reed elsevier response to penske variety lawsuit

7/28/2019 Reed Elsevier Response to Penske Variety Lawsuit

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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK: COMMERCIAL DIVISION

VARIETY MEDIA, LLC,

Plaintiff and Counterclaim-Defendant, Index No.651674/2013

-- against -- ANSWER &COUNTERCLAIM

REED ELSEVIER, INC., et al.,

Defendants and

Counterclaim-Plaintiffs.

ANSWER

Defendants Reed Elsevier, Inc., Variety, Inc., Reed Elsevier Properties, Inc., and Reed

Business Information, Ltd. (collectively, Defendants), by and through their undersigned

attorneys, submit the following Answer to the Complaint of Plaintiff Variety Media, LLC

(Plaintiff), dated May 8, 2013 (the Complaint):

THE PARTIES

1. At all relevant times, Plaintiff was and is a limited liability company dulyorganized under the laws of the State of Delaware with its principal place of business in the City

and County of Los Angeles.

RESPONSE: Defendants deny knowledge or information sufficient to form a belief as to the

truth of the allegations in Paragraph 1 of the Complaint.

2. Upon information and belief, Defendant Reed Elsevier, Inc. is a Massachusettscorporation with its principal place of business in New York, New York.

RESPONSE: Defendants admit the allegations in Paragraph 2 of the Complaint.

3. Upon information and belief, Defendant Variety, Inc. is a Delaware corporationwith its principal place of business in New York, New York.


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WER &

OUNTERCLAIMRCLAIM

WERR

r ety, Inc., Ree E sev er Propert es, Inc., aee E s ert es

y, Defendants), by and through their unDefendants , y and t

nswer to t e Comp a nt o P a nt Var etye Co a nt o P a nt

13 t e Comp a nt):3 t e Co nt):

HE PARTIESHE PARTI

a re evant t mes, P a nt was an s a mt t me ,r t e aws o t e State o De aware w t tss o t e State o

o Los Ange es.ge es

NSE De en ants eny now e ge or n oants eny e g

t o t e a egat ons n Paragrap 1 o t ea egat on aragrap 1

2. Upon n ormat on an2. n ormacorporation with its principal placeation wit i

RESPONSE De en ants aDe en

3. Uponwith its principal pwith its

RESPONSE


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4. Upon information and belief, Defendant Reed Elsevier Properties, Inc. is a

Delaware corporation with its principal place of business in New York, New York.


5. Upon information and belief, Defendant Reed Business Information, LTD is an

entity organized and existing under the laws of England.


6. Defendants Reed Elsevier, Inc.; Variety, Inc.; Reed Elsevier Properties, Inc.; and

Reed Business Information, LTD are sometimes collectively referred to herein as Reed.

RESPONSE: Defendants admit that Paragraph 6 of the Complaint purports to define the term

Reed for purposes of the Complaint and otherwise deny the allegations in Paragraph 6 of the

Complaint.

7. The true names or capacities, whether individual, corporate, associate, or

otherwise of defendants DOES 1 through 25, inclusive, and each of them, are unknown to

Plaintiff at this time and Plaintiff will amend this Complaint to show their true names orcapacities when learned.



8. Upon information and belief, DOES 1-25 aided and abetted and conspired with

Defendants to perform the illicit acts alleged herein.

RESPONSE: Defendants deny the allegations in Paragraph 8 of the Complaint.

9. Defendants, and each of them, were each the agents of the other in all the acts and

transactions hereinafter alleged, acting within the scope and course of said agency.


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ormat on, LTD s ann

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nc.; Ree E sev er Propert es, Inc.; ansev e ert es, nc.;

ct ve y re erre to ere n as Ree .erre to Ree .

o t e Comp a nt purports to e ne t e ter t e t purpor

ot erw se eny t e a egat ons n Paragrapeny t e s n Pa

or capacities, whether individual, corporator capa whethe ual, c

ES 1 t roug 25, nc us ve, an eac o t eS 1 t roug 2 , c us

a nt w amen t s Comp a nt to s owamen t s Comed.

e en ants eny now e ge or n ormat on ss eny no

a egat ons n Paragrap 7 o t e Comp a nn P ap

. Upon n ormat on an e e , DUpo rmat on an

e en ants to per orm t e c t acts a egee e s to per orm c t a

RESPONSEESPONSE De en ants eny t e an ants e

9. De en ants, anDe e

transact ons ere na ter a eere na

RESPONSERE De en


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3

NATURE OF THE ACTION

10. This is an action for breach of contract and declaratory relief. Plaintiff purchasedcertain assets of Defendants related to the well-known Varietypublication pursuant to a written

asset purchase agreement that provided for Plaintiff to accept assignment of certain contracts that

were to be enumerated on a disclosure schedule. Only contracts that were disclosed on thatschedule were to be assigned and contracts not disclosed were excluded as were all liabilities

flowing from them.

RESPONSE: Defendants: (i) admit that Plaintiff purports to assert claims for breach of contract

and declaratory relief but deny that those claims have merit and deny that Plaintiff is entitled to

any relief; (ii) admit that Defendants entered into an asset purchase agreement with Plaintiff and

Daily Variety Media Ltd. on or about October 9, 2012 (the Asset Purchase Agreement or

APA) and refer to the APA for a complete and accurate account of its contents; and (iii)

otherwise deny the allegations in Paragraph 10 of the Complaint.

11. The asset purchase agreement provides that Defendants shall indemnify Plaintiff

against any liabilities flowing from undisclosed, excluded contracts.

RESPONSE: Defendants refer to the APA for a complete and accurate account of its contents

and otherwise deny the allegations in Paragraph 11 of the Complaint.

12. Plaintiff has been sued and has incurred and is continuing to incur costs and fees

in connection with contracts that Defendants withheld and failed to disclose in due diligence orin the disclosure schedule.

RESPONSE: Defendants: (i) admit that Plaintiff has been sued by Beverly Hills Media Group,

LLC in the Superior Court of California, County of Los Angeles, Case No. BC507496 (Apr. 30,

2013); (ii) refer to the complaint filed by BHMG (BHMG Complaint) for a complete and

accurate account of its contents; and (iii) otherwise deny knowledge or information sufficient to

form a belief as to the truth of the allegations in Paragraph 12 of the Complaint.

purc aseto a writtenn

n contracts t atcts t at

ose on t att atere all liabilitiesties

claims for breach of contractor breach of con

eny t at P a nt s ent t e toa s e e to

t purc ase agreement w t P a nt angreem t P a nt

12 t e Asset Purc ase Agreement ort set Purc a

n accurate account o ts contents; anurate a ts conte

p 10 o t e Comp a nt.10 o mp a

e agreement prov es t at De en ants s at prov t at De en a

from undisclosed, excluded contracts.om un ed, ex ntrac

ts re er to t e APA or a comp ete an accut e APA or a comp

t e a egat ons n Paragrap 11 o t e Com11 o t

P a nt as een sue an as ncurreas su

ct on w t contracts t at De en ants w t etract at n adisclosure schedule.ule.

ESPONSEE SE De en ants: ) a m t t at PDe en a

LLC n t e Super or Court o Ca ornLC n t e S Court o

2013); (ii) refer to the complaintii) refer t

accurate account o ts conteunt o

orm a e e as to t eor


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13. Despite due demand therefor, Defendants have failed and refused to indemnify

Plaintiff.


FACTUAL ALLEGATIONS

A. Reed and Variety

14. Reed is a global publisher and information provider operating in the science,medical, legal, risk and business sectors. Reed Business Information (RBI) is Reeds business

division and produces industry-specific data services and tools, online community and job sites,

and business magazines. Among the titles owned by Reed and RBI was Variety, the famousAmerican entertainment-trade magazine, which it acquired in 1987.


15. In 2008, Reed sought to divest itself of the entire RBI division but was unable to

do so given the burgeoning financial crisis. Following those aborted sales efforts, Reed shiftedthe focus of its RBI division away from print trade magazines and to paid content, data services

and online marketing solutions.

RESPONSE: Defendants admit that in 2008, Reed Elsevier Group announced its intention to

divest Reed Business Information Ltd. and later terminated discussions with potential bidders,


16. In July 2009, RBI announced its intention to sell most of its North American trade

publications and by April 2010, Reed had sold twenty-one U.S. trade magazines and announced

that an additional twenty-three would cease publication due to the weak economy.

