      Client can comply with the reporting requirements of Medicaid (OBRA),
      Veterans HealthCare Act, PHS Covered Entities, and state rebate programs.
      Client will define reporting requirements against which CORD will produce
      the required reports.

 

10.0       
INVOICING

 

	10.1  	
      CORD
      Customer Service will use commercially reasonable efforts to mail invoices
      the morning following shipment of product, or transmit by electronic data
      interchange (EDT), where installed, the same say of shipment of product,
      to customer’s billing address.

 

	10.2  	
      For
      any order shipped after the close of business, the invoice will be
      prepared and mailed the following business
day.

 

	10.3  	
      CORD
      will make its best effort to process invoices as timely and accurately as
      possible. CORD measures invoice accuracy and processing timeliness and
      will report this attribute periodically according to the conditions set
      forth in Section 19 of the Operating
Guidelines.

 

11.0       
CHARGEBACKS

 

	11.1  	
      Client
      may enter into prime vendor arrangements for select contract or government
      mandated pricing arrangements.

 

	11.2  	
      Client
      will select a wholesaler with full EDI capabilities, including but not
      limited to purchase orders chargeback submission, chargeback
      reconciliation and credit, invoicing and bid award
      notification.

 

	11.3  	
      CORD,
      on behalf of Client, will process chargebacks daily with reconciliation of
      chargeback discrepancies within 5 working days. CORD’s chargeback SOP will
      define the parameters available to CORD to resolve discrepancies between
      Client’ contract terms and conditions and the chargeback submitted by the
      wholesaler.

 

	11.4  	
      All
      chargebacks will be processed according to the chargeback policy for
      Client.

 

	11.5  	
      All
      validated chargeback submissions will be settled via credit invoice.
      Client will not make advance payments or authorize advance deductions of
      chargebacks.

 

	11.6  	
      Prime
      vendors will be instructed to report all returns from Client’s contract
      customers as a reverse chargeback.

 

 

Page
7

 

	11.7  	
      CORD
      will make its best effort to process chargebacks as timely and accurately
      as possible. CORD measures the chargeback discrepancy rate and timeliness
      of chargebacks processed and will report this attribute periodically
      according to the conditions set forth in Section 19 of the Operating
      Guidelines.

 

12.0       
ACCOUNTS
RECEIVABLE.

 

	12.1  	
      Client
      will open and maintain a bank lockbox. The bank will receive customer
      remittances invoice information on behalf of
Client.

 

	12.2  	
      Client’
      bank will forward information about lockbox deposits along with the
      customer’s remittance information to CORD.

 

	12.3  	
      CORD
      will reconcile and apply the cash receipt to the outstanding account
      receivable within 24 hours of receipt from the
bank.

 

	12.4  	
      To
      aid the cash application process, Client will authorize accounts
      receivable payment terms of one day past published terms. This grace
      period will not be communicated to
customers.

 

	12.5  	
      CORD
      will disallow discounts for payments received beyond the payment terms
      grace period, as indicated by the postmark. CORD will handle the amount of
      the discount as a balance due on the Accounts Receivable
      account.

 

	12.6  	
      CORD’s
      standard for past due payment collection
activity:

 

	12.6.1  	
      Notify
      by phone all customers with payments that have reached 10 days past due.
      

 

	12.6.2  	
      Initiate
      second collection call at 17 to 20 days past
due.

 

	12.6.3  	
      Send
      letter to customer at ten (10) days past due with Client’s approval.
      

 

	12.6.4  	
      Forward
      to an outside agency for collection with approval of
    Client.

 

	12.7  	
      CORD
      will maintain notes related to collection activities in a Accounts
      Receivable system file that will be accessible to Client’ authorized
      personnel.

 

	12.8  	
      CORD
      will use commercially reasonable effort to process accounts receivable as
      timely and accurately as possible. CORD, at Client’s option, may measure
      accounts receivable and collections activity report these attribute
      periodically according to the conditions to be defined and mutually agreed
      upon by CORD and Client.

 

13.0       
GOVERNMENT
REPORTING

 

	13.1  	
      CORD
      personnel will provide the following Government reports to Client by the
      fifth business day following the close of a business
    quarter.

 

	13.1.1  	
      IFF
      Direct Sales Report

 

	13.1.2  	
      IFF
      Indirect Sales Report

 

	13.1.3  	
      AMP
      Report

 

	13.1.4  	
      Non
      FAMP Report

 

 

Page
8

 

	13.1.5  	
      Best
      Price Report

 

	13.1.6  	
      Most
      Favored Price Report

 

	13.2  	
      CORD
      will also provide supporting schedules and source documents to be used by
      Client to perform verification of the Government
  reports.

 

14.0       
MONTH-END
CLOSE

 

	14.1  	
      CORD
      will comply with month-end reporting requirements as specified by
      Client.

 

	14.2  	
      Client
      will complete its close by the 5th
      working day after the last day of the month being
  closed.

 

15.0       
RETURN
GOODS

 

	15.1  	
      Returns
      will be processed according to the Return Procedures defined by
      Client.

 

	15.2  	
      CORD
      will complete the processing of all returns and issue credits within 5
      business days of receipt of the return.

 

	15.3  	
      CORD
      will use commercially reasonable efforts to process return goods as timely
      and accurately as possible.

 

16.0       
RECALL
ASSISTANCE

 

	16.1  	
      Client
      is responsible for management of a recall event, including but not limited
      to preparation of the letter of notification to customers, coordination
      and reporting with FDA, tracking of recalled product by customer, follow
      up letters to customers, and final disposition of
  product.

 

	16.2  	
      CORD
      will provide the necessary recall reports within two hours of notification
      by Client. Reports will contain, but not be limited to, the following
      information for each recalled product and lot number: all customer
      shipments by date, item number, quantity, lot number, and ship to
      address.

 

	16.3  	
      CORD
      will provide a secure area for the receipt of recalled product. CORD will
      assist Client with inventory
reconciliation.

 

	16.4  	
      CORD
      will provide destruction services for recalled product as may be required
      by Client.

 

17.0        
SYSTEMS

 

	17.1  	
      Client
      retains ownership to all data in the CORD system related to Client’
      business.

 

	17.2  	
      CORD
      will maintain security of the Client’s data in files segregated and
      inaccessible to other CORD Client, to CORD’s parent organization Cardinal
      Health, or to any other entity as determined by the
  Client.

 

 

Page
9

 

 

	17.3  	
      CORD
      will provide Client with on-line access to sales information, inventory
      records, lot tracking, customer profiles, item maintenance, pricing and
      terms, and other business critical data as defined in CORD’s standard
      reports output.

 

	17.4  	
      Reporting
      and interfaces will be defined by Client and jointly agreed upon with
      CORD. 

 

	17.5  	
      CORD
      will maintain all systems within the change control
  SOPs.

 

	17.6  	
      CORD’s
      system will be accessible by Client 7:30 a.m. - 7:30 p.m. Central Time,
      Monday through Friday except for routine, scheduled
      maintenance.

 

	17.7  	
      Unscheduled
      system downtime per calendar quarter shall not exceed 2% of the normally
      accessible access hours. CORD will immediately notify Client of any system
      problem that might affect services and an estimated time for restoration
      of system access.

 

	17.8  	
      Full
      system backups will be generated on a nightly basis in conjunction with
      SOP IS-005 ‘Backup and Recovery’. These backup tapes will be sorted either
      off-site or in a
      fireproof cabinet as indicated by the SOP.

 

18.0       
AUDITS
/ INVENTORIES

 

	18.1  	
      Upon
      not less than ten (10) days prior written notice, Client personnel and
      their representatives will have access to CORD facilities for review and
      audit of CORD’s facility and records to assure compliance with cGMP’s,
      standard operating procedures, guidelines, and Client specific
      agreements.

 

	18.2  	
      Client
      may request one complete physical inventory of Client products every 12
      months. 

 

	18.3  	
      CORD
      will assist Client with inspections/audits ordered by the Federal Food
      & Drug Administration or other governmental or official
      agencies.

 

	18.4  	
      CORD
      will notify Client immediately of any inspection activity by FDA, DEA or
      other government agency, as applicable to the Client or Client’s
      product.

 

19.0       
QUALITY
COUNCIL REPORT

 

	19.1  	
      CORD
      will provide Client with a periodic report on measurable attributes, as
      identified in preceding sections, to be used to track and benchmark
      performance. The frequency of the report will be determined jointly by
      CORD and Client.

 

	19.2  	
      Client
      and CORD will agree to meet periodically to review performance and to
      develop methods, policies, practices, and procedures that may improve the
      quality and efficiency of the CORD - Client
  relationship.

 

	19.3  	
      CORD
      will use its best efforts to meet or exceed the Client’s expectation for
      performance based on the measured
attributes.

 

	19.4  	
      Measured
      attributes and standards:

 

 

Page
10

[****]
Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 24B-2 under the Securities Exchange Act
of 1934, as amended.

 

	
      Section
	
      Performance
      Attribute
	
      Performance
      Standard
	
      Reporting
      Frequency

	
      1.0
	
      Temperature
      excursions
	
      [****]
      excursion -free
	
      Upon
      occurrence

	
      2.0
	
      On-time
      receipts and data entry
	
      [****]
      within [****]
      business hours for all conforming receipts
	
      Monthly

	
      3.0
	
      Cycle
      count accuracy
	
      [****]
	
      Monthly

	
      4.0
	
      On-time
      shipping
	
      [****]
      same day for orders received
by the standard cut-off
    time
	
      Monthly

	
      4.0

       
	
      Picking
      / shipping accuracy

       
	
      [****] for
      all orders processed with carton markings meeting NWDA bar code
      standards
	
      Monthly

       

	
      6.0

       
	
      Answer
      inbound phone calls within thirty (30)
	
      [****]
      answered within [****] seconds

       
	
      Monthly

       

	
      7.0
	
      Order
      entry accuracy
	
      [****]
	
      Monthly

	
      10.0
	
      Invoicing
      accuracy and timeliness
	
      [****]
	
      Monthly

	
      11.0

       
	
      Chargeback
      processing time
	
      [****]
      processed in [****]
      days or less from receipt of chargeback from wholesaler
	
      Monthly

       

	
      11.0
	
      Chargeback
      discrepancy rate
	
      [****] or
      Less
	
      Monthly

	
      12.0
	
      Accounts
      receivable
	
      Based
      on Client specifications; standard TBD.
	
      TBD

	
      14.0
	
      Return
      goods processing cycle time
	
      [****]
      processed in [****]
      business days or
      less
	
      Monthly

	
      17.0
	
      System
      availability
	
      >[****] of
      normal accessible hours
	
      Upon
      occurrence

 

Page
11

 

[****] Represents material which has been redacted
pursuant to a request for confidential treatment pursuant to Rule 24B-2 under
the Securities Exchange Act of 1934, as amended.