RESPONSE: Defendants: (i) admit that on April 16, 2010, Reed Business Information issued a

press release titled Reed Business Information concludes the divestment of US controlled

circulation magazines; (ii) refer to that press release for a complete and accurate account of its

contents and for an account of Reed Business Informations July 2009 announcement and

subsequent divestitures; and (iii) otherwise deny the allegations in Paragraph 16 of the

Complaint.

fy

erat ng n t e sc ence,t e sc encn (RBI) is Reeds businessis Reeds busi

n ne commun ty an o s tes,mun o s tes,

RBI was arietyrie , t e amous, t e ousn 1987.

agrap 14 o t e Comp a nt.o t e C t.

tse o t e ent re RBI v s on ut was unat e e v s on

. Fo ow ng t ose a orte sa es e orts, Reet ose es e or nt tra e magaz nes an to pa content,nt tra z nes a o

t at n 2008, Ree E sev er Group announ8, Ree sev er Group

at on Lt . an ater term nate scuss onst on Lt . an r term

e allegations in Paragraph 15 of the Complraph 15 of th

In July 2009, RBI announced its intention009, I anno

s an y Apr 2010, Ree a so twenty-pr 2 , ee

t ona twenty-t ree wou cease pu catty-t e w ceas

SPONSE De en ants: ) a m t t at on ADe e ts: ) a m t t

press release titled press re ase ti d eed Business Inforeed

c rcu at on magaz nes;at on m ) re er to)

contents an or an account oor an

subsequent divestitures;s

Comp a nt.Comp


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17. In March 2012, Reed announced that, as part of RBIs efforts to shed U.S. print-

magazine holdings and focus more on data services, it would sell Variety. That announcement

was reported by various news outlets including theLos Angeles Times and the Wall StreetJournal.

RESPONSE: Defendants: (i) admit that on March 23, 2012, Reed Business Information, Ltd.

issued a press release titled Reed Business Information Announces Intention to Sell Variety;

(ii) refer to that press release for a complete and accurate account of its contents; (iii) admit that

RBIs announcement was reported by theLos Angeles Times, the Wall Street Journal, and other

news outlets; and (iv) otherwise deny the allegations in Paragraph 17 of the Complaint.

B. The Letter Agreement and Operating Agreement

18. Upon information and belief, on or about March 14, 2012, with Variety on the

auction block, Reed entered into a letter agreement (the Letter Agreement) with third partyBeverly Hills Media Group, LLC (BHMG) establishing a joint venture between the

contracting parties related to a contemplated Beverly Hills Entertainment Week, a planned

week-long festival focusing on film, television, new media and finance (the Festival).

RESPONSE: Defendants: (i) admit that defendant Variety, Inc. entered into a letter agreement

with BHMG on or about March 14, 2012 (the Letter Agreement); (ii) refer to the Letter

Agreement for a complete and accurate account of its contents; (iii) and otherwise deny the

allegations in Paragraph 18 of the Complaint.

19. The Letter Agreement was temporary; it provided that it would terminate on the

earlier of sixty days following the agreements effective date or the entry by the parties into a

definitive agreement related to the operation of the Festival.

RESPONSE: Defendants refer to the Letter Agreement for a complete and accurate account of

its contents and otherwise deny the allegations in Paragraph 19 of the Complaint.

20. Sometime thereafter, Reed and BHMG executed an undated agreement entitledLimited Liability Company Agreement of BHEN Enterprises LLC (the Operating Agreement).

nt-

ement

reet

ormat on, Lt .n, Lt .

t on to Se Variety;

its contents; (iii) admit thatnts; (iii) admit t

e Wa Street Journaet J na , an ot er , ot er

aragrap 17 o t e Comp a nt.o t p a nt.

reementeem

n or a out Marc 14, 2012, w tout Ma 012, w t ariety o

eement t e Letter Agreement) w t t re Lett ent) wG) esta s ng a o nt venture etween t) es g a o e

p ate Bever y H s Enterta nment Wee ,te Bever y s Ente

, te ev s on, new me a an nance t e Fs on, new me a an n

admit that defendant Variety, Inc. entereddmit ndant Inc.

Marc 14, 2012 t e Letter Agreement);2012 t e Letter

mp ete an accurate account o ts contentso ts c

aragraph 18 of the Complaint.18 o e Co

9. The Letter Agreement was temporter Agre t was

er o s xty ays o ow ng t e agreementsty ays w ng t e agre

e n t ve agreement re ate to t e operat oe agreement re t e

RESPONSEESPONSE De en ants re er to t en ants re

its contents and otherwise deny tnts and o

20. SometimeoL m te L a ty ComL m


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RESPONSE: Defendants refer to the Limited Liability Company Agreement of BHEN

Enterprises, LLC dated March 30, 2012 (the Operating Agreement) for a complete and

accurate account of its contents and otherwise deny the allegations in Paragraph 20 of the

Complaint.

21. The parties to the Operating Agreement are Variety, Inc. and BHMG. The

signatures on the Operating Agreement are not dated although the agreement states that it was

adopted and agreed to on March 30, 2012 -- sixteen days after RBI announced its intention tosell Variety.

RESPONSE: Defendants refer to the Operating Agreement for a complete and accurate account

of its contents and otherwise deny the allegations in Paragraph 21 of the Complaint.

22. BHMG did not exist as an entity in March 2012. According to Secretary of State

records, BHMG was formed on April 26, 2012. BHEN Enterprises was formed in July 2012.



23. Upon information and belief, the Operating Agreement was not entered into in

March 2012 as the Operating Agreement purports to indicate. The Operating Agreement, to theextent it was validly entered into at all, was formed after July 2012.


of its contents and otherwise deny knowledge or information sufficient to form a belief as to the


24. The Operating Agreement purports to grant BHMG a 50% share of grossrevenues achieved from sponsorships acquired in connection with the planned Festival with no

responsibility for the costs of the Festival, which are entirely to be borne by Variety, Inc.

Moreover, the Operating Agreement is also structured such that BHMG claims rights that aremuch broader than just the Festival.

n

0 o t e

, nc. and BHMG. TheHMG. The

e agreement states t at t wasnt sta at t was

er RBI announce ts ntent on tonc s n on to

ement or a comp ete an accurate accounta comp e ccurate a

n Paragrap 21 o t e Comp a nt.Parag o t e Co

ent ty n Marc 2012. Accor ng to Secreent ty 2012.

6, 2012. BHEN Enterpr ses was orme, 2012. BH nterpr

now e ge or n ormat on su c ent to or or n at on su c en

aragrap 22 o t e Comp a nt.grap 22 o t omp

n n ormat on an e e , t e Operat ng Agr Operat

e Operat ng Agreement purports to n catng Agreemalidly entered into at all, was formed aftertered i o at all

SE De en ants re er to t e Operat ng Aants er t Ope

ts contents an ot erw se eny now e ges an o se eny no

truth of the allegations in Paragraph 23 otruth o e all ations in

24. The Operating Ag4.revenues ac eve rom sponsc eve

respons ty or t e costs oor t

Moreover, the Operatingmuc roa er t an usmuc


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RESPONSE: Defendants: (i) refer to the Operating Agreement for a complete and accurate

account of its contents; (ii) refer to the BHMG Complaint for a complete and accurate account of

its contents and otherwise deny knowledge or information sufficient to form a belief as to the

breadth of the rights claimed by BHMG; and (iii) otherwise deny the allegations in Paragraph 24

of the Complaint.

25. In that regard, while the terms of the Letter Agreement and Operating Agreement

are similar in certain respects, the Operating Agreement is significantly more onerous to Variety,Inc. For example, the Letter Agreement provided that it would expire 60 days after its execution

if no Operating Agreement was entered into before that time. By contrast, the Operating

Agreement exists in perpetuity and can only be terminated by the agreement of all members.

RESPONSE: Defendants refer to the Letter Agreement and the Operating Agreement for a

complete and accurate account of their respective contents and otherwise deny the allegations in

Paragraph 25 of the Complaint.

26. Moreover, the Operating Agreement contains a Conflicts of Interest provision

that provides:

If a Member wishes to operate or be a party to a festival outside of Beverly Hillsthat is similar to or otherwise achieves a similar purpose as the Festival, such

Member must not do so until it has first offered the Company an opportunity [to]

participate in such new festival on terms similar to those herein. For the removalof doubt, neither Member may operate or be involved in a festival outside of

Beverly Hills, which is similar to the Festival without the Companys written

consent; provided, however, that if the Company is given an opportunity to

participate in such new festival on at least the same terms herein but chooses notto do so, such consent shall be deemed given.

(Emphases supplied.)


of its contents and otherwise deny the allegations in Paragraph 26 of the Complaint.

27. Notably, the Conflicts of Interest provision of the Letter Agreement provided that

it would not apply in the event of a merger, consolidation or the acquisition by a third party of

e

account oo

e as to t ee

ions in Paragraph 24aph 24

eement an Operat ng AgreementOp ng ement

gnificantly more onerous to Variety,tly erou ar etwou exp re 60 ays a ter ts execut one 60 ter ts exec

t t me. By contrast, t e Operat ngy contras erat ng

nate y t e agreement o a mem ers.nat e agreem

greement an t e Operat ng Agreement oent an rat ng A

spect ve contents an ot erw se eny t e apect v ts an e

e Operat ng Agreement conta ns a ConOperat ng Ag ent c

r w s es to operate or e a party to a est varty tomilar to or otherwise achieves a similaror otherw

er must not o so unti it as irst o ere tot o so unti it

icipate in suc new estiva on terms simi auc estivdoubt, neither Member may operate orher mbe ay o

Bever y Hi s, w ic is simi ar to t e Fw ic i i ar t

consentnt; prov e , owever, t at t; pr , owever, t

participate in such new festival on aticipate in s w festto o so, suc consent s a e eeo so suc con

Emp ases supp e .)ases su

RESPONSEE De en ants reDe e

of its contents and othero

27. N2

t wou notou


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all or substantially all of the assets of Variety. (Emphasis supplied). Thus, if the Operating

Agreement were deemed binding upon Variety, Inc., it would be subject in perpetuity to a broad

conflicts of interest provision requiring it to offer to BHMG the opportunity to participate in anyfestival or other similar event worldwide on the same onerous and financially disadvantageous

terms as those set forth in the Operating Agreement. Those obligations do not exist under the

terms of the Letter Agreement.

RESPONSE: Defendants: (i) refer to the Letter Agreement and the Operating Agreement for a

complete and accurate account of their respective contents; (ii) aver that the second and third

sentences of Paragraph 27 state legal conclusions as to which no response is required; and (iii)

otherwise deny the allegations in Paragraph 27 of the Complaint.

28. The Operating Agreement contains no indication that Variety, Inc. wasrepresented by counsel in connection with the agreement. According to BHMG, Variety, Inc,

was represented in the agreement by the personal attorney of an officer of Variety, Inc. and notReeds counsel.


of its contents and otherwise deny the allegations in the first sentence of Paragraph 28, and deny

knowledge or information sufficient to form a belief as to the truth of the allegations in the

second sentence of Paragraph 28 of the Complaint.

C. The Asset Purchase Agreement

29. Reeds efforts to sell Variety eventually culminated in an agreement withPenske Media Corporation (PMC) to purchase the assets of Variety, Inc., and PMC formed

Plaintiff for the purposes of the acquisition.

RESPONSE: Defendants: (i) refer to the APA for a complete and accurate account of its

contents; (ii) deny knowledge or information sufficient to form a belief as to why PMC formed

Plaintiff; and (iii) otherwise deny the allegations in Paragraph 29 of the Complaint.

30. On or about October 9, 2012, Plaintiff entered into an Asset Purchase Agreement

(the APA) with Defendants in which Plaintiff purchased certain assets owned by Defendants --

namely, the Variety publications and related intellectual property and other tangible assets (theTransaction).

g

a roa

ate n anyyantageouss

st un er t et

rat ng Agreement or ar a

that the second and thirdsecond and thir

o response s requ re ; an )s re e ; )

mp a nt.

s no n cat on t at Var ety, Inc. waso n at Var etagreement. Accor ng to BHMG, Var ety,ent. A to BH

rsona attorney o an o cer o Var ety, Inc.ney o o Var

e Operat ng Agreement or a comp ete anerat ng Agreement or a

eny the allegations in the first sentence of Pny the ons in sente

n su c ent to orm a e e as to t e trut ot to orm a e e as

aragrap 28 o t e Comp a nt.nt.

sset Purchase Agreementchase reeme

9. Ree s e orts to see or to s arietyariet evente Media Corporation (PMC) to purchasetion (P to p

nt or t e purposes o t e acqu s t on.e pur o t e acqu s

RESPONSERESP SE Defendants: (i) refer to theefendants

contents; ) eny now e ge or nents; ) w e

P a nt ; an ) ot erw se en ) o

30. On or a

t e APA) w t Dt e

namely, theamely, t VariTransact on)ans


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RESPONSE: Defendants: (i) admit that they entered into the APA on or about October 9, 2012;

(ii) refer to the APA for a complete and accurate account of its contents; and (iii) otherwise deny

the allegations in Paragraph 30 of the Complaint.

31. As part of the APA, Defendants assigned, and Plaintiff accepted the assignmentof, various contracts to which Defendants were parties in connection with their ownership of the

Variety publications and the related intellectual property and other assets.



32. The scope of the assets and liabilities conveyed to and accepted by Plaintiff under

the APA is defined by Article II. Specifically regarding contractual liabilities, under Section2.1(d), only those Contracts identified on Section 2.1(d) of the Sellers Disclosure Schedule were

included as Assigned Contracts. All other contracts of Defendants not disclosed to Plaintiff on

Section 2.1(d) of the Sellers Disclosure Schedule are Excluded Contracts and were nottransferred or conveyed to Plaintiff under the APA. Among the Excluded Liabilities, which

remain with the Sellers, are all Liabilities arising out of, relating to or in connection with the

Excluded Contracts and other Excluded Assets.

RESPONSE: Defendants refer to the APA and the Sellers Disclosure Schedule for a complete

and accurate account of their respective contents and otherwise deny the allegations in Paragraph

32 of the Complaint.

33. The contracts assigned to Plaintiff that were identified in a Sellers Disclosure

Schedule were also provided to Plaintiff for its review and consideration as part of Plaintiffs due

diligence efforts prior to the close of the Transaction.

RESPONSE: Defendants: (i) refer to the APA and the Sellers Disclosure Schedule for a

complete and accurate account of their respective contents; (ii) admit that certain contracts were

provided to Plaintiff prior to the execution of the APA; and (iii) otherwise deny the allegations in


, 2012;

erwise denyny

accepte t e ass gnmentt e ass gnn with their ownership of theeir ownership o

er assets..

and accurate account of its contentsate of it te ts

t e Comp a nt.a nt.

t es conveye to an accepte y P a ntconvey accepte

y regar ng contractua a t es, un er Sg cont t es,Sect on 2.1 ) o t e Se ers D sc osure Scect o o t e

ot er contracts o De en ants not sc oset er contracts e en

sure Sc e u e are Exc u e Contracts ane u e are Exc u eun er t e APA. Among t e Exc u ee APA mong t e E

l Liabilities arising out of, relating to or inLiab sing o ating

er Exc u e Assets.Exc u e As .

ants refer to the APA and the Sellers DisclA and the Sell

ount o t e r respect ve contents an ot erwe r respect

omp a nt.

33. T e contracts ass gne to P a ntT e cts ass gne t

c e u e were a so prov e to P a nt or c e were a so pro o P

diligence efforts prior to the close of thediligenc effor rior to t

RESPONSEPONSE De en ants: ) re er nts:

comp ete an accurate accountn accur

provided to Plaintiff priop

Paragrap 33 o t eParagr


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10

34. The Sellers Disclosure Schedule discloses the existence of the Letter Agreement,

which by that time had expired pursuant to its terms. The Operating Agreement was not

disclosed to Plaintiff as part of Plaintiffs due diligence by Defendants or otherwise and is notlisted on the Sellers Disclosure Schedule. The Operating Agreement is therefore an Excluded

Liability under the APA and was not assumed by Plaintiff as part of the Transaction.