 

	
      
      Alliance
      Pharmaceutical

      ESTIMATED
      SCHEDULE

      Exhibit
      B

	
      Program
      implementation
	 
	 	
      One
      Time Start-up Fee(2)
	
      $[****]

	
       

      Distribution
      Services
	 
	 	
      Monthly
      per pallet ambient storage(5)
	
      $[****]

	 	
      Ambient
      product pick/pack/stage - first full case picked(1)
	
      $[****]

	 	
      Ambient
      product pick/pack/stage-each add’l case picked(1)
	
      $[****]

	 	
      Surcharge
      for loose case pick orders less than shelf pack of less than
    5
	
      $[****]

	 	
      Per
      case sample product pick/pack/stage - (1)
	
      $[****]

	 	
       

      Monthly
      distribution system access and use(1)
	
       

      $[****]

	 	
      Monthly
      account management fee (6)
	
      $[****]

	 	
      Emergency/International
      Orders
	
      $[****]

	 	
      Packing
      /Shipping Supplies(3)

      (includes
      ordering, receiving, storage)
	
      Cost
      plus [****]
      handling fee

	 	
      Shipping
      charges (4)
	
      Cost
      plus [****]
      handling fee

	
       

      Customer
      Service
	 
	 	
      Monthly
      fixed fee
	
      $[****]

	 	
      Per order fee
	
      $[****]

	 	
      Per
      credit memo
	
      $[****]

	
       

      Financial
      Services
	 
	 	
      Monthly
      fixed fee Accounts Receivable Management
	
      $[****]

	 	
      Per
      order fee Accounts Receivable Management
	
      $[****]

	 	
      Monthly
      fixed fee Chargeback Management
	
      $[****]

	 	
      Per
      submission Chargeback Processing & Government
Reporting
	
      $[****]

	
      Note
      (1): 
	
      This
      proposal is based on the distribution services of Imavist for Alliance as
      outlined in the RFI received on August 21, 2001. This proposal assumes
      that there are four vials per case and a minimum of [****] case
      will be shipped. If the actual average units shipped exceeds [****] percent,
      additional charges may be assessed. Other products requiring distribution
      services, or modified distribution channels, will be quoted separately. If
      the assumptions change from those presented in the RFI, either partner
      will have the right to renegotiate the fees and the basis used for quoting
      these services.

	 	 

	Note (2):  	System access fee includes licenses for two concurrent
      users. Additional licenses required by Alliance will increase the monthly
      fee by [****]
      per concurrent user. 

	 	 

	Note (3): 	The implementation fee is to be paid in [****] installments;
      the [****] after
      the implementation meeting and the [****] after
      the launch. Any additional procedures required for connectivity will be
      charged accordingly ® [****]
      (i.e. - Alliance must have a Registered IP address and Local Area Network
      (LAN)). 

	 	 

	Note (4): 	 Supplies include boxes, tape, labels, bubble pack,
      etc (approx. [****] per
      shipment), pallets if necessary ([****] per
      pallet), and any other Alliance
requirements. 

	 	 

	Note (5):  	A one pound package shipped UPS ground five zones will
      cost approximately $2.25. 

	 	 

	Note (5):  	The pallet fee is based on a [****] month
      Inventory on hand. Pallet storage greater than [****] months
      on hand will be assessed an additional charge of twice the standard
      fee. 

	 	 

	Note (7): 	The account management fee covers the following services:
      logistics management, inventory management, regulatory affairs and quality
      assurance, receiving discrepancy resolution, standard operating
      procedures, validation management, supply control, process set-ups, and
      process scheduling. 

 

 

Page
1

  

EXHIBIT C

 

SYSTEM
ACCESS AGREEMENT

 

This
System Access Agreement (“Agreement”) is made as of April 1, 2002 between CORD
Logistics, Inc., an Ohio corporation (“Licensor”), and Alliance Pharmaceutical
Corp., a New York corporation (“Licensee”), who hereby agree as
follows:

 

1.  Exclusive
Distribution Agreement. Licensor
and Licensee have entered into a Distribution Services Agreement (“Distribution
Agreement”) of even date with this Agreement, the terms of which are
incorporated by reference.

 

2.  System
Access: Maintenance Obligations. Licensor
hereby grants to Licensee a nonexclusive, nontransferable limited license (the
“License”) to utilize Licensor’s Operating
System Base Package, consisting of the computer hardware (as set forth below),
software, and other components described in the Distribution Agreement as well
as future upgrades and maintenance of the base package (collectively, the
“System”), for the information processing needs of Licensee in connection with
the Services to be provided by Licensor under the Distribution Agreement.
Licensee shall maintain during the term of this Agreement the local area network
(including without limitation centralized server) and desktop processing
requirements for the System as further described in the Distribution Agreement
or the Operating Guidelines, a copy of which are attached to the Distribution
Agreement as Exhibit A.

 

During
the term of this Agreement, Licensor shall employ reasonable security
measures and
policies designed to safeguard the integrity, accessibility, and confidentiality
of all of Licensee’s data resident on the System and establish and maintain
reasonable disaster and emergency recovery plans designed to minimize disruption
from System operation interruptions. Licensee shall have the right to review the
operation of the System from time to time during regular business hours, upon
reasonable prior notice and at a time mutually agreeable by the parties;
provided that such reviews shall be conducted in a manner to avoid disruption of
Licensor’s business operations.

 

3.  Lease
of Hardware. Licensee
shall have the right to lease a router (“Hardware”) from Licensor during the
term of this Agreement, at no additional cost to Licensee, other than the Fee
set forth in the Distribution Agreement. The Hardware shall be kept by Licensee
(a) subject to inspection by Licensor during regular business hours, upon
reasonable prior notice and at a time mutually agreeable by the parties; (b) at
Licensee’s address, as stated at the end of this Agreement, which Hardware shall
not be relocated without the prior written consent of Licensor, which consent
shall not be unreasonably withheld; (c) free of all security interests if any
kind whatsoever, liens, encumbrances and other claims; (d) marked with
Licensor’s identification marks or numbers and if requested by Licensor,
conspicuously labeled “supplied by Licensor”; and (e) maintained in good and
efficient working order, condition and repair, reasonable wear and tear
excepted.

 

Licensee
shall use the equipment with due care to prevent injury thereto, and to any
person or property and in conformity with all applicable laws, ordinances,
rules, regulations and other requirements of any insurer or governmental bonding
and with all requirements of the manufacturer with respect to use, maintenance
and operation of the Hardware. Licensee shall not modify any hardware without
the prior written consent of Licensor, which may be granted or withheld in its
sole discretion. It is the intention
and understanding of both Licensor and Licensee that the Hardware shall be, and
at all times remain, separately identifiable personal property of Licensor.
Licensee shall not permit any Hardware to be installed in or used, stored or
maintained with, any of Licensee’s personal property in such manner or under
such circumstances that such Hardware might be or become an accession to or
confused with such other personal property. Licensee shall not permit such
Hardware to be installed in or used, stored or maintained with, any real
property in such manner or under such circumstances that any person might
acquire any rights in such Hardware paramount to the rights of the Licensor by
reason of such Hardware being deemed to be real property or a fixture
thereon.

 

 

 

 

Licensee
shall at all times during the term of this Agreement and until the Hardware has
been returned to Licensor, at its own expense, maintain physical damage
insurance in the amount of not less than the replacement value of the Hardware.
All insurance so maintained shall provide for a thirty (30) day prior written
notice to Licensor or its assignees of any cancellation or reduction of
coverages; (ii) an option in Licensor or its assignees to prevent cancellation
by payment of premiums, (iii) cover the interest of the Licensor and (iv)
provide that all insurance proceeds shall be payable to the Licensee and
Licensor, as their respective interests may appear at the time of any such
payment. Licensor shall be named as an additional insured on any public
liability insurance policy so maintained. Upon the request of Licensor, Licensee
shall furnish to Licensor satisfactory evidence of any insurance so
maintained.

 

4.  Proprietary
Rights. Licensee
shall have the right to use the System during the term of this Agreement as
expressly provided in paragraphs 1 and 2 of this Agreement, but not otherwise.
Licensee shall not assign or otherwise transfer, disclose, copy, modify,
re-engineer, sell, license, disassemble, or decompile the System or disclose or
permit access to the System or related documentation to any other person or
entity. The System and all parts thereof, in all of their tangible and
intangible manifestations, all existing or new enhancements, developments,
derivative works, and other adaptions or modifications to the System (or any
part thereof), and all related proprietary rights, are and shall remain the
exclusive property of Licensor. Except for the License and the lease provided by
Section 3, Licensee shall have no right, title, or interest in or to the System
or any part thereof. Upon termination of this Agreement, Licensee shall promptly
return to Licensor all portions of the System then in Licensee’s possession or
under its control in accordance with the term set forth in Section 6
below.

 

5.  Warranties. Licensee
acknowledges that it has had adequate opportunity to review the System and its
features and operation, and Licensee accepts the System “AS IS” for its use as
contemplated in the Distribution Agreement. LICENSOR
MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, RELATING DIRECTLY OR
INDIRECTLY TO THE SYSTEM OR ANY PART THEREOF, INCLUDING WITHOUT LIMITATION ANY
WARRANTIES OF QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE.

 

6.  Limitation
On Liability. LICENSOR
SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, OR OTHER SIMILAR
DAMAGES ARISING DIRECTLY OR INDIRECTLY OUT OF THE USE OR INABILITY TO USE THE
SYSTEM OR ANY PART THEREOF, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER CLAIMED UNDER CONTRACT, TORT, OR ANY OTHER LEGAL
THEORY.

 

 

 

 

IF
ANY OF THE LIMITATIONS ON THE LIABILITY OF LICENSOR CONTAINED IN THIS AGREEMENT
ARE FOUND TO BE INVALID OR UNENFORCEABLE FOR ANY REASON, THEN LICENSOR AND
LICENSEE EXPRESSLY AGREE THAT THE MAXIMUM AGGREGATE LIABILITY OF LICENSOR FOR
ALL CLAIMS RELATING TO THE SYSTEM SHALL NOT EXCEED 100% OF THE AGGREGATE BASE
PACKAGE FEES PAID BY LICENSEE TO LICENSOR FOR LICENSEE’S USE OF THE SYSTEM UNDER
THE DISTRIBUTION AGREEMENT.

 

7.  Taxes. Licensee
shall pay when due all sales, use, gross receipts, excise, property, and other
taxes (other than taxes based upon Licensee’s net income) now or hereafter
imposed as a result of the transactions contemplated by this
Agreement.

 

8.  System
Availability. The
System shall be available for access twenty-four (24) hours a day, seven (7)
days a week, except for scheduled maintenance periods.

 

9.  Term. The
term of this Agreement shall begin upon Licensee’s initial use of the System as
evidenced by the first entry of inventory into the System (which may be a date
earlier than the Commencement Date specified for the Distribution Agreement) and
shall end: (a) automatically upon the termination of the Distribution Agreement
(for any reason), or (b) on any earlier date specified by Licensee in notice to
Licensor given not less than ninety (90) days prior to the specified termination
date; provided that: (i) paragraphs 4 through 10 inclusive shall survive the
termination of this Agreement, and (ii) no termination of this Agreement shall
affect any liabilities arising from, or based upon, acts or omissions occurring
prior to such termination.

 

10.  Expiration/Termination. Licensee
shall continue to have access to the System for a reasonable period of time (not
be exceed ninety (90) days) following termination of this Agreement solely for
purposes of retrieving and transferring to a separate system Licensee’s data
relating to its pre-termination operations, and Licensor shall reasonably
cooperate with Licensee to preserve the integrity and accessibility of
Licensee’s data during such period; provided that, during such period, Licensee
shall continue to pay the full Base Package and other fees payable by Licensee
under the Distribution Agreement and comply with all other requirements imposed
upon Licensee under this Agreement.

 

Upon the
expiration of this Agreement, Licensee shall return the Hardware to Licensor in
the same condition and configuration as received, reasonable wear and tear
excepted.

 

11.  Notices. Any
notice or other communication required or desired to be given to either Party
under this Agreement shall be in writing and shall be deemed given: (a) five (5)
days after mailing, if deposited in the United States mail, first-class postage
prepaid, and addressed to that Party at its address set forth at the end of this
Agreement; (b) when received if delivered to Federal Express or any other
similar overnight delivery service for delivery to that Party at that address;
or (c) when sent by facsimile transmission, with electronic confirmation, to
that Party at its facsimile number set forth at the end of this Agreement.
Either Party may change its address or facsimile number for notices under this
Agreement by giving the other Party notice of such change.