RESPONSE: Defendants: (i) refer to the Letter Agreement and the Sellers Disclosure Schedule

for a complete and accurate account of their respective contents; (ii) aver that the first sentence

of Paragraph 34 states a legal conclusion concerning the expiration of the Letter Agreement as to

which no response is required; (iii) refer to the Sellers Disclosure Schedule for a complete and

accurate account of its contents and otherwise deny knowledge or information sufficient to form

a belief as to the truth of the allegation in the second sentence of Paragraph 34; (iv) aver that the

third sentence of Paragraph 34 states legal conclusions as to which no response is required; and

(v) otherwise deny the allegations in Paragraph 34 of the Complaint.

35. No other agreement or contract with Defendant BHMG apart from the Letter

Agreement was assigned to Plaintiff as part of the APA with Defendants or otherwise.

RESPONSE: Defendants aver that Paragraph 35 states a legal conclusion as to which no

response is required and otherwise deny knowledge or information sufficient to form a belief as

to the truth of the allegations in Paragraph 35 of the Complaint.

36. The Letter Agreement has expired under its own terms.

RESPONSE: Defendants: (i) aver that Paragraph 36 states a legal conclusion as to which no

response is required; (ii) refer to the Letter Agreement for a complete and accurate account of its

contents; and (iii) otherwise deny the allegations in Paragraph 36 of the Complaint.

37. Plaintiff is not a party to the undisclosed Operating Agreement.

ent,

s notExcluded

on.

Disclosure Schedulehedule

er t at t e rst sentencee rst sen

on o t e Letter Agreement as toetter ement as t

osure Schedule for a complete ande com a d

ow e ge or n ormat on su c ent to ormor n orm c ent to

on sentence o Paragrap 34; v) aver t atsente aragrap

conc us ons as to w c no response s requas to sponse

aragrap 34 o t e Comp a nt.agrap 34 o Comp

ment or contract with Defendant BHMG apent or t with nt B

P a nt as part o t e APA w t De en ana nt as par t e A

ants aver that Paragraph 35 states a legal craph 35 states

re an ot erw se eny now e ge or n or t erw se e

o t e a egat ons n Paragrap 35 o t e Coat o ar

36. T e Letter Agreement as exp r T e Agreement

RESPONSERESP SE Defendants: (i) aver that Pefendants

response s requ re ; ) re er to t eonse s re re

contents; an ) ot erw se en ) o

37. P a nt


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11



D. The BHMG Claim

38. Following the close of the Transaction, BHMG forwarded to Plaintiff a copy of

the Operating Agreement, which Defendants had withheld from Plaintiff and which Plaintiff

never before had seen.

RESPONSE: Defendants deny the allegation that they withheld the Operating Agreement from

Plaintiff and otherwise deny knowledge or information sufficient to form a belief as to the truth

of the allegations in Paragraph 38 of the Complaint.

39. BHMG claimed the Operating Agreement was entered into at the end of March

2012.



40. BHMG further claimed that the Operating Agreement and certain otherundisclosed actions gave BHMG the exclusive right to activate multi-event, year-round

sponsorships for Variety well beyond the single Festival contemplated in the Letter Agreement.



41. BHMG further claimed that BHMGs rights extend beyond the proposed Festival

in Beverly Hills in that the Festival became a platform to activate existing Variety events yearround. BHMG asserted that as a result of the APA and Transaction, Plaintiff became a party to

the Operating Agreement, an agreement it claimed has no expiration date and can only be

canceled by both parties.



e

Plaintiff a copy ofy of

an w c P a nt

t e Operat ng Agreement romt ng ment rom

cient to form a belief as to the truthor f as t tr t

Agreement was entere nto at t e en oent w nto at t

e ge or n ormat on su c ent to orm a ege or n orma su c

p 39 o t e Comp a nt.e Co nt.

rt er c a me t at t e Operat ng Agreemene t at t e Operatgave BHMG the exclusive right to activatclusive right

r ety we eyon t e s ng e Fest va contFest v

Defendants deny knowledge or informationts de know

e a egat ons n Paragrap 40 o t e Compn P agra 0 o

41. BHMG urt er c a me t at. BHMG c a

in Beverly Hills in that the Festival becain Beve y Hil in that theroun . BHMG asserte t at as a resuun . BH erte t a

t e Operat ng Agreement, an agreeperat ng nt, a

canceled by both parties.d by both

RESPONSE De en antsDe e

trut o t e a egat onstrut


12/26

12

42. BHMG further claimed that the Operating Agreement is a general template, butthe actual written correspondence, and Variety approved decks further clarify our relationship.



43. Following an exchange of communications between Plaintiff and BHMG in late2012 and early 2013 regarding the terms of the Operating Agreement, BHMG, through itsprincipal Bert Bedrosian, asserted that Plaintiff had repudiated the Operating Agreement throughits actions and was therefore in breach of the Operating Agreement. BHMG demanded thatPlaintiff participate in the dispute resolution proceedings set forth in the Operating Agreement.



44. Out of an abundance of caution, and in the spirit of compromise, Plaintiff agreedto mediate the claim asserted by BHMG. Plaintiff and BHMG participated in two mediationsessions with a JAMS mediator on February 21 and April 26, 2013. No resolution was reachedduring the course of the mediation sessions.



45. On April 30, 2013, BHMG filed suit against Plaintiff in the Los Angeles SuperiorCourt, Case No. 507496 based upon its allegations that Plaintiff had repudiated the OperatingAgreement. BHMG alleged claims for Breach of Fiduciary Duty, Conversion, Breach ofContract, Breach of Duty of Good Faith and Fair Dealing and Declaratory Relief. BHMGalleged $10 million in damages and a right to recover punitive damages.

RESPONSE: Defendants refer to the BHMG Complaint for a complete and accurate account of

its contents and otherwise deny the allegations in Paragraph 45 of the Complaint.

46. On May 1, 2013, Plaintiff filed an Answer to BHMGs Complaint generallydenying the allegations thereof and asserting various affirmative defenses and a counterclaimalleging claims for Fraud, Declaratory Relief, Interference, Trademark Infringement, CommonCounts and Unfair Competition.

, buts p.

f as to the

nt an BHMG n ateBHMGnt, BHMG, through its, through its

e Operat ng Agreement t rougg A ent t rougent. BHMG eman e t atG n e at

t forth in the Operating Agreement.the g A e t.

t on su c ent to orm a e e as to t ec ent to e as to

mp a nt.a nt.

ut on, an n t e sp r t o comprom se, P at on, e sp rG. P a nt an BHMG part c pate n twoP a nt an MG p

e ruary 21 an Apr 26, 2013. No reso ury 21 an Apr 26, 201n sess ons.

eny now e ge or n ormat on su c ent tony now e ge n orm

s in Paragraph 44 of the Complaint.the Complaint.

On April 30, 2013, BHMG filed suit again30, 2 3, BHNo. 507496 ase upon ts a egat ons t at6 a po

ent. BHMG a ege c a ms or Breac o Fege c a r Br act, Breach of Duty of Good Faith and Fairty of G aith a

ged $10 million in damages and a right to rmillion mages and a ri

RESPONSERESP SE Defendants refer to the Befendants

ts contents an ot erw se eny t eontents a se

46. On May 1, 2Ondenying the allegations ta eg ng c a ms or Fraa eCounts an Un a r Counts


13/26

13

RESPONSE: Defendants: (i) admit that on or about May 1, 2013, Plaintiff filed an Answer to

the BHMG Complaint; (ii) refer to that Answer for a complete and accurate account of its

contents; and (iii) otherwise deny the allegations in Paragraph 46 of the Complaint.

47. Upon information and belief, as a result of the terms of the Operating Agreementbetween BHMG and Variety, Inc., BHMG markets and holds itself out as a partner of Plaintiffand an authorized user of the Variety marks, which Plaintiff owns. BHMG now also continuesto disparage Plaintiff in the marketplace and interfere with Plaintiffs business by making falserepresentations to potential sponsors that BHMG is exclusively authorized to activatesponsorships on Plaintiffs behalf pursuant to the Operating Agreement. BHMG also has soughtto register certain trademarks containing the phrase Power of, which are confusingly similar totrademarks owned by Plaintiff as a result of the Transaction.


and otherwise deny the allegations concerning Plaintiffs ownership of trademarks as a result of

the APA, and deny knowledge or information sufficient to form a belief as to the truth of the

remaining allegations in Paragraph 47 of the Complaint.

48. BHMG obtained a single sponsor for the planned Festival. Upon information andbelief, that sponsor paid Variety, Inc. $500,000 in sponsorship money.

RESPONSE: Defendants: (i) admit that Variety Inc. processed receipts totaling $500,000 from

one entity in connection with the planned Festival; (ii) aver that those receipts were then paid to

BHEN Enterprises LLC; and (iii) otherwise deny knowledge or information sufficient to form a

belief as to the truth of the allegations in of Paragraph 48 of the Complaint.

49. Upon information and belief, Defendants paid to BHMG $162,500 and theremaining $175,000 to BHEN Enterprises, LLC -- the entity formed by the Operating Agreement-- to offset the costs of activation of the sponsorship. Of that $175,000, $50,000 was paid to anaffiliate of BHMG as a commission for obtaining the sponsor. The remaining $125,000 remainsin a bank account owned and controlled by BHMG.

r to

ts

nt.

e Operat ng Agreemententas a partner o P a ntner o P a

. BHMG now also continuesnow also contins us ness y ma ng a seess ng a se

aut or ze to act vateto a ateAgreement. BHMG also has soughtnt. als so g

er o , w c are con us ng y s m ar toc are s ng y s mct on.

comp ete an accurate account o ts conteomp et curate ac

ng P a nt s owners p o tra emar s as as own ra em

rmat on su c ent to orm a e e as to t eat on su c e orm

47 o t e Comp a nt.e Com nt.

ta ne a s ng e sponsor or t e p anne Fesng e sponsor or td Variety, Inc. $500,000 in sponsorship m0,000 in spons

e en ants: ) a m t t at Var ety Inc. proces: ) a m t

n connect on w t t e p anne Fest va ; )n w e p

Enterprises LLC; and (iii) otherwise deny; and (i erwi

e e as to t e trut o t e a egat ons n oe e o t e trut o at

49. Upon n ormat on an49. ormremaining $175,000 to BHEN Eng $175,-- to offset the costs of activatithe costsa ate o BHMG as a comMGin a bank account ownedt


14/26

14

RESPONSE: Defendants deny the first sentence of Paragraph 49 and otherwise deny

knowledge or information sufficient to form a belief as to the truth of the allegations in


50. Since Variety, Inc. and BHMG elected, prior to the close of the APA Transaction,not to pursue the Festival, Plaintiff has been forced to accommodate the sponsor by providingalternative sponsorship opportunities and activations at Plaintiffs sole cost and expense.



51. Although BHMG has represented that the $125,000 currently maintained by itwould be paid to Plaintiff to reimburse it for the expense of accommodating the sponsor, it hasfailed and refused to remit the money to Plaintiff. Plaintiff has incurred well more than $125,000in expenses in connection with said sponsor.



E. The COP Claim

52. Plaintiff was recently provided with the following amendments in respect of thatcertain Printing Agreement made as of January 1, 2002, by and between Variety, Inc. andCalifornia Offset Printers (collectively, the COP Amendments): (1) Amendment to PrintingAgreement entered into as of July 1, 2005; (2) Letter Amendment to Printing Agreementbetween California Offset Printers, Inc. and Variety, Inc. dated September 23, 2011; and (3)Letter Amendment to Printing Agreement dated July 31, 2012.

RESPONSE: Defendants: (i) admit that Variety, Inc. and California Offset Printers entered into

an agreement on or about January 1, 2002 that was subsequently amended, including by

amendments on or about July 1, 2005, September 23, 2011, and July 31, 2012 (the COP

Agreement); (ii) refer to the COP Agreement for a complete and accurate account of its

contents; and (iii) otherwise deny knowledge or information sufficient to form a belief as to the

truth of the remaining allegations in Paragraph 52 of the Complaint.

o t e APA Transact on,on,e sponsor y prov ngr y prov

ole cost and expense.nd expense.

c ent to orm a e e as to t em a e t e

.

that the $125,000 currently maintained by iat the 0 currente expense o accommo at ng t e sponsor,nse o o at ng tintiff. Plaintiff has incurred well more thantiff ha well

sor.or.

ow e ge or n ormat on su c ent to orm ae or n ormat on su c

graph 51 of the Complaint.raph Comp

t was recent y prov e w t t e o owt t egreement ma e as o January 1, 2002, ynt ma e as o

set Printers (collectively, the COP Amendrs (co ctivelyentere nto as o Ju y 1, 2005; 2) Lettero as y 1

Ca orn a O set Pr nters, Inc. an Var etyset nter c. anAmendment to Printing Agreement dated Jrinting emen

ESPONSEE SE De en ants: ) a m t t at VDe en a

an agreement on or a out January 1, 2agreemen a out Jan

amendments on or about July 1,ents on

Agreement); ) re er to t) re

contents; an ) ot econ

truth of the remairuth of t


15/26

15

53. Like with the BHMG Operating Agreement, none of the COP Amendments was

included within Section 2.1(d) (the Assigned Contract portion) of the Sellers DisclosureSchedule. While certain other portions of the Sellers Disclosure Schedule did include a

reference to a July 2012 amendment to the COP printing agreement (with no reference to any

other amendments), no such amendments were ever provided by Defendants as part of Plaintiffsdue diligence in connection with the APA and were not included as assigned contracts on the

Sellers Disclosure Schedule. Indeed, Plaintiff never saw any of the COP Amendments until they

were forwarded to Plaintiff by COP after the closing of the acquisition transaction. The mostsignificant of the undisclosed amendments was the amendment dated in September 2011, which

purported to extend the term of the unsigned Printing Agreement until June 2016.

RESPONSE: Defendants refer to the Sellers Disclosure Schedule and the COP Agreement for a

complete and accurate account of their respective contents and otherwise deny the allegations in

the first and second sentences of Paragraph 53, and deny knowledge or information sufficient to

form a belief as to the truth of the remaining allegations in Paragraph 53 of the Complaint.

54. As a result of Defendants withholding of the COP Amendments, they were notassigned to or assumed by Plaintiff in connection with the APA and, to the extent the COP

Amendments constitute valid agreements and/or binding obligations, they are Excluded

Liabilities, which remain with Defendants.


55. California Offset Printers has contended that the COP Amendments are

obligations binding upon Plaintiff and has threatened legal action against Plaintiff for alleged

breaches of the COP Amendments.



A. Defendants Indemnity Obligation

56. The APA provides that:

[T]he Sellers shall jointly and severally indemnify and defend the Purchaser and

its Affiliates, directors, officers, partners, members, equity holders, employees,

agents and representatives, and their respective successors and permitted assigns(collectively, the Purchaser Indemnified Group) against, and shall hold the

Purchaser Indemnified Group harmless from, any and all loss, Liability, claim,

action, suit, proceeding, damage or expense (including reasonable attorneys fees,

ts was

surede a

rence to anyn

s part o P a nt sa nt sd contracts on thethe

Amen ments unt t eyt ey

transact on. T e moston. T ed in September 2011, whichember 2011, wh

unt June 2016.e 201

hedule and the COP Agreement for ad Agr t or

ents an ot erw se eny t e a egat ons not erw se e a egat

n eny now e ge or n ormat on su c eeny e or n o

g a egat ons n Paragrap 53 o t e Comps n Pa o t e

ants w t o ng o t e COP Amen mentw t o ng o t e COPn connect on w t t e APA an , to t e ect on t e APA an ,

agreements and/or binding obligations, theyreem /or bin i atio

t De en ants.De en ants.

ants deny the allegations in Paragraph 54 otions in Parag

California Offset Printers has contended tia Off Printe

n ng upon P a nt an as t reateneon P a

o t e COP Amen ments.men ent

SPONSE De en ants eny now e ge orDe e ts eny now

truth of the allegations in Paragraph 55 otruth o e all ations in

A. Defendants Indemnity ObDefen dem

56. T e APA provT e

T e Se ers s a

ts A ates,

agents and rco ect vec

Purc a

actio


16/26

16

court costs and other out-of-pocket expenses) (collectively, Losses) incurred by

any member of the Purchaser Indemnified Group resulting from, arising out of or

in connection with . . . any Excluded Liabilities.



57. Plaintiff is a member of the Purchaser Indemnified Group as that phrase is defined

by the APA. The claims asserted by BHMG and COP arise from the Operating Agreement and

COP Amendments -- Excluded Liabilities under the APA. Defendants therefore owe Plaintiffindemnification obligations in connection therewith.