 

 

 

12.  Remedies. Licensee
shall indemnify Licensor and its affiliates, directors, officers, employees,
agents, and representatives against all claims, liabilities, losses, damages,
costs, and expenses (including without limitation reasonable attorneys’ fees)
arising directly or indirectly out of any failure of Licensee to perform fully
all obligations and conditions to be performed by Licensee pursuant to this
Agreement. Licensee acknowledges that in the event of any violation by it of any
of the provisions of paragraph 2 (Proprietary Rights) of this Agreement,
Licensor would suffer irreparable harm and its remedies at law would be
inadequate. Accordingly, in the event of any violation or attempted violation of
any such provisions by Licensee, Licensor shall be entitled, in addition to any
other rights or remedies which may be available to Licensor, to a temporary
restraining order, temporary and/or permanent injunctions, specific performance,
and other equitable relief, without the showing of irreparable harm, injury,
damage or the inadequacy of damages, and without the necessity of the posting of
any bond.

 

13.  Force
Majeure.
Notwithstanding any other provisions of this Agreement or the Distribution
Agreement to the contrary, each Party’s obligations under this Agreement
(exclusive of payment obligations) shall be excused if and to the extent that
any delay or failure to perform such obligations is due to fire or other
casualty, government restrictions, war, riot, strikes or labor disputes, acts of
God, or other causes beyond the reasonable control of that Party; provided,
however, that any party hindered by such condition beyond its reasonable control
must employ reasonable efforts to overcome such hindrance as promptly as
practicable.

 

14.  Successors. Licensee
shall not assign or otherwise transfer this Agreement or any of its rights or
obligations under this Agreement without the prior written consent of Licensor,
which consent shall not be unreasonably withheld. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective successors and assigns of each
Party.

 

15.  Interpretation. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio. If and to the extent that any court of competent jurisdiction
determines that it is impossible to construe any provision of this Agreement
consistently with any law or public policy and consequently holds that provision
to be invalid, such holding shall in no way affect the
validity of the other provisions of this Agreement, which shall remain in full
force and effect.

 

16.  Complete
Agreement. This
Agreement (together with the Distribution Agreement, which is hereby
incorporated herein by reference) constitutes the entire Agreement between the
Parties with respect to the subject matter of this Agreement and supersedes all
prior or contemporaneous discussions, negotiations, representations, warranties,
or Agreements relating to the subject matter of this Agreement. This Agreement
may not be amended or otherwise modified except by a written instrument signed
by each Party.

 

 

 

IN
WITNESS WHEREOF, the undersigned acknowledge and accept the terms of this
Agreement and have duly executed this Agreement.

 

	CORD LOGISTICS,
      INC. 	 	 	ALLIANCE
      PHARMACEUTICAL CORP. 
	 	 	 	 
	By: /s/ 
      Frank C. Wegerson	 	 	By:  /s/ 
      Jack DeFranco 
	
      

      Frank C. Wegerson	 	 	
      

      Jack DeFranco
	Vice President and
      General Manager
15 Ingram Boulevard
LaVergne, TN 37086
Facsimile
      No.: (615) 793-4783
  	 	 	Vice
      President,
Marketing & Business Development
3040 Science Park
      Road
San Diego, CA 92121
Facsimile No.: (858)
410-5201NOTE:
Confidential treatment has been requested for certain portions of this document.
Material that has been omitted from this document as filed on EDGAR is marked as
follows [**].

 

EXHIBIT
10.37

WIRELESS
DISTRIBUTION AGREEMENT

 

This
Wireless Distribution Agreement (the “Agreement”) is made as of November 1, 2004
(the “Effective Date”), by and between Playboy.com, Inc., a Delaware corporation
with offices at 730 Fifth Avenue, New York, New York 10019, U.S.A.
(“Playboy.com”), and Dwango North America Corp., a Nevada corporation with
principal offices at 200 West Mercer Street, Suite 501, Seattle, Washington
98119 (“Dwango”).

 

WHEREAS,
Playboy.com
desires to grant to Dwango, and Dwango desires to accept, certain rights to
distribute the Distributed Content to Mobile Devices in the Territory on
permitted Networks (each as defined below) in accordance with the following
terms and conditions;

 

NOW,
THEREFORE, in
consideration of the mutual promises herein contained, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:

 

1  DEFINITIONS.

 

1.1     “Content
Enablers ” shall mean entities that translate, encode, localize, aggregate
and/or otherwise enable the Distributed Content to be distributed on the Mobile
Entertainment Service (as defined below) by the Telecoms under a sublicense
agreement with Dwango pursuant to Section 2.3 below. 

 

1.2    
“Distributed
Content” shall mean (a) Dwango Created Content (if text content, in the English
language or other languages at Playboy.com’s discretion), (b) Dwango Acquired
Material (as defined below), and (c) Playboy Content, in each case as branded
with the Playboy.com Properties and distributed by Dwango in accordance with the
terms and conditions of this Agreement. All Distributed Content shall be subject
to Playboy.com’s advance written approval. “Distributed Content” does not and
will not include: (i) so-called “mobile commerce,” the sale of products or
services associated with the Playboy.com Properties, or otherwise; (ii)
minimally interactive streams of video content, whether via television broadcast
signal or otherwise, or other video programming ninety (90) minutes or longer in
a format similar to a television channel’s programming; or (iii) wager-based
gaming activities (e.g. gambling or betting). 

 

1.3     “Dwango
Acquired Material” shall mean Games, ring tones, audio clips, and other content
that has been specifically licensed, commissioned, or otherwise obtained by
Dwango for use as Distributed Content under the Agreement through an acquisition
of rights from a third party, all of which shall be subject to Playboy.com’s
approval prior to its inclusion within the Distributed Content. For purposes of
clarification, Dwango Acquired Content shall not include any Playboy Content or
the Playboy.com Properties.

 

1.4    
“Dwango
Created Content” shall mean Games, ring tones, audio clips, and other content
that has been created by Dwango for use as Distributed Content under the
Agreement, all of which shall be subject to Playboy.com’s approval prior to its
inclusion within the Distributed Content.

 

 

1

 

1.5    
“Games”
shall mean for-fun (i.e., not involving gambling or betting of any type)
interactive games enabled for use on Mobile Devices that have either been
created by or for Dwango or licensed by Dwango from a third party, including any
modifications, additions, enhancements and upgrades thereto.

 

1.6    
“Mobile
Device” means a mobile, wireless device existing as of the Effective Date or
developed thereafter during the Term that (i) is intended to be mobile and not
used at a fixed location and (ii) is primarily intended to receive voice, and/or
data.. The definition of “Mobile Device” includes devices commonly referred to
as “cell phones,” “mobile phones” or “PDAs” used as mobile phones on Networks
and, for the avoidance of doubt, excludes all computers (e.g., laptops and
desktops), non-mobile television devices and other devices that function as
receivers or set-top box for a fixed display device or fixed monitor. Final
determination of acceptable Mobile Devices will be at Playboy.com’s reasonable
discretion.

 

1.7    
“Mobile
Entertainment Service” means Dwango’s technology platform that permits
Subscribers to browse, sample, download, play, use and purchase Games, ring
tones and other content and services that have been distributed via Networks to
Mobile Devices pursuant to this Agreement. The Mobile Entertainment Service
shall include any
modifications, additions, enhancements and upgrades to the Mobile Entertainment
Service, but shall in no event include any Playboy Content or Playboy.com
Properties. As between Playboy.com and Dwango, title to and all ownership rights
of, in and to the Mobile Entertainment Service, and any intellectual property
rights therein, are and will remain the property of Dwango during and after the
Term, which shall have the exclusive right to protect the same by copyright,
trademark, patent or otherwise.

 

1.8    
“Networks”
shall mean SMS, EMS, MMS, WAP, GSM, TDMA, CDMA, PDC, GPRS, UMTS or other
applicable wireless messaging (including without limitation smart messaging) or
wireless network standards primarily intended to transmit voice and data to
Mobile Devices by Telecoms. “Networks” shall specifically exclude wireless
technologies that transmit over networks primarily used for other purposes or
formats, including, but not limited to, wireless fidelity (wi-fi) Internet via
local area networks (e.g., IEEE specification 802.11a/b/g), digital television
programming, direct satellite transmission, infra-red technologies, server
message block (SMB) and Bluetooth technologies. Final determination of
acceptable Networks will be at Playboy.com’s reasonable discretion.

 

1.9    
“Playboy
Content” shall mean content, in any medium and whether or not Playboy-branded,
that is (a) licensed and delivered to Dwango by Playboy.com pursuant to this
Agreement, and (b) that Playboy.com’s rights and permissions department has
granted Dwango express prior written authorization to distribute hereunder as
Distributed Content. Playboy Content may include, without limitation, (i) video,
audio-visual, and audio works, (ii) photographs and still images, and (iii)
textual works, in each case similar in style and content to that displayed from
time to time at http://www.playboy.com. For
purposes of this Agreement, Playboy Content shall include any content created by
or for Dwango from Playboy Content, such that the resulting work constitutes a
derivative work of any Playboy Content, other than solely as a result of its
branding with Playboy.com Properties. This shall include, without limitation,
any encoded, translated, dubbed or subtitled versions of Playboy
Content.

 

 

2

 

1.10    
“Playboy.com Properties” shall mean the copyrights, trademarks, trade names,
service marks and/or logos owned or used by Playboy.com and identified on
Exhibit
A hereto.

 

1.11    
“Subscribers” shall mean individual customers of Dwango or a Dwango sublicensee
who (a) are at least (18) years old or the minimum age necessary under law to
view applicable Playboy Content, (b) reside in the Territory, (c) pay an
applicable access, subscription or download fee specifically to receive the
Distributed Content on their Mobile Devices, and (d) complete a registration
process that includes, without limitation, acceptance of the applicable terms of
use and Privacy Policy pursuant to Section 3.5 below.

 

1.12    
“Telecoms” shall mean, for purposes of this Agreement, any entity that, in its
ordinary and primary course of business, utilizes the Networks to carry the
Distributed Content via Mobile Devices to Subscribers, it being understood that
any and all Telecoms through which Dwango proposes to distribute and/or promote
the Distributed Content will be subject to Playboy.com's advance written
approval.

 

1.13    
“Territory” shall mean Canada and the United States of America. 

 

2         
LICENSE
GRANTS.

 

2.1  Playboy
Content. Subject
to the terms and conditions set forth herein, Playboy.com hereby grants Dwango,
and Dwango hereby accepts, a non-exclusive (subject to Section 2.4 below),
non-sublicensable (except as provided in Section 2.3 below), non-transferable,
non-assignable, revocable, limited right and license to distribute the Playboy
Content via the Networks to Telecoms and Subscribers solely in the Territory and
during the Term. For the avoidance of doubt, Dwango shall have no right or
license to distribute any Playboy Content without Playboy.com’s express prior
written authorization.

 

2.2     
Playboy.com
Properties. Subject
to the terms and conditions set forth herein, Playboy.com hereby grants Dwango,
and Dwango hereby accepts, a non-exclusive (subject to Section 2.4 below),
non-sublicensable (except as provided in Section 2.3 below), non-transferable,
non-assignable right and license to use and reproduce the Playboy.com Properties
during the Term solely for the purpose of promoting and distributing Distributed
Content via the Networks to Telecoms and Subscribers in the Territory;
including, but not limited to, attaching and incorporating the Playboy.com
Properties to and into the Distributed Content.

 

2.3    
Sublicenses. Subject
to the terms and conditions set forth herein, Dwango may grant a non-exclusive,
non-transferable, non-assignable limited right and license to Telecoms to
promote, offer and distribute the Distributed Content to Subscribers via
Networks to Mobile Devices in the Territory; provided however, that Dwango may
only sublicense Distributed Content to such Telecoms as are approved in advance
and in writing by Playboy.com. Dwango shall ensure that each such sublicense (i)
be in a valid and binding writing; and (ii) be in accordance with this
Agreement’s terms and conditions. Furthermore, Dwango shall use commercially
reasonable efforts to ensure that each such sublicense provide that Playboy.com
is named as a third party beneficiary of such agreement. Upon request from
Playboy.com, Dwango shall verify to Playboy.com’s satisfaction that any
agreement entered into between Dwango and any sublicensee meets the requirements
set forth herein, shall provide copies of any such agreements and shall either
make any revisions Playboy.com reasonably requests or no longer sublicense
Playboy Content or Playboy.com Properties pursuant to such Agreement. Dwango
shall be primarily responsible to Playboy.com for all actions and omissions of
its sublicensees as if such actions and omissions were those of Dwango.