58. On March 19, 2013, Plaintiff made demand upon Defendants that Defendants

indemnify Plaintiff and hold Plaintiff harmless from all Losses and other expenses incurred byPlaintiff in connection with the Operating Agreement and COP Amendments, including in

connection with the BHMG mediations and further proceedings.

RESPONSE: Defendants: (i) admit that Michael N. Steuch of Mangels Butler & Mitchell LLP,

purportedly on behalf of Plaintiff, sent a letter dated March 19, 2013 to counsel for Defendants;

(ii) refer to that letter for a complete and accurate account of its contents; and (iii) otherwise

deny the allegations in Paragraph 58 of the Complaint.

59. On April 5, 2013, Defendants rejected Plaintiffs indemnification demand.

Defendants refusal to acknowledge and adhere to their clear indemnification obligations arisingfrom their failure to disclose the existence of the Operating Agreement and COP Amendments

amount to a breach of the APA.

RESPONSE: Defendants: (i) admit that Sybella Stanley, Corporate Finance Director of Reed

Elsevier, Inc. sent a letter to Paul Woolnough of Variety Media, LLC dated April 5, 2013 in

response to Mr. Steuchs March 19, 2013 letter; (ii) refer to Ms. Stanleys April 5 letter for a

complete and accurate account of its contents; and (iii) otherwise deny the allegations in


r

o ts contentse ts

roup as t at p rase s e neat p rase s e

t e Operat ng Agreement ant ng ment an

endants therefore owe Plaintiffrefo e ntiff

ete an accurate account o ts contentsaccurate a o ts con

7 o t e Comp a nt.o t e nt.

tiff made demand upon Defendants that Def ma nd upo ts

arm ess rom a Losses an ot er expensem ess rom a osses arat ng Agreement an COP Amen ments,Agreement an COP A

ations and further proceedings.furthe roceedings.

) a m t t at M c ae N. Steuc o Mangea m t t at ae N.

o P a nt , sent a etter ate Marc 19, 20etter ate Ma

etter for a complete and accurate account ofcomplete

egat ons n Paragrap 58 o t e Comp a nt.Para 58

59. On Apr 5, 2013, De en ants reOn 5, 2013, De en

efendants refusal to acknowledge and ade s refusal to wledrom t e r a ure to sc ose t e ex stencerom t r a ure to sc

amount to a reac o t e APA.mount to a o t e A

RESPONSENSE De en ants: ) a

Elsevier, Inc. sent a letter tosent a

response to Mr. Steuc res

comp ete an acccomp ete

Paragraph 5


17/26

17

60. Plaintiff has incurred and anticipates that it will continue to incur liability for

Losses resulting from the Excluded Liabilities described above in an amount not yetascertainable including, but not limited to attorneys fees, including in connection with the

BHMG mediations and lawsuit, as well as any potential award made against Plaintiff therein.

RESPONSE: Defendants deny that Plaintiff has incurred liabilities resulting from Excluded

Liabilities and otherwise deny knowledge or information sufficient to form a belief as to the truth

of the allegations in Paragraph 60 of the Complaint.

FIRST CAUSE OF ACTION

(Breach of Contract Against All Defendants)

61. Plaintiff realleges and incorporates herein by this reference each and every

foregoing paragraph as though fully set forth herein.

RESPONSE: Defendants repeat and reallege their responses to Paragraphs 1 through 60 of the

Complaint as if fully set forth herein.

62. Plaintiff and Defendants are parties to the APA, a validly existing contract underNew York law.


63. Pursuant to the terms of the APA, Defendants are obligated to defend andindemnify Plaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims

resulting from, arising out of or in connection with any Excluded Liabilities.



64. The Operating Agreement and COP Amendments, as defined above, are ExcludedLiabilities under the APA. Plaintiff has incurred losses and liabilities and is subject to claimsarising from those Excluded Liabilities as alleged above. Accordingly, Defendants owe Plaintiff

indemnification obligations pursuant to the terms of the APA. Plaintiff has demanded that

Defendants recognize and honor such obligations but Defendants refuse to do so.


or

ith the

nt t ere n.n.

g from Excludeded

orm a e e as to t e trute as to t

CTION

st All Defendants)t fendants)

s ere n y t s re erence eac an everyere n e erence

ere n.

ege their responses to Paragraphs 1 througege t onses t

.

e en ants are part es to t e APA, a vae en ants are t es to

n ants a m t t e a egat ons n Paragrap 6n Para

Pursuant to t e terms o t e APA, De et to rmsy Plaintiff against and to hold Plaintiff harainst d to Pla

ng rom, ar s ng out o or n connect on w tout o or onnec

ESPONSEE SE Defendants refer to the APADefen fer to

an ot erw se eny t e a egat ons n Pn ot erw s t e a eg

64. T e Operat ngT eLiabilities under the APA. Pder thear s ng rom t ose Exc u

n emn cat on o gan

Defendants recogniDefen

RESPONSESP


18/26

18

65. Defendants have breached the APA by failing and refusing to honor and satisfy itsindemnification obligation. In addition, Defendants breached the APA by failing to disclose theexistence of the Operating Agreement and COP Amendments as alleged above.


66. Plaintiff has complied with all of its obligations under the APA, except as excusedby Defendants acts or omissions.


67. As a proximate result of Defendants failure to perform as described above,Plaintiff has suffered damages in an amount to be proven at trial, which amount includes the

principal sum of $10 million.


SECOND CAUSE OF ACTION

(Declaratory Relief Against All Defendants)

68. Plaintiff realleges and incorporates herein by this reference each and everyforegoing paragraph as though fully set forth herein.

RESPONSE: Defendants repeat and reallege their responses to Paragraphs 1 through 67 of the

Complaint as if fully set forth herein.

69. A justiciable controversy has arisen between Plaintiff and Defendants in thatPlaintiff contends that (1) Defendants are obligated to defend and indemnify Plaintiff against andto hold Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or inconnection with any Excluded Liabilities; (2) the Operating Agreement and COP Amendmentsare Excluded Liabilities under the APA; (3) Defendants are obligated to defend and indemnifyPlaintiff against and to hold Plaintiff harmless from all losses, liabilities and claims resultingfrom, arising out of or in connection with the Operating Agreement and COP Amendments; and

(4) Plaintiff is not a party to the Operating Agreement or COP Amendments and the contractualobligations arising therefrom remain with Defendants.

RESPONSE: Defendants: (i) admit that Plaintiff purports to enumerate its contentions in this

case; (ii) aver that Paragraph 69 of the Complaint constitutes a legal conclusion as to which no

at s y tssc ose t ee

nt.

e APA, except as excuse, except as

6 o t e Comp a nt.a

ure to per orm as escr e a ove,er orm as e a overoven at tr a , w c amount nc u es t even , w c a

ons n Paragrap 67 o t e Comp a nt.grap omp a

COND CAUSE OF ACTIONCAUSE OF ACTION

ratory Relief Against All Defendants)a ef Aga ll Defend

eges an ncorporates ere n y t s re ereges an ncor tes eough fully set forth herein.set forth herein.

n ants repeat an rea ege t e r responses te r res

u y set ort ere n.t ort ere n.

69. A ust c a e controversy as ar sea e co ersynt conten s t at 1) De en ants are o gen s De en ants ar

o hold Plaintiff harmless from all losses, liao h intiff harml m all lconnect on w t any Exc u e L a t es;connec n w t any Excare Exc u e L a t es un er t e APre Exc u e t es unPlaintiff against and to hold Plaintiftiff agai holdrom, ar s ng out o or n connectr s ng ou

4) P a nt s not a party to ts not aobligations arising therefroising t

RESPONSER De en

case; ) aver t acase; )


19/26

19

response is required; (iii) refer to the APA for a complete and accurate account of its contents;

and (iv) otherwise deny the allegations in Paragraph 69 of the Complaint.

70. Upon information and belief, Defendants deny those contentions.

RESPONSE: Defendants repeat and reallege their response to Paragraph 69 of the Complaint.

71. Accordingly, Plaintiff seeks a declaration to the effect that (1) Defendants are

obligated to defend and indemnify Plaintiff against and to hold Plaintiff harmless from all losses,

liabilities and claims resulting from, arising out of or in connection with any ExcludedLiabilities; (2) the Operating Agreement and COP Amendments are Excluded Liabilities under

the APA; (3) Defendants are obligated to defend and indemnify Plaintiff against and to hold

Plaintiff harmless from all losses, liabilities and claims resulting from, arising out of or in

connection with the Operating Agreement and COP Amendments; and (4) Plaintiff is not a partyto the Operating Agreement or COP Amendments and the contractual obligations arising

therefrom remain with Defendants.