 

 

3

 

2.4    
Limited
Exclusivity.

 

2.4.1    
Notwithstanding
the non-exclusive nature of the license granted herein, the parties hereby agree
that, during the Term, with the exception of Games (as defined above),
Playboy.com shall not license to any third party the right to distribute the
Playboy-branded photographs, still images, or purely textual works that are
included in the Playboy Content directly through any Telecom in the
Territory.

 

2.4.2    
For the
avoidance of doubt, the license granted to Dwango in Section 2.1 shall be
non-exclusive in regards to all carrier-independent distribution (e.g.,
websites, content aggregator websites, Playboy.com’s websites and any third
party distribution channel not linked to Telecoms).

 

2.4.3    
Notwithstanding
anything to the contrary herein, the restriction set forth in Section 2.4.1
above shall not apply to (a) incidental utilization (e.g., as decorative or
promotional presentations of small amounts of pictorial or audiovisual content
and associated captions) of the applicable items of Playboy Content but not
including any utilization on a wireless network or (b) use of Playboy.com
Properties and/or Playboy Content in connection with: (i) advertisements for
Playboy Magazine or other Playboy products and services; (ii) sales and
promotional activities for Playboy-branded goods and services; (iii) sales and
promotional activities for goods and services related to mobile commerce by
Playboy or its licensees; (iv) promotional services operated by or under license
from Playboy TV International, LLC; and/or (v) Playboy-branded services devoted
to online or wireless wagering and/or betting. Furthermore, Playboy.com shall
not be restricted in offering and/or entering into agreements with third parties
for the provision of Internet websites and non-wireless applications in the
Territory or the distribution to Mobile Devices (via Networks or otherwise) of
television signals or television-like content, nor shall Playboy.com be
restricted in pursuing any activities other than those to which the covenants in
Section 2.4.1 applies.

 

3  DISTRIBUTED
CONTENT.

 

3.1  Distributed
Content. The
parties agree that Playboy.com will deliver Playboy Content to Dwango in a
mutually agreed upon digital format and in accordance with a schedule to be
mutually agreed upon by the parties. Subject to Playboy.com’s approval rights in
Section 14 below and the restrictions in Section 3.2 below, during the Term
Dwango shall develop and distribute the Distributed Content to Telecoms and/or
Subscribers in the Territory via permitted Networks as contemplated in this
Agreement. Dwango shall be solely responsible for making Distributed Content
available and for designing, uploading, maintaining, and updating the same, and
will ensure that the same is refreshed at least every thirty (30) days. Dwango
shall ensure that Distributed Content is accessible only in the Territory and
for authorized purposes by using commercially reasonable measures acceptable to
Playboy.com, including the use of digital rights management systems approved by
Playboy and, where applicable, blocking all unauthorized Internet protocol
addresses. Dwango shall also be solely responsible for operating and hosting the
service described herein, as well as for customer service, transactions and
billing; provided that such services may be subcontracted to either by (i)
Telecoms in their sole discretion or (ii) Dwango to third parties approved by
Playboy.com in advance and in writing, which approval shall not be unreasonably
withheld, conditioned or delayed. For the avoidance of doubt, Dwango shall be
solely responsible for all costs and expenses and for compliance with applicable
laws, rules and regulations and with all rights of third parties (including,
without limitation, obtaining any necessary rights clearances for specific
Distributed Content) in connection with any use of the Distributed Content. In
the event that any incremental royalties or other costs must be paid (i) to any
third party (including, without limitation, to Playboy.com or its affiliates) to
obtain rights to use or distribute any Distributed Content or because of such
use or (ii) to make such content technically available to Dwango. Dwango shall
be solely responsible for payment of such incremental royalties or costs.

 

 

4

 

3.2  Compliance
with Guidelines.
Playboy.com shall have final editorial approval over all Distributed Content.
Dwango shall at all times comply (and shall cause its sublicensees at all times
to comply) with the provisions and limitations set forth in the Guidelines
attached hereto as Exhibit
B, as the
same may be amended by Playboy.com from time to time upon no less than five (5)
business days prior notice to Dwango (the “Guidelines”). Regardless, Dwango
shall not (i) supply to Playboy.com, (ii) include as Distributed Content, or
(iii) use in connection with the Playboy.com Properties or Playboy Content, any
content which contains models or performers who were less than eighteen (18)
years old (or, if older, such other age of majority under applicable law) at the
time such content was first fixed in tangible form. Any and all advertising
appearing in connection with any service featuring Distributed Content shall be
subject to Playboy.com’s prior written approval. To the extent there is any
conflict between this Agreement and the Guidelines, the terms of this Agreement
shall control.

 

3.3  Consultation
Regarding Censorship. Dwango
shall forward promptly to Playboy.com any information received by it regarding
censorship by governmental agencies, Telecoms, Content Enablers, or otherwise in
connection with the Distributed Content. Dwango shall at all times consult fully
with Playboy.com and act in accordance with the reasonable determinations of
Playboy.com in response to instances of censorship.

 

3.4  Minimum
Service Levels. Dwango
shall, and shall require that its sublicensees shall, take all reasonable
measures to ensure availability to Subscribers of the Distributed Content at
least ninety-nine and one half percent (99.5%) of the time per month as averaged
over any one (1) month period.

 

3.5  Terms
of Use and Privacy Policy. Dwango
shall (and will require that Telecoms shall) use its best commercial efforts to
ensure that each Subscriber is at least eighteen (18) years of age (or, if
older, such other age as is applicable in the Territory according to its laws
regarding the viewing of Distributed Content) and shall post or otherwise obtain
from each Subscriber a binding terms of use agreement acceptable to Playboy.com
which at a minimum (i) forbids the unauthorized use of the Distributed Content,
(ii) identifies the required legal age of such Subscriber, and confirms that the
Subscriber is resident within the Territory. In addition, Dwango shall (and will
use its best commercial efforts to ensure that Telecoms shall) implement a
privacy policy (“Privacy Policy”) applicable to Subscribers that is no less
protective of user privacy than is required under the laws, rules, requirements
and directives of each applicable country within the Territory. Dwango shall
not, and shall require that Telecoms do not, take any action in contravention of
such Privacy Policy or of any applicable law, rule, requirement or
directive. If
Dwango and/or a Telecom violate the Privacy Policy or any applicable law, rule,
requirement or directive, in addition to any remedies provided herein, Playboy
or Dwango may require such entity to immediately cease providing Distributed
Content. Both the terms of use and Privacy Policy shall be prominently displayed
and will require an affirmative indication of consent to their terms by each
Subscriber or other user (e.g., by requiring a click of an “I Agree” button).
Playboy.com shall have the right to review the terms of use and Privacy Policy,
to require reasonable changes thereto (subject to applicable laws), and to
request certification from Dwango that it is complying with this paragraph. All
such requests shall be promptly met.

 

 

5

 

3.6  User
Data. To the
extent possible directly and/or through its agreements with Telecoms, Dwango
will collect, store and manage information regarding Subscribers and use of the
Distributed Content, including without limitation, names and e-mail addresses
(“User Data”). As between the parties, Dwango shall own and have rights to the
User Data; provided, however, that to the extent permitted under applicable
laws, regulations, any applicable Privacy Policy and any written agreements
existing as of the Effective Date, and to the extent the Subscriber given his or
her consent, Dwango shall provide User Data to Playboy.com on request, and
Playboy.com shall have the right to market to such Subscribers. During and
following the Term: (i) Dwango shall use User Data only in the distribution and
promotion of the Distributed Content and (ii) Playboy.com may use such data free
of charge. 

 

4  PLAYBOY.COM
PROPERTIES.

 

4.1  Rights
in Playboy.com Properties; Usage. Dwango
recognizes and acknowledges that the Playboy.com Properties are internationally
well-known by the general public and are associated in the public mind with
Playboy.com’s affiliate, Playboy Enterprises International, Inc. (“PEII”), and
are marks in which PEII has acquired considerable and valuable goodwill. Dwango
acknowledges that Playboy.com and PEII have an interest in maintaining the
worldwide goodwill, recognition and standards of the Playboy.com Properties and
the Playboy Content. Consequently, Playboy.com shall have the right to require
Dwango and its sublicensees to make any changes and/or corrections with regard
to the Playboy.com Properties and/or the Distributed Content as Playboy.com may
reasonably deem necessary to maintain the quality standards and the goodwill
associated with the Playboy.com Properties. Dwango agrees, and shall use its
best commercial efforts to require its sublicensees to agree, to make and
incorporate such changes or corrections promptly upon notice from Playboy.com
and at Dwango’s sole cost and expense. Such changes and corrections shall be
made promptly after a written request identifying the requested change and/or
correction is delivered to Dwango form Playboy.com. Playboy.com acknowledges
that the Distributed Content and the use of the Playboy.com Properties on the
Networks may differ to some extent from paper-printed Playboy Content and
Playboy.com Properties. Therefore, when assessing the quality and the
reasonableness of changes and/or corrections required by Playboy.com of the
Distributed Content and the Playboy.com Properties hereunder, the creation and
use of the Distributed Content and Playboy.com Properties shall be compared with
other digital content created or used by Dwango or other content providers
operating in the same industry with Dwango.

 

 

6

 

4.2  Goodwill. Dwango
and its sublicensees will not obtain any right, title or interest in the
Playboy.com Properties or the Playboy Content by virtue of their use of the
Playboy.com Properties or Playboy Content under this Agreement and any
additional goodwill associated with the Playboy.com Properties that is created
through use of the Playboy.com Properties shall inure solely to the benefit of
PEII.

 

4.3  Variations. During
and after the Term, Dwango and its sublicensees will not apply for or use any
Playboy.com Properties or service marks that include or are confusingly similar
to any of the Playboy.com Properties or any other similar marks or variations
thereto.

 

4.4  Notices. Dwango
must (and must cause its sublicensees to) display on the Distributed Content
such trademark and copyright notices as requested by Playboy.com and/or as
required by applicable law. Except as expressly approved in writing by
Playboy.com and as contemplated by the last two sentences of Section 4.1 of this
Agreement, the Playboy.com Properties and any notices may not be changed,
manipulated or modified in appearance.

 

5  INTELLECTUAL
PROPERTY RIGHTS.

 

5.1  Ownership. Each
party hereby reserves for itself all rights not specifically granted to the
other party in this Agreement.

 

5.1.1  Ownership
by Playboy.com. As
between the parties, Playboy.com shall own all right, title and interest in and
to the Playboy Content, the Playboy.com Properties and the Dwango Created
Content. Nothing contained in this Agreement shall be deemed to transfer or
convey to Dwango or its sublicensees any ownership rights whatsoever in and to
the Playboy Content, the Playboy.com Properties or the Dwango Created Content.
To the extent that Dwango is deemed to obtain any interest or ownership rights
in the Playboy.com Properties or the Playboy Content, Dwango hereby assigns,
transfers and conveys to Playboy.com, to the maximum extent permitted by
applicable law, all of Dwango’s right, title and interest therein used or
created by Dwango under or in connection with this Agreement so that Playboy.com
will be the sole owner of all rights therein. Dwango shall require the same
assignments from its sublicensees and further agrees to cooperate with
Playboy.com during and after the Term to effect and perfect all assignments.

 

5.1.2  Ownership
by Dwango. As
between the parties, Dwango shall own all right, title and interest in and to
all content, products, services, specifications, documentation, software and
other materials in the Mobile Entertainment Service and any improvements and
modifications thereto, including all intellectual property rights therein, but
specifically excluding the Playboy Content, the Playboy.com Properties and
Dwango Created Content. Nothing contained in this Agreement shall be deemed to
transfer or convey to Playboy.com any ownership rights whatsoever in and to the
Dwango Acquired Material and the Mobile Entertainment Service. To the extent
that Playboy.com is deemed to obtain any interest or ownership rights in the
Mobile Entertainment Service, Playboy hereby assigns, transfers and conveys to
Dwango, to the maximum extent permitted by applicable law, all of Playboy.com’s
right, title and interest therein used by Playboy.com under or in connection
with this Agreement so that Dwango will be the sole owner of all rights therein.