RESPONSE: Defendants admit that Plaintiff purports to seek a declaration as described in

Paragraph 71 of the Complaint and deny that Plaintiff is entitled to, or that the Court should

grant, any such declaration.

DEFENSES

As and for their affirmative defenses, Defendants allege as follows, without assuming any

burden of pleading or proof that would otherwise rest with Plaintiff, and without waiving and

hereby expressly reserving the right to assert any and all additional defenses at such time and to

such extent as discovery and factual developments establish a basis therefore:

FIRST AFFIRMATIVE DEFENSE

(Failure to State a Cause of Action)

The Complaint fails to allege facts sufficient to state a cause of action against Defendants

upon which relief can be granted.

ts;

ns.

69 o t e Comp a nt.t.

ect t at 1) De en ants are1) De nts are

P a nt arm ess rom a osses,m ro osses,

nection with any Excludedith ludements are Exc u e L a t es un er Exc u a t es un

n emn y P a nt aga nst an to oP a nt n to o

ms resu t ng rom, ar s ng out o or ns r rom, ar

OP Amen ments; an 4) P a nt s not aAmen an 4)ents an t e contractua o gat ons ar s ngt e c o gat

a nt purports to see a ec arat on as ent purpor see a

n eny t at P a nt s ent t e to, or t at tt P a s ent t e to,

.

DEFENSESNSES

or t e r a rmat ve e enses, De en antr a r ve e

o p ea ng or proo t at wou ot erw se r proo t at ot

reby expressly reserving the right to assertressly rese the right t

suc extent as scovery an actua evsuc ext nt a overy an

FIRS

(F

T e Comp a nt ap

upon w c re e caupon


20/26

20

SECOND AFFIRMATIVE DEFENSE

(Breach of Agreement)

The relief sought in the Complaint is barred, in whole or in part, by Plaintiffs own

breach of its obligations under the Asset Purchase Agreement.

THIRD AFFIRMATIVE DEFENSE

(Lack of Causation)

The relief sought in the Complaint is barred, in whole or in part, because the harm

suffered by Plaintiff, if any, was caused by persons, facts, and circumstances other than those

alleged in the Complaint, including Plaintiffs own conduct.

FOURTH AFFIRMATIVE DEFENSE(No Damage to Plaintiff)

The relief sought in the Complaint is barred, in whole or in part, because Plaintiff has not

suffered any damages or harm.

FIFTH AFFIRMATIVE DEFENSE

(Damages Speculative)

Plaintiffs damages, if any, are speculative, and thus are not recoverable.

SIXTH AFFIRMATIVE DEFENSE

(Failure to Mitigate)

The relief sought in the Complaint is barred, in whole or in part, because Plaintiff has

failed to mitigate damages, if any.

SEVENTH AFFIRMATIVE DEFENSE

(Set-Off)

Plaintiffs alleged damages must be set-off and/or reduced by amounts Plaintiff owes to

Defendants.

s own

n part, ecause t e armcause arm

nd circumstances other than thosesta er th os

uct.

ge to Plaintiff)lainti

t s arre , n w o e or n part, ecause P as ar o e o c

IFTH AFFIRMATIVE DEFENSEFT MAT ENS

(Damages Speculative)(Dama Spec

ages, if any, are speculative, and thus are nculative, and t

SIXTH AFFIRMATIVE DESIXT

(Failure to Mitiga

e relief sought in the Complaint is barred,ht in e C aint

e to m t gate amages, any.gate es, any.

SEVENTH A

P a nt s a ege amageP a nt

Defendants.


21/26

21

EIGHTH AFFIRMATIVE DEFENSE

(Equitable Estoppel)

The relief sought in the Complaint is barred, in whole or in part, by the doctrine of

equitable estoppel.

NINTH AFFIRMATIVE DEFENSE

(Waiver)

The relief sought in the Complaint is barred, in whole or in part, because Plaintiff, by its

own acts, errors, and omissions, has waived its rights, if any, to recover against Defendants.

TENTH AFFIRMATIVE DEFENSE

(Unclean Hands)

The relief sought in the Complaint is barred, in whole or in part, by the equitable doctrine

of unclean hands.

ELEVENTH AFFIRMATIVE DEFENSE

(Unjust Enrichment)

The relief sought in the Complaint is barred, in whole or in part, by the equitable doctrine

of unjust enrichment.

COUNTERCLAIM

Counterclaim-Plaintiffs Reed Elsevier, Inc., Variety, Inc., Reed Elsevier Properties, Inc.,

and Reed Business Information, Ltd. (collectively, Counterclaim-Plaintiffs or Reed), by and

through their attorneys, bring this counterclaim against Variety Media, LLC (Variety Media or

Counterclaim-Defendant), and allege as follows:

NATURE OF THIS COUNTERCLAIM

1. Using this suit as an apparent pretense, Variety Media defaulted on its obligation

to pay $1,300,000, plus interest, of the purchase price forVariety that it owes to Reed under the

ine of

n part, ecause P a nt , y tscause t , y ts

, to recover against Defendants.er efe s.

E DEFENSESE

ands)nds

arre , n w o e or n part, y t e equ ta en w o rt, y t e

TH AFFIRMATIVE DEFENSEFFIRMATIVE DEFE

(Unjust Enrichment)st Enr ent)

t e Comp a nt s arre , n w o e or n parte Comp a nt rre ,

COUNTERCLAI

ounterclaim-Plaintiffs Reed Elsevier, Inc.,Plaint s R lsev

Ree Bus ness In ormat on, Lt . co ect vs ness mat on, Lt . c

t roug t e r attorneys, r ng t s counter t roug e r attorneys,

Counterclaim-Defendant), and allunterclai ant)

A

. Us ng t ss

to pay $1,300,000, pto pay


22/26

22

APA. Variety Media agreed to pay this sum as recently as March 15, 2013, long after its

disputes with BHMG and California Offset Printers arose.

2. Variety Media has no valid basis to withhold the remainder of the purchase price

forVariety and Reed respectfully requests that the Court award damages to Reed in the amount

including the agreed upon payment of $1,300,000, plus interest.

PARTIES

3. At all relevant times Counterclaim-Plaintiff Reed Elsevier, Inc. was and is a

Massachusetts corporation with its principal place of business in New York, New York.

4. At all relevant times Counterclaim-Plaintiff Variety, Inc. was and is a Delaware

corporation with its principal place of business in New York, New York.

5. At all relevant times Counterclaim-Plaintiff Reed Elsevier Properties, Inc. was

and is a Delaware corporation with its principal place of business in New York, New York.

6. At all relevant times Counterclaim-Plaintiff Reed Business Information, Ltd. was

and is an entity organized and existing under the laws of England.

7. Upon information and belief, Counterclaim-Defendant Variety Media, LLC is a

limited liability company duly organized under the laws of the State of Delaware with its

principal place of business in the City and County of Los Angeles.

JURISDICTION AND VENUE

8. This Court has jurisdiction over Variety Media by virtue of its filing its Complaint

in this action against Counterclaim-Plaintiffs.

9. Venue is properly laid in this Court under New York Civil Practice Law and

Rules 501.

purc ase pr cepr ce

eed in the amountount

eed Elsevier, Inc. was and is avie as a a

us ness n New Yor , New Yor .New Yo Yor .

-P a nt Var ety, Inc. was an s a De awa nt , Inc. wa

ess n New Yor , New Yor .Yor , .

ounterc a m-P a nt Ree E sev er Propertterc a m-P a Ree

t ts pr nc pa p ace o us ness n New Yopa p o us ness n

nt t mes Counterc a m-P a nt Ree Bus nt mes Counte m-P a

zed and existing under the laws of Englandder the laws o

pon n ormat on an e e , Counterc a m-mat on an

ty company u y organ ze un er t e awany rga

pal place of business in the City and Countess in t ty an

URISDIC

. T s Court as ur s ct. Court a

in this action against Counterclaiction aga

9. Venue s proVen

Ru es 501.Ru


23/26

23

FACTUAL ALLEGATIONS

10. On or about October 9, 2012, Reed, as Sellers, entered into the Asset Purchase

Agreement with Variety Media, as Purchaser.