 

 

7

 

5.2  Acquired
and Created Material; Enforcement.

 

5.2.1  With
respect to all Dwango Acquired Material, Dwango will acquire, at its sole cost
and expense, all necessary licenses and/or assignments necessary to carry out
the distribution of the Distributed Content in accordance with the terms and
conditions of this Agreement. Each such license and/or assignment shall be
subject to Playboy.com’s prior approval. All right, title, and interest in and
to all Dwango Created Content shall automatically and immediately transfer to
Playboy.com upon its creation by Dwango. 

 

5.2.2  By
Playboy.com. If
Dwango becomes aware of any alleged or actual infringement of Playboy Content,
Playboy.com Properties or Dwango Created Content or any violation of the terms
of a sublicense granted pursuant to this Agreement, it shall promptly notify
Playboy.com. In the event of such actual or alleged infringement, Playboy.com
and/or its affiliates shall have the right (but not the obligation) to bring one
or more actions, at its sole expense, against the infringer in its own name or
in the name of Dwango or, in its discretion, may join Dwango as a party thereto.
Dwango shall not, under any circumstance, take any action on account of any such
infringements without first obtaining the written consent of Playboy.com. Dwango
shall cooperate in any action brought by another pursuant to this paragraph; and
to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, and the
like.

 

5.2.3  By
Dwango. If
Playboy.com becomes aware of any alleged or actual infringement of the Dwango
Acquired Material or the Mobile Entertainment Service, it shall promptly notify
Dwango. In the event of such infringement, Dwango and/or its affiliates shall
have the right (but not the obligation) to bring one or more actions, at its
sole expense, against the infringer. If neither Dwango nor such an affiliate
pursues such an action, then, upon obtaining Dwango’s written consent,
Playboy.com may bring such an action or actions at its sole expense for any
infringement of its rights to use the Mobile Entertainment Service or the Dwango
Acquired Material as set forth above. Each of the parties shall keep the other
informed of any action it brings pursuant to this paragraph, cooperate in any
action brought by another pursuant to this paragraph; and to the extent
possible, have its employees testify when requested and make available relevant
records, papers, information, samples, and the like. 

 

6  MARKETING.

 

6.1  Generally. Dwango
shall use its best commercial efforts to actively advertise, promote and
encourage the distribution of the Distributed Content to Telecoms and
Subscribers in the Territory via all channels reasonably available (e.g.,
carrier-independent websites, WAP portals, retail and offline channels). Dwango
and its sublicensees may produce marketing material that is based on the
Distributed Content and use such material solely for marketing purposes. All
promotional and marketing material shall comply with the Guidelines and must be
approved by Playboy.com prior to its use and/or distribution. Once Playboy.com
has approved a particular use of certain promotion and marketing material, the
approval will remain in effect for such use until the earlier of (i) the time
such approval is withdrawn with reasonable prior written notice or (ii) the
expiration of this Agreement. Additionally, Dwango shall (and shall ensure that
its sublicensees shall) cooperate with the publisher(s) of the local edition of
Playboy Magazine in the Territory and other licensees of Playboy.com, PEII or
their affiliates in applying their best efforts to leverage cross-media
synergies in exploiting their rights and maximizing revenue.

 

 

8

 

6.2  Marketing
Plan. Prior
to Dwango’s initial distribution of any Distributed Content and then again
within thirty (30) days following the end of each three (3) month quarterly
period thereafter, Dwango shall provide Playboy.com with a quarterly report
detailing Dwango’s plans for marketing the Distributed Content and promoting
ancillary Playboy businesses (e.g., the local Internet website, television
service and edition of Playboy Magazine, if applicable) through Telecoms over
Networks during the upcoming quarter and offering a forecast for its related
expenditures, new subscriptions and other information the parties may determine
to be relevant (the “Marketing Plan”). The Marketing Plan shall be subject to
Playboy.com’s prior approval. If Playboy.com determines in its reasonable
discretion that any Marketing Plan is unduly delayed or is otherwise
unsatisfactory, then it shall give notice thereof to Dwango and, if the
Marketing Plan is unsatisfactory, explain in reasonable detail its objections to
the Marketing Plan. Dwango shall modify the Marketing Plan based upon the
objections of Playboy.com, and deliver the modified Marketing Plan to
Playboy.com within fifteen (15) business days of such notice. If Playboy.com
remains reasonably unsatisfied with the Marketing Plan, it may require Dwango’s
distribution of the Distributed Content to be suspended until reasonably
satisfied with the revised Marketing Plan. Notwithstanding the foregoing,
Playboy.com’s disagreements with the revenue projections contained in a
Marketing Plan shall not be grounds for rejecting such Marketing
Plan.

 

6.3  Marketing
Commitment. Dwango
shall spend the equivalent of at least One Hundred Thousand U.S. Dollars
($100,000) each and every contractual year during the Term to market and promote
the Distributed Content throughout the Territory. For the avoidance of doubt,
(a) only costs incurred from marketing efforts obtained through third parties
that are not owned by Dwango or its affiliates shall count towards this
commitment, and (b) the value of any barter arrangements shall not count towards
the commitment. All expenses actually incurred will be reflected in the
following quarter’s Marketing Plan and will be accompanied by documentation
verifying the expenditure. Playboy.com shall use its commercially reasonable
efforts to make its own marketing channels and those of its affiliates available
to Dwango at “house rates” for the promotion of Distributed Content.

 

7  PAYMENTS.

 

7.1  Customer
Charges.
Playboy.com and Dwango shall mutually agree upon the price for access to and/or
pay-per-view downloads of Distributed Content. Dwango will work with Telecoms to
charge Subscribers directly through their telephone or telecommunication bills
where possible. If such direct billing isn’t possible, then Dwango shall, and
will use best commercial efforts to ensure that its sublicensees shall, include
credit card billing capability at it or their sole expense and shall accept
MasterCard and Visa credit cards and any other credit cards or payment methods
commonly used in the Territory. In no event shall Dwango make (nor permit others
to make) any Distributed Content, Playboy.com Properties, or Playboy Content, or
any related content, service or application available to non-Subscribers nor to
any other end-users free of charge, except on a limited basis in advertising or
promotional material. Any barter, co-branding, promotional or similar marketing
deals with third parties require Playboy.com’s advance written approval. Once
approved, the approval will remain in effect for such use until the earlier of
(i) the time such approval is withdrawn with reasonable prior written notice or
(ii) the expiration of this Agreement.

 

 

9

 

7.2  Royalties. Dwango
shall pay to Playboy.com the following “Royalties”:

 

7.2.1  A Royalty
equal to [**]
of Net Revenue (as defined below) recognized by Dwango in connection with the
distribution or other exploitation of Distributed Content from Telecoms,
Subscribers and advertisers

 

7.2.2  A Royalty
in an amount to be separately agreed to by the parties on a case-by case basis
that is recognized by Dwango in connection with the distribution or other
exploitation of Distributed Content (a) from services for which Dwango provides
only certain technical backend technology, but does not provide development,
operation, maintenance or marketing or (b) by carrier-independent distribution
outlets.

 

7.2.3  For
purposes of this Agreement: “Net Revenue” shall mean all revenue collected,
credited to, receivable or received by Dwango in connection with the
distribution or other exploitation of Distributed Content (“Total Revenue”),
minus documented amounts (according to industry standard) formusic publishing
and performance rights actually paid out-of-pocket by Dwango to unaffiliated
third-party content providers who provide content for ring tones as Distributed
Contentand other Dwango Acquired Content and Dwango Acquired Content as mutually
agreed upon by the parties; provided,
however, the
parties hereby agree to a cap of [**] for the maximum amount of
such fees Dwango may deduct from Total Revenue to arrive at Net
Revenue.

 

7.3  Minimum
Guaranteed Royalty.
Notwithstanding revenue actually earned by Dwango, it is understood and agreed
that Dwango shall pay to Playboy.com an annual non-refundable minimum Royalty
(the “Minimum Guaranteed Royalty”) under this Agreement as follows:

 

7.3.1  First
Year. During
the first year of the Term, Dwango shall pay to Playboy.com a Minimum Guaranteed
Royalty equal to Two Hundred Fifty Thousand U.S. Dollars ($250,000), payable as
follows: (i) One Hundred Twenty-Five Thousand Dollars ($125,000) payable on the
Effective Date; and (ii) One Hundred Twenty-Five Thousand Dollars ($125,000)
payable ninety (90) days thereafter. 

 

7.3.2  Second
Year. During
the second year of the Term, Dwango shall pay to Playboy.com a Minimum
Guaranteed Royalty equal to Two Hundred Fifty Thousand U.S. Dollars ($250,000),
payable as follows: (i) One Hundred Thousand Dollars ($100,000) payable on the
first anniversary of the Effective Date; (ii) One Hundred Thousand Dollars
($100,000) payable ninety (90) days thereafter; and (iii) Fifty Thousand Dollars
($50,000) payable ninety (90) days after that.

 

7.3.3  Third
Year. During
the third year of the Term, Dwango shall pay to Playboy.com a Minimum Guaranteed
Royalty equal to Three Hundred Fifty Thousand U.S. Dollars ($350,000), payable
as follows: (i) Two Hundred Thousand Dollars ($200,000) payable on the second
anniversary of the Effective Date; and (ii) One Hundred Fifty Thousand Dollars
($150,000) payable one hundred eighty (180) days thereafter. 

 

 

[**]
REQUESTED FOR CONFIDENTIAL TREATMENT

10

 

7.4  Payment
of Royalties; Reports. To the
extent actual Royalties due (including, without limitation, the Royalties
pursuant to Sections 7.1 and 7.2) exceed the Minimum Guaranteed Royalty payments
(The Minimum Guaranteed Royalties shall be credited against and offset the
Royalties accordingly), other Royalty payments and reports will be due monthly.
Within forty-five (45) days following each month after the Effective Date,
Dwango shall make an accounting of all gross revenue and Net Revenue accrued
during each such month, shall accompany such accounting with a payment (pursuant
to Section 7.7 below) to Playboy.com equal to the accrued Royalty for that
month, if any, in excess of the Minimum Guaranteed Royalty previously paid for
such period and shall provide Playboy.com with a report that includes at a
minimum (i) the gross revenue and Net Revenue generated during such month, (ii)
a detailed calculation of costs and expenses incurred in arriving at gross
revenue and Net Revenue, together with documentation validating those costs and
expenses, (iii) a detailed calculation of Royalties payable to Playboy.com, and
(iv) Playboy.com’s aggregated Royalties earned and paid to date. 

 

7.5  Costs
and Expenses. Dwango
shall encode and otherwise produce and prepare the Distributed Content at its
sole cost and expense. Upon Playboy.com’s request, Dwango shall deliver to
Playboy.com copies of the Distributed Content and the Playboy.com Properties as
Dwango proposes to use such in connection with this Agreement as well as all
associated advertising and promotional materials. Playboy.com shall be
responsible for any costs associated with the delivery of such materials that it
requests. Unless expressly stated otherwise in this Agreement, each party shall
be responsible for any costs or expenses incurred by it in connection with its
obligations under this Agreement, unless otherwise agreed to in writing signed
by both parties.

 

7.6  Taxes. Dwango
shall pay, without limitation any tax, levy, income royalty withholding tax or
charge required by any statute, law, rule or regulation now in effect or
hereafter enacted including, without limitation, sales, use, value-added,
property, royalty and excise or other similar taxes, licenses, import permits,
state, county, city or other taxes arising out of or relating to this Agreement.
Notwithstanding the foregoing, if (a) the appropriate governmental entity
imposes a withholding tax on any sums payable to Playboy.com by Dwango in
connection with this Agreement and (b) such tax is paid by Dwango on
Playboy.com’s behalf, then Dwango may deduct the amount of any such tax paid
from the Royalties due to Playboy.com, provided that Dwango provides Playboy.com
with an accounting of any and all such payments prior to such deduction.
Notwithstanding the foregoing, Playboy.com is responsible for the payment of all
income taxes due upon receipt of any payments made to it pursuant to this
Agreement.

 

7.7  Method
of Payment. All
payments required to be made by Dwango hereunder shall be made by electronic
transfer of immediately available funds in United States Dollars through a bank
designated by Playboy.com. In determining the proper rate of exchange to be
applied to the payments due hereunder, it is agreed that Dwango shall calculate
Royalties on a monthly basis in local currency (with each such month considered
to be a separate accounting period for the purpose of computing the Royalties)
and that Dwango shall compute a conversion of each such monthly total into
United States currency utilizing the selling rate of exchange in effect on the
last day of each relevant calendar quarter as determined by the Bankers Trust
Company of New York City, New York (U.S.A.).

 

 

11

 

7.8  Letter
of Credit. No
later than ten (10) days after the Effective Date, Dwango shall deliver to
Playboy.com a Revolving Irrevocable Stand-By Letter of Credit (the “Letter of
Credit”) for One-Hundred Twenty-Five Thousand U.S. Dollars (US $125,000) in
favor of Playboy.com, issued by a bank approved in advance by Playboy.com,
confirmed or advised through a U.S. bank designated by Playboy.com, and on terms
and in the form and content as attached hereto as Exhibit
C or as
Playboy.com may otherwise instruct. Prior to issuing the Letter of Credit,
Dwango and/or the issuing bank shall provide a draft thereof for review and
approval to Ms. Patti Friedman at Playboy.com, Inc., 680 North Lake Shore Drive,
Chicago, Illinois 60611, telephone (312) 373-2186, fax (312) 751-2818, email:
pattif@playboy.com. Dwango shall ensure that such Letter of Credit shall remain
in effect throughout the Term and for additional periods of one (1) year from
the current or any future expiration date during the Term. Playboy.com will have
the right, at any time, to draw upon such Letter of Credit if Dwango fails to
make any payments when due as provided for under this Agreement. Conversely,
Playboy.com may, in its own discretion, cause to be instituted a new Letter of
Credit should Dwango fail to make any payment(s) as required herein. All costs
and expenses associated with such Letter of Credit, including, but not limited
to, opening, amending and drawing fees, will be borne by Dwango. 

 

8  AUDIT. During
the Term and for one (1) year thereafter Dwango shall maintain complete and
accurate books and records relating to this Agreement. Playboy.com shall, at its
own expense upon no less than ten (10) days notice to Dwango, have the right to
cause independent auditors, designated by Playboy.com, to audit the records of
Dwango for the purpose of verifying the accuracy of the amounts due to
Playboy.com under this Agreement; provided that Dwango shall be obligated to pay
such expenses if the auditor determines that Dwango prepared such reports
incorrectly resulting in underpayment of the Royalties by more than five percent
(5%) for the period being audited. Dwango shall immediately pay any such
underpayments to Playboy.com.

 

9  TERM
AND TERMINATION.

 

9.1  Term. This
Agreement shall be effective as of the Effective Date and shall continue in full
force and effect for a period of three (3) years thereafter, unless terminated
sooner in accordance herewith (the “Term”). Thereafter, the parties may renew
this Agreement in writing on mutually agreeable terms. Any such renewal period
shall be considered part of the Term.

 

9.2  Termination.

 

9.2.1   
Either
party shall have the right to terminate this Agreement in the event of a
material breach of this Agreement by the other party that remains uncured for
thirty (30) days following written notice of the breach by such
party.

 

9.2.2   
Playboy.com
may, in its discretion, terminate this Agreement by giving at least thirty (30)
days’ notice if Dwango’s Net Revenues at the end of the first full year since
the initial commercial distribution of the Distributed Content are less than One
Million Dollars ($1,000,000), or if Net Revenues during and attributable to the
second full year since the initial commercial distribution of the Distributed
Content (i.e., not aggregating the first year’s Net Revenue) are less than One
Million Seven Hundred Fifty Thousand Dollars ($1,750,000). 

 

 

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9.2.3   
Either
party may terminate this Agreement prior to the expiration of the Term in the
event that the other party (i) files in any court or agency a petition in
bankruptcy or insolvency, (ii) is served with an involuntary petition against it
that is filed in any insolvency proceeding, and such petition is not dismissed
within sixty (60) days after the filing thereof, (iii) makes an assignment for
the benefit of creditors, or (iv) breaches any material representation,
obligation or covenant contained herein, including the obligation to pay any
advance due under this Agreement, unless such breach is cured no later than
thirty (30) days from the date of receipt of notice of such breach, or if by the
nature of the breach it is not able to be so cured, it is resolved to the
non-breaching party’s satisfaction.

 

9.3  Effect
of Expiration or Termination. Upon
the expiration or termination of this Agreement: (i) Dwango shall immediately
cease (and shall require that its sublicensees and all Content Enablers cease)
distribution of the Distributed Content; (ii) Dwango shall immediately cease use
of the Playboy.com Properties; (iii) all rights and licenses granted to Dwango
under this Agreement shall immediately terminate; (iv) Dwango shall immediately
notify all sublicenses of the termination of this Agreement; (v) Dwango shall
promptly return to Playboy.com or destroy all files relating to the Playboy
Content and Playboy.com Properties belonging to Playboy.com; and (vi) each party
shall promptly return to the other party all Confidential Information belonging
to such other party. 

 

9.4  Survival. Upon
the expiration or termination of this Agreement, the following provisions of
this Agreement shall survive: 1, 3, 4, 5, 7, 8, 9, 10, 10 11, 12, 13, 14, 15,
and 16.

 

10  REPRESENTATIONS
AND WARRANTIES.

 

10.1  By
Both Parties. Each
party hereto represents and warrants that it is a corporation validly existing
in good standing where incorporated, that it has the right and authority to
enter into this Agreement and perform each of its duties and obligations
hereunder, and that it has not entered into (and will not enter into during the
Term) any contract, agreement or understanding with any individual or entity
which would in any way restrict or prevent either party hereof from the
performance of its duties and obligations under this Agreement.

 

10.2  By
Dwango. Dwango
represents and warrants that (a) all of the Dwango Created Content is content
that Dwango owns or has obtained the necessary rights and permissions for
assignment to Playboy.com and distribution to Subscribers in the Territory in
accordance with this Agreement; (b) the Dwango Acquired Material is content that
Dwango has obtained the necessary rights, permissions and license for the
distribution to Subscribers in the Territory in accordance with this Agreement,
(c) it will not distribute any Distributed Content outside the Territory or in a
manner which violates any applicable laws or regulations, and (d) it will comply
with all applicable laws, rules, regulations, directives and court rulings and
all of its covenants and obligations hereunder including, without limitation,
the distribution of the Distributed Content.

 

 

13

 

10.3  By
Playboy.com.
Playboy.com represents and warrants that it has full power and authority,
including the necessary intellectual property rights in and to the Playboy
Content and Playboy.com Properties, to grant the licenses to Dwango hereunder.

 

10.4  Disclaimer. EXCEPT
AS EXPRESSLY PROVIDED IN THIS SECTION 10, NEITHER PARTY MAKES ANY OTHER
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE. PLAYBOY.COM DISCLAIMS ALL IMPLIED WARRANTIES. EACH PARTY EXPRESSLY
DISCLAIMS ALL OTHER WARRANTIES AND REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTIBILITY AND
FITNESS FOR A PARTICULAR PURPOSE.

 

11  INDEMNIFICATION.

 

11.1  By
Dwango. Dwango
will indemnify, defend and hold Playboy.com, its parent, shareholders,
subsidiaries and affiliates and the directors, officers, shareholders, employees
and agents of each harmless against any claims, suits, losses, liabilities,
injuries or damages (including, without limitation, reasonable attorneys’ fees
and litigation expenses) arising out of or in connection with (i) any use by
Dwango or its sublicensees of the Dwango Created Content or the Dwango Acquired
Material; (ii) any use by Dwango or its sublicensees of the Playboy.com
Properties or Playboy Content in any way inconsistent with this Agreement; (iii)
any claims brought by Subscribers, Content Enablers, Telecoms or others; (iv)
any alleged action or failure to act whatsoever in regard to Dwango’s
performance of its obligations and duties under this Agreement; (v) any alleged
non-conformity to or non-compliance with any law pertaining to the Distributed
Content ; (vi) any claim by a third party charging or alleging that the
intellectual property rights of Dwango infringe the patent, copyright, trademark
or other intellectual property rights of such third party; or (vii) any breach
by Dwango of any of its representations, warranties and obligations hereunder.

 

11.2  By
Playboy.com.
Playboy.com will indemnify, defend and hold Dwango, its shareholders,
subsidiaries and affiliates and the directors, officers, shareholders, employees
and agents of each harmless against any claims, suits, losses, liabilities,
injuries or damages (including, without limitation, reasonable attorneys’ fees
and litigation expenses) arising out of or in connection with (i) the authorized
use by Dwango of the Playboy.com Properties or the Playboy Content in connection
with Distributed Content in compliance with this Agreement, (ii) any alleged
action or failure to act whatsoever in regard to Playboy.com’s performance of
its obligations and duties under this Agreement; (iii) any claim by a third
party charging or alleging that the intellectual property rights of Playboy.com
infringe the patent, copyright, trademark or other intellectual property rights
of such third party; or (vii) any breach by Playboy.com of any of its
representations, warranties and obligations hereunder. 

 

11.3  Procedure. If a
claim is made against an indemnified party, such party will promptly notify the
indemnifying party of such claim. Failure to so notify the indemnifying party
will not relieve the indemnifying party of any liability which the indemnifying
party might have, except to the extent that such failure materially prejudices
the indemnifying party’s legal rights. The indemnified party shall cooperate
with the indemnifying party in the defense and/or settlement of the claims;
provided however, the indemnifying party shall have an opportunity to assume
control of the defense of such claim. The indemnified party may participate in
the defense of the claim at their own cost. Notwithstanding anything contained
herein, the indemnified party shall not enter into any settlement or compromise
that provides for any remedy of the claim without the prior written approval of
the indemnifying party, which approval will not be unreasonably
withheld.

 

 

14

 

12  CONFIDENTIALITY.

 

12.1  Confidential
Information. The
parties acknowledge that, in the course of performing their duties under this
Agreement, each party (the “Receiving Party”) may obtain Confidential
Information from the other party (the “Disclosing Party”). For purposes of this
Agreement, “Confidential Information” means any business, financial, technical
or other information provided by the Disclosing Party to the Receiving Party
that is identified as, or should reasonably be understood to be (given its
content or the circumstance of its disclosure), proprietary to the Disclosing
Party. Confidential Information does not include information that the Receiving
Party can document: (i) is in or enters the public domain without breach of this
Agreement, (ii) the Receiving Party lawfully receives from a third party without
restriction on disclosure, (iii) is approved for release by written
authorization of the Disclosing Party, (iv) the Receiving Party knew prior to
receiving such information from the Disclosing Party without reference to the
Disclosing Party’s Confidential Information, or (v) is independently developed
by the Receiving Party without reference to Confidential Information of the
Disclosing Party.

 

12.2  Obligations. Each
party agrees to use the Confidential Information of the other party solely to
the extent necessary to fulfill its obligations or exercise its rights
hereunder, and not for any other purpose. Each party agrees (i) that it will not
disclose to any third party or use any Confidential Information disclosed to it
by the other except as expressly permitted in this Agreement and (ii) that it
will take all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party, which will in no event be less than
the measures it uses to maintain the confidentiality of its own information of
similar importance. Notwithstanding the foregoing, each party may disclose
Confidential Information (x) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law,
provided that the Receiving Party uses reasonable efforts to provide the
Disclosing Party with prior notice of such obligation in order to permit the
Disclosing Party a reasonable opportunity to take legal action to prevent or
limit the scope of such disclosure. Promptly upon receipt by Receiving Party of
a written request from the Disclosing Party for the return of Confidential
Information, all Disclosing Party’s Confidential Information and all copies
thereof in Receiving Party’s possession or control will be returned to
Disclosing Party or destroyed by Receiving Party at Disclosing Party’s
instruction. 

 

13  LIMITED
LIABILITY. IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT
OR ANY MATTER RELATED HERETO, INCLUDING WITHOUT LIMITATION, LOST BUSINESS OR
LOST PROFITS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
SHALL PLAYBOY.COM’S LIABILITY ARISING UNDER THIS AGREEMENT EXCEED IN THE
AGGREGATE THE TOTAL ROYALTIES PAID BY DWANGO TO PLAYBOY.COM HEREUNDER.

 

 

15

 

14  APPROVALS
AND NOTICES.

 

14.1  Approval. Dwango
will only create and distribute Distributed Content that does not jeopardize
Playboy’s brand or reputation. In furtherance of this, each specific use by
Dwango of the Playboy.com Properties must be either (i) specifically approved by
Playboy.com in advance or (ii) in strict compliance with the then-current
Guidelines and standards and practices of Playboy.com and its affiliates. Once
Playboy.com has approved a particular use of a Playboy.com Trademark, the
approval will remain in effect for such use until the earlier of (i) the time
such approval is withdrawn with reasonable prior written notice or (ii) the
expiration of this Agreement. If Playboy.com rejects the use of such requested
Distributed Content or Playboy.com Trademark, it shall use reasonable efforts to
provide an explanation to Dwango and propose methods to improve the rejected
Distributed Content or Trademark so that it satisfies Playboy.com and the
then-current Guidelines. 

 

14.2  Written
Consent Required. In this
Agreement, where the consent or approval of either party is required of any
action of the other party, such consent or approval shall only be effective if
granted in writing by such party. Each party shall use reasonable efforts to
review any requests for consent and grant or deny approval promptly following
receipt of the request; provided, however, that if Playboy.com fails to respond
to any approval request by Dwango, that request shall be deemed denied.

 

14.3  Notice. Each
notice, request, approval, or consent (hereinafter referred to as a
“Submission”) provided for in this Agreement shall be considered effective or
received the earliest of: (i) receipt (as evidenced by recipient’s signature)
when such Submission is sent by overnight courier or mailed by certified or
registered mail with postage prepaid to the party hereto at the address set
forth below; (ii) when such Submission is sent by facsimile addressed to such
party at such address (or the following business day if sent outside normal
business hours); or (iii) when such Submission is otherwise actually received by
such party at the address indicated below:

 

 

	 	
      To Playboy.com:
	 	Playboy.com, Inc.
	 	 	 	730 Fifth Avenue 
	 	 	 	New York, NY 10019 
	 	 	 	U.S.A.
	 	 	 	Attn: President 
	 	 	 	Facsimile:  (212)
      957-2931 
	 	 	 	 
	 	
      with a copy to:
	 	Playboy Enterprises International,
      Inc. 
	 	 	 	680 North Lake Shore Drive 
	 	 	 	Chicago, IL 60611
	 	 	 	U.S.A.
	 	 	 	Attn: General
      Counsel
	 	 	 	Facsimile:  (312)
      266-2042
	 	 	 	 
	 	
      To Dwango:
	 	Dwango North America Corp. 
	 	 	 	200 West Mercer Street, Suite
501
	 	 	 	Seattle, WA 98119
	 	 	 	U.S.A.
	 	 	 	Attn: Mr. Alexander U.
  Conrad 
	 	 	 	Facsimile: 
206-256-1442

 

 

16

 

14.4  Change
of Address. Each
party hereto may give written notice to the other party of some other address or
facsimile number to which Submissions shall be sent, in which event Submissions
to such party shall subsequently be sent to such address or number.

 

14.5     
Reservation
of Rights.
Anything in this Agreement to the contrary notwithstanding, Playboy.com reserves
the right to revoke any notice given in accordance with this Section 14 of the
right of Dwango to distribute the Distributed Content in the event that
Playboy.com is notified of a suit or claim relating to the applicable
Distributed Content of the Playboy.com Properties.

 

15        
GOVERNING
LAW AND JURISDICTION. This
Agreement shall be construed in the English language and governed by the laws of
the State of New York in the United States of America, applicable to contracts
made and to be performed entirely within such jurisdiction and without giving
effect to the choice or conflict of laws, rules or principles. The parties do
not intend that any laws of or applicable to any countries within the Territory
will give Dwango any rights broader than those expressly set forth in this
Agreement. Any disputes arising out of or related to this Agreement shall be
brought exclusively in and under the jurisdiction of the state and/or federal
courts located in the City of New York, County of New York, and Dwango hereby
submits to the personal jurisdiction thereof.

 

16  MISCELLANEOUS.

 

16.1  Non-Competition. Neither
Dwango nor its affiliates shall own, operate (or license a third party to
operate), sponsor or promote, directly or indirectly, any service offering
adult-oriented erotic text or imagery to Mobile Devices via Networks, other than
Distributed Content pursuant to this Agreement during the Term of this
Agreement.

 

16.2  No
Assignment. This
Agreement and all rights and duties hereunder shall not be assigned, mortgaged,
licensed, or otherwise transferred or encumbered by either party or by operation
of law without the prior written consent of the other party, it being understood
that no such consent shall be required should Playboy.com assign, mortgage,
license, or otherwise transfer this Agreement to one of its affiliates. Any such
purported transaction in contravention of this Section 16.2 shall be null and
void ab initio. A change in corporate control shall be deemed an assignment for
purposes of this Agreement.

 

16.3  Independent
Contractors. The
rights and powers herein granted to Dwango are those of rights and powers of
Dwango only and this Agreement shall not, and is not intended to, create any
other relationship nor make, constitute or appoint Dwango an agent or employee
of Playboy.com. Dwango shall have no power to obligate or bind Playboy.com in
any manner whatsoever.

 

16.4  Severability. Each
provision of this Agreement shall be severable. If, for any reason, any
provision herein is finally determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation by a court or agency
having valid jurisdiction, such determination shall not impair the operation or
affect the remaining provisions of this Agreement, and such remaining provisions
will continue to be given full force and effect and bind the parties hereto.
Each invalid provision shall be curtailed only to the extent necessary to bring
it within the requirements of such law or regulation.

 

 

17

 

16.5  Entire
Agreement; No Waiver; Not Third Party Beneficiary. This
Agreement, along with all attachments hereto, represents the entire
understanding of the parties hereto. None of the terms of this Agreement can be
waived or modified except by an express agreement in writing signed by the
parties. There are no representations, promises, warranties, covenants or
undertakings other than those contained in this Agreement. No custom or practice
of the parties hereto at variance with the terms hereof shall constitute a
waiver of either party’s right to demand exact compliance with any of the terms
herein at any time. The failure of either party hereto to enforce, or the delay
by either party hereto in enforcing, any or all of its rights under this
Agreement shall not be deemed as constituting a waiver or a modification
thereof, and either party hereto may, within the time provided by applicable
law, commence appropriate proceedings to enforce any or all of such rights.
Except as expressly provided in this Agreement, no individual or entity other
than Dwango and Playboy.com shall be deemed to have acquired any rights by
reason of anything contained in this Agreement.

 

16.6  Headings;
Counterparts. The
headings used herein are for convenience only and shall not be deemed to define,
limit or construe the contents of any provision of this Agreement. The wording
of this Agreement will be deemed to be the wording chosen by the parties hereto
to express their mutual intent, and no rule of strict construction will be
applied against any such party. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original, and all of which taken
together constitute one and the same agreement.

 

16.7  Force
Majeure. Except
for payment obligations, neither party to this Agreement shall be liable for its
failure to perform any of its obligations hereunder during any period in which
such performance is delayed by circumstances beyond its reasonable control,
including but not limited to: fire, act of nature, or embargo, riot, or the
intervention of any government authority, provided that as soon as reasonably
practicable prior to any such circumstance, and in any event promptly
thereafter, the affected party (i) has so notified the other in writing; (ii)
takes reasonable measures to avoid or limit the effect or duration of such
circumstances; and (iii) cooperates with the other party to reasonably alter its
obligations hereunder and/or resume performance under this Agreement as soon as
reasonably practicable. In the event that any such failure or delay persists for
at least ninety (90) days, or in the event that performance becomes illegal or
technically impossible, then either party may terminate this Agreement upon
written notice to the other.

 

 

18

 

  

IN
WITNESS WHEREOF, the
parties hereto, intending this Agreement to be effective as of the Effective
Date, have caused this Agreement to be executed by their respective duly
authorized officers.

 

 

	
      PLAYBOY.COM,
      INC.

       
	 	
      DWANGO
      NORTH AMERICA CORP.

	
      By:
      /s/ Randy Nicolau
	 	
      By:
      /s/ Alexander U. Conrad

	 	 	 
	
      Name:
      Randy Nicolau     
	 	
      Name:
      Alexander U. Conrad      

	 	 	 
	
      Title:
      President
	 	
      
      
      Title:
      President, COO

19

 

EXHIBIT
A

 

PLAYBOY.COM
PROPERTIES

 

	PLAYBOY	 
	 	 
	PLAYMATE	 
	 	 
	RABBIT HEAD DESIGN	 

 

 

 

20

 

 

EXHIBIT
B

GUIDELINES

 

I.  PURPOSE
OF GUIDELINES GENERALLY 

 

The
purpose of these Guidelines is to help ensure, among other things, that (i) the
service operated by you (the “Licensee”) that is the subject of the attached
Agreement (the “Service”) meets the standards of excellence in content, graphic
appeal and other qualities that the Playboy organization seeks to maintain and
which are generally found on the existing Playboy-branded websites, including,
but not limited to: www.playboy.com, www.cyber.playboy.com,
www.playboystore.com, (collectively, the “Existing Playboy Sites”); (ii) the
Playboy.com Properties are associated only with material of the type and quality
generally associated therewith; (iii) the validity and effectiveness of the
Playboy.com Properties and the Playboy Content and the rights and value therein
are fully protected; (iv) Licensee conducts its activity, both relating to the
Service and otherwise, in a way that does not jeopardize the Playboy.com
Properties or the reputation and image of any Playboy entity or activity; and
(v) the advertising found on the Service is consistent with the advertising
found on the Existing Playboy Sites.

 

These
Guidelines are subject to modification and amendment from time to time in the
reasonable, good faith discretion of Playboy.com effective upon five (5)
business days written notice to Licensee. These Guidelines are in addition to,
and not in substitution for or displacement of, any other requirements or
restrictions on the use of Playboy.com Properties and Playboy Content.

 

II.  CONTENT
& TRADEMARK GUIDELINES

 

	A.  	
      Prohibited
      Content.
      Except as specifically approved by Playboy.com in writing in advance of
      presentation, the Service shall not publicly present, and the Playboy.com
      Properties and the Distributed Content shall not be used in conjunction
      with, or linked to, content of the following types or nature or describing
      or portraying any of the following:

 

	1.  	
      Violence;
      

	2.  	
      Rape
      (including, but not limited to, “implicit” or “consenting” rape);
      

	3.  	
      Incest;
      

	4.  	
      Sadism;
      

	5.  	
      Bondage;
      

	6.  	
      Child
      pornography; 

	7.  	
      Extreme
      sexual explicitness; 

	8.  	
      Graphic
      close-ups of genitals; 

	9.  	
      Actual
      sexually explicit conduct (no sexual intercourse,
etc.);

	10.  	
      Any
      material that is racially or ethnically offensive, including but not
      limited to, Nazi or anti-Semitic literature or paraphernalia; or
      

	11.  	
      Any
      content or interactivity, the presentation of which would be obscene,
      illegal or actionable under applicable
laws.

 

21

 

 

	B.  	
      Use
      of Playboy.com Properties.
      Each specific use by Licensee of the Playboy.com Properties must be
      either: (i) specifically approved by Playboy.com in advance in writing; or
      (ii) in strict compliance with these
Guidelines.

 

	C.  	
      Modification
      of Playboy.com Properties.
      Licensee may modify or alter the Playboy.com Properties or combine the
      Playboy.com Properties with any other words or symbols only if, and to the
      extent that Playboy.com shall have authorized such modification or
      alteration or combination specifically in advance, in writing.
      

 

	D.  	
      Playboy.com
      Take-Down Rights.
      Despite conformity to these Guidelines and/or prior written approval by
      Playboy.com, Playboy.com shall be entitled to review all uses of the
      Playboy.com Properties and all uses of the Distributed Content at any time
      and in its sole discretion. Playboy.com shall be entitled to require
      alteration or termination of any specific use if it determines in its
      reasonable and good faith discretion that such action is necessary or
      appropriate. Licensee shall promptly comply with any such demand by
      Playboy.com to alter or terminate any use of the Playboy.com Properties or
      Distributed Content. Nothing in this Section shall create any obligation
      on the part of Playboy.com to identify or prevent improper uses of
      material or inclusion of improper material on the Service, nor shall
      Playboy.com or its affiliates have any liability for nonfeasance,
      negligence, or other conduct in such reviews or for failing to conduct any
      such reviews.

 

	E.  	
      Proper
      Attribution.
      Licensee shall display symbols and notices clearly and sufficiently
      indicating the trademark or copyright status and ownership of the
      Playboy.com Properties in accordance with applicable trademark and
      copyright law and practice.

 

	F.  	
      No
      Use on Other Sites.
      Except as expressly permitted hereunder, Licensee shall not use any of the
      Playboy.com Properties on or in connection with, or to permit or
      facilitate any presentation or promotion of, any website(s), media or
      service(s) other than the Service.

 

	G.  	
      Goodwill
      Associated with the Marks.
      All goodwill associated with the Playboy.com Properties shall belong to,
      and shall inure to the benefit of, PEII.

 

III.  PROMOTION
AND PUBLIC RELATIONS GUIDELINES

 

The
“Playboy” image has attained its present level of public respect and recognition
through the employment of good taste. Good taste involves a strong element of
sophistication. To preserve the “Playboy” image and the good taste and
sophistication of the material presented on the Service:

 

 

22

 

 

	A.  	
      Licensee
      shall not commit any act that in any way detrimentally affects any
      Trademark, any Playboy Content, the Service, Playboy.com or any other
      Playboy.com affiliate.

 

	B.  	
      Playboy.com
      shall have sole reasonable discretion as to what is deemed an acceptable
      promotional activity.

 

	C.  	
      No
      promotions shall be conducted that would involve the association of the
      Service, the Playboy.com Properties, the Playboy Content, the name
      “Playboy,” or the promotion itself with any of the
    following:

 

	1.  	
      Violence;
      

	2.  	
      Rape
      (including, but not limited to, “implicit” or “consenting” rape);
      

	3.  	
      Incest;
      

	4.  	
      Sadism;
      

	5.  	
      Bondage;
      

	6.  	
      Child
      pornography; 

	7.  	
      Extreme
      sexual explicitness; 

	8.  	
      Graphic
      close-ups of genitals; or 

	9.  	
      Actual
      sexually explicit conduct (no sexual intercourse, etc.);
  

	10.  	
      Firearms
      and other weapons (except weapons used for
hunting);

	11.  	
      Sexual
      aids and devices, including, but not limited to, dildos and vibrators (but
      excluding promotion of condoms);

	12.  	
      Explicit
      sexual material, including, but not limited to, X-rated videos, sexually
      oriented telephone services, explicit sex books, X-rated clothing, massage
      parlors, and sex clubs (except such products, if any, as may be licensed
      by Playboy.com); 

	13.  	
      Drugs
      or drug paraphernalia; 

	14.  	
      Competitors
      of Playboy.com, Licensee, any affiliate of Playboy.com, the Service, or
      the Existing Playboy Sites;

	15.  	
      Penthouse,
      Hustler, or any similar publications, or Penthouse.com and Hustler.com,
      and other similar websites; or 

	16.  	
      Any
      material that is racially or ethnically offensive, including but not
      limited to, Nazi or anti-Semitic statements or paraphernalia.
    

 

IV.  GUIDELINES
RELATING TO URLs

 

Where
applicable to the Service being provided, Licensee may use URLs including or
based on the URLs licensed under the Agreement and including other letters,
numbers, or symbols only to the extent such modifications designate, or operate
to allow access to, interior pages of the Service or as a designation of a
“subdirectory” to identify particular pages or other locations within the
Service, and shall in no way alter the domain name. Such additional locators
must be either in a non-semantic form (i.e., either symbols or numbers), or, to
the extent they are in a semantic form, shall be a general description of the
content of such page (e.g. “story” or “picture”). No such modifications to the
URL may suggest Content that would violate the requirements of these Guidelines
or of the Agreement, nor shall any of them tarnish or otherwise dilute the brand
“Playboy” or any of the Playboy.com Properties.

 

 

23

 

V.  ENFORCEMENT
OF PLAYBOY.COM INTELLECTUAL PROPERTY RIGHTS

 

If
Licensee becomes aware of any infringement of Playboy.com’s or its licensors’
rights with respect to any of the Playboy.com Properties or Distributed Content,
Licensee shall promptly notify Playboy.com of such infringement. In the event of
such infringement, Playboy.com or an affiliate designated by Playboy.com shall
have the right (but not the obligation) to bring one or more actions, at its
sole expense, against the infringer and Licensee shall cooperate at
Playboy.com’s or such affiliate’s reasonable request and expense.

 

 

24

 

 

EXHIBIT
C

 

FORM
OF LETTER OF CREDIT

 

DATE:
XXXXXXXXXXX

IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER: XXXXXXXXXXX

 

ADVISING/CONFIRMING
BANK

BANK OF
AMERICA, N.A.

231 S.
LASALLE STREET

MAIL
CODE: IL1-231-17-00

CHICAGO,
ILLINOIS 60697 U.S.A.

SWIFT:
BOFAUS44

 

	
      BENEFICIARY
	APPLICANT
	PLAYBOY.COM, INC.	XXXXXXXXXXXXXXX
	680 N. LAKE SHORE DRIVE	XXXXXXXXXXXXXXX
	CHICAGO, ILLINOIS 60611 U.S.A.	XXXXXXXXXXXXXXX
	ATTN: PATTI FRIEDMAN	XXXXXXXXXXXXXXX
	PHONE: (312) 373-2186	XXXXXXXXXXXXXXX
	 	 

 

I.           
AMOUNT

NOT
EXCEEDING USD XXXXXXX

NOT
EXCEEDING XXXX AND 00/100’S US DOLLARS

II.          
EXPIRATION

 

XXXXXXXXXXXXXXX
AT THE COUNTERS OF THE CONFIRMING BANK

 

WE,
[ISSUING BANK], HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER
XXXXXXXX WHICH IS AVAILABLE WITH BANK OF AMERICA, N.A., CHICAGO, ILLINOIS BY
SIGHT PAYMENT(S) AGAINST PRESENTATION OF THE FOLLOWING DOCUMENTS:

	1.  	
      THE
      ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENTS THERETO, IF
      ANY.

 

	2.  	
      DRAFT(S)
      “AT SIGHT” DRAWN ON BANK OF AMERICA, N.A., CHICAGO, ILLINOIS, BEARING THE
      CLAUSE:

“DRAWN
UNDER [ISSUING BANK] LETTER OF CREDIT NUMBER XXXXXXXX AND BANK OF AMERICA, N.A.,
CHICAGO, ILLINOIS CONFIRMATION REFERENCE NUMBER XXXXXXXX.”

 

 

	3.  	
      BENEFICIARY’S
      SIGNED STATEMENT CERTIFYING:

 

“AMOUNTS
DUE AND OWING ________________ ARE PAST DUE AND REMAIN UNPAID AS OF THE DATE OF
THIS DRAW PURSUANT TO AGREEMENT DATED ____________ FOR/COVERING
____________________.”

 

 

25

 

-OR-

“WE
HEREBY DEMAND PAYMENT OF USD ______________ AS WE HAVE RECEIVED NOTICE OF
NON-RENEWAL FOR THIS STANDBY LETTER OF CREDIT AND APPLICANT’S OBLIGATIONS TO US
REMAIN OUTSTANDING.”

-OR-

“WE
HEREBY DEMAND PAYMENT OF USD _______________ AS WE HAVE RECEIVED CONFIRMING
BANK’S NOTICE OF NON-RENEWAL OF THEIR CONFIRMATION UNDER THIS STANDBY LETTER OF
CREDIT AND APPLICANT’S OBLIGATIONS TO US REMAIN OUTSTANDING.”

PARTIAL
DRAWINGS ARE PERMITTED.

ALL
DOCUMENTS ARE TO BE MADE OUT IN THE ENGLISH LANGUAGE.

ALL
BANKING COMMISSION AND CHARGES INCLUDING CONFIRMATION CHARGES AND RELATED
COMMUNICATION CHARGES ISSUED AT THE REQUEST OF THE BENEFICIARY ARE FOR THE
ACCOUNT OF THE APPLICANT.

IT IS A
CONDITION OF THIS LETTER OF CREDIT THAT IT WILL BE AUTOMATICALLY EXTENDED
WITHOUT AMENDMENT FOR ADDITIONAL PERIODS OF ONE YEAR FROM THE CURRENT OR ANY
FUTURE EXPIRATION DATE UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE CURRENT
EXPIRATION DATE, BANK OF AMERICA, N.A., AS THE ADVISING/CONFIRMING BANK SHALL
GIVE WRITTEN NOTICE TO BENEFICIARY BY CERTIFIED MAIL OR COURIER THAT WE ELECT
NOT TO RENEW THIS STANDBY LETTER OF CREDIT FOR ANY SUCH ADDITIONAL
PERIOD.

THIS
LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION), THE INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO.
500.

BANK TO
BANK INSTRUCTIONS:

 

	 	1)	
      PLEASE
      ADD YOUR CONFIRMATION TO THIS CREDIT AND ADVISE BENEFICIARY
      ACCORDINGLY.

	 	 	 

	 	
      2)
	
      “YOU
      MAY DEBIT OUR USD ACCOUNT NUMBER ___________ WITH BANK OF AMERICA, N.A.
      (SPECIFY BRANCH) FOR YOUR FEES. FOR DRAWING REIMBURSEMENT, YOU MAY DEBIT
      THE ACCOUNT TWO (2) BUSINESS DAYS AFTER YOUR NOTIFICATION TO US VIA
      AUTHENTICATED SWIFT OR TESTED TELEX THAT DOCUMENTS WERE RECEIVED IN
      ORDER.”

-OR-

	 	
      
	
      “WE
      WILL REIMBURSE YOU PER YOUR INSTRUCTIONS FOR YOUR FEES AND/OR DRAWING(S)
      REIMBURSEMENT WITHIN TWO BUSINESS DAYS OF OUR RECEIPT OF YOUR
      AUTHENTICATED SWIFT/TELEX REQUESTING FEE PAYMENT OR CERTIFYING DOCUMENTS
      IN ORDER.”

	 	
      3)
	
      WE
      HEREBY UNDERTAKE TO NOTIFY BANK OF AMERICA, N.A., CHICAGO, ILLINOIS VIA
      AUTHENTICATED SWIFT, TESTED TELEX, OR COURIER AT LEAST NINETY (90) DAYS
      PRIOR TO THE CURRENT EXPIRY DATE OF OUR ELECTION TO NON-RENEWAL THIS
      STANDBY LETTER OF CREDIT.

 

26

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