11. The price that Variety Media agreed to pay Reed to acquire the Variety assets was

based in part on the working capital of Reeds Varietybusiness as of the closing date of the

APA. In order to facilitate the sale while allowing all parties an opportunity to conduct their own

calculation of the working capital, the APA provided for an initial payment at closing based in

part on Reeds estimate of working capital, followed by an adjustment payment to the extent the

closing working capital was later determined to be different than Reeds estimate.

12. Section 2.6 of the Asset Purchase Agreement sets forth the procedure by which

Reed and Variety Media were to come to an agreement regarding the Closing Working Capital

and any adjustment payment. Broadly speaking, that section provides that Reed would deliver

an estimate of Closing Working Capital shortly before closing (the Estimated Working

Capital), upon which the initial payment would be based; Variety Media would prepare its own

calculation within 90 days after closing; Reed would review that calculation in the following 30

days; and the parties would then attempt to reach a good faith agreement or, if that failed, retain a

third party to assist in the final determination of the Closing Working Capital.

13. Section 2.6 of the APA further provides that if the Closing Working Capital (as

finally determined) exceeds the Estimated Working Capital upon which the closing payment was

based, Variety Media shall pay an adjustment payment equal to the difference between the

two, plus interest, within three business days of the parties determination of Closing Working

Capital.

14. Specifically, Section 2.6 (e)(ii) of the Asset Purchase Agreement provides:

rc ase

e Variety assets wasets was

e c os ng ate o t eate o t

opportun ty to con uct t e r owny to c ct t e r o

initial payment at closing based inym osin d n

y an a ustment payment to t e extent t estment pa o t e exte

e erent t an Ree s est mate.ere ee s es

c ase Agreement sets ort t e proce ureement s e proc

to an agreement regar ng t e C os ng Wan agreemen gar n

oa y spea ng, t at sect on prov es t atng, t sect on prov

ng Cap ta s ort y e ore c os ng t e Esng Cap ta s o e or

the initial payment would be based; Varietwould be base

n 90 ays a ter c os ng; Ree wou rev ews a ter c os

e part es wou t en attempt to reac a gooou att

arty to assist in the final determination of the final rmina

3. Sect on 2.6 o t e APA urt. Sect on t e

na y eterm ne ) excee s t e Est mna y eter excee s t

based, Variety Media shall payVariety

two, p us nterest, w t n t r est, w

Cap ta .Cap

4. S


24/26

24

Within three Business Days after Closing Working Capital has been finallydetermined pursuant to this Section 2.6 . . . if the Closing Working Capital (asfinally determined) exceeds the Estimated Working Capital, the Purchaser[Variety Media] shall pay to the Sellers [Reed], in the manner and with interest asprovided in Section 2.6(f), an amount of cash equal to the difference between the

Closing Working Capital and the Estimated Working Capital.

15. On March 9, 2013, Reed and Variety Media jointly determined that the Closing

Working Capital exceeded the Estimated Working Capital by $1,300,000 (the Agreed

Adjustment Amount) and agreed to settle all objections relating to the Closing Working Capital

in exchange for a payment from Variety Media to Reed of $1,300,000, plus interest, in

accordance with Section 2.6(f) of the APA.

16. Reed and Variety Medias agreement to the Agreed Adjustment Amount of

$1,300,000 was memorialized in correspondence dated March 9, 2013 between Paul Woolnough

on behalf of Variety Media and Alison Stanworth on behalf of Reed.

17. On March 12, 2013, pursuant to a request from Mr. Woolnough, Reed prepared a

draft settlement letter (the Settlement Letter) and delivered it via email to Variety Media.

18. On March 15, 2013, Mr. Woolnough provided Reed with comments to the

Settlement Letter. That same day, Reed accepted all of the requested changes and provided

Variety Media with a final Settlement Letter reflecting the final agreed-upon terms.

19. Thereafter, in blatant breach of Section 2.6 of the Asset Purchase Agreement, and

contrary to their agreement reflected in the March 9 and March 15 correspondence, Variety

Media failed to pay Reed the Agreed Adjustment Amount.

20. Reed provided Variety Media with updated final Settlement Letters, each revised

to reflect additional computed interest to account for the ongoing delay, on March 18, 2013,

March 22, 2013, March 28, 2013, April 5, 2013, April 12, 2013, April 19, 2013, and May 2,

2013. Variety Media failed to respond to these communications.

saser

rest asween t e

ne t at t e C os ngg

0,000 (the Agreede Agreed

ng to t e C os ng Wor ng Cap tas n or Cap ta

f $1,300,000, plus interest, in, 0, plu rest, in

ement to t e Agree A ustment Amount oto t e ustmen

ondence dated March 9, 2013 between Pauldenc arch

son Stanwort on e a o Ree .nwort on e a o Re

013, pursuant to a request from Mr. Wool13, p to a re Mr

e Sett ement Letter) an e vere t v a eent Letter) an e

arc 15, 2013, Mr. Woo noug prov eug pr

tter. That same day, Reed accepted all of tt same , Ree

e a w t a na Sett ement Letter re ectna tt e Lett

9. T erea ter, n atant reac oT er , n atant r

contrary to their agreement reflected in tcontrar o the agreemen

Me a a e to pay Ree t e Agreea a e e t

20. Ree prov eRee

to reflect additional comt

Marc 22, 2013, MMarc

2013. Var ety3.


25/26

25

21. Variety Medias failure to pay Reed the Agreed Adjustment Amount within three

Business Days after it was finally determined constitutes a breach of Section 2.6 of the Asset

Purchase Agreement.

22. Likewise, Variety Medias continued failure to pay Reed the Agreed Adjustment

Amount with interest constitutes a breach of Section 2.6 of the Asset Purchase Agreement.

23. As a proximate result of Variety Medias failure to perform as described above,

Counterclaim-Plaintiffs have suffered damages in an amount to be proven at trial, which amount

includes the Agreed Adjustment Amount of $1,300,000, together with accrued interest.

24. Counterclaim-Plaintiffs have complied with all of their obligations under the

Asset Purchase Agreement.

FIRST COUNTERCLAIM

(Breach of Contract)

25. Counterclaim-Plaintiffs reallege and incorporate herein by this reference

Paragraphs 1 through 24 of the Counterclaim as though fully set forth herein.

26. The Asset Purchase Agreement is a validly existing contract between

Counterclaim-Plaintiffs and Counterclaim-Defendant under New York law.

27. Pursuant to the terms of the Asset Purchase Agreement, Counterclaim-Defendant

was required to pay Counterclaim-Plaintiffs the Agreed Adjustment Amount, together with

interest as provided for in the Asset Purchase Agreement, within three Business Days after the

Agreed Adjustment Amount was finally determined.

28. Counterclaim-Plaintiffs and Counterclaim-Defendant reached an agreement on

March 9, 2012 that the Agreed Adjustment Amount was $1,300,000.

29. Counterclaim-Defendant has willfully breached the Asset Purchase Agreement by

its continued failure to pay Counterclaim-Plaintiffs the Agreed Adjustment Amount with interest.

hree

Asset

Agreed Adjustmenttment

urc ase Agreement.greemen .

o per orm as escr e a ove,as e a ove,

t to be proven at trial, which amountov , w m u

0, toget er w t accrue nterest.er w t ac terest.

p e w t a o t e r o gat ons un er t ee w t e r o

IRST COUNTERCLAIMRST COUN CLA

(Breach of Contract)Breach of Contract)

laintiffs reallege and incorporate herein byainti e and ate h

o t e Counterc a m as t oug u y set ortnterc a m as t oug

Asset Purc ase Agreement s a va y ex sa va

-Plaintiffs and Counterclaim-Defendant undand ntercl

7. Pursuant to t e terms o t e Asset Punt to t e ter t e

s requ re to pay Counterc a m-P a nt s tto pay terc a m-P a

interest as provided for in the Asset Purcinterest s pro ed for in

Agree A ustment Amount wase A us oun

28. Counterc a m-PCoun

March 9, 2012 that the A

29. Cou

ts cont nueon


26/26

30. As a proximate result of Counterclaim-Defendants failure to perform as

described above, Counterclaim-Plaintiffs have suffered damages in an amount to be proven at

trial, which amount includes the Agreed Adjustment Amount of $1,300,000, together with

accrued interest.

31. Counterclaim-Plaintiffs have complied with all of their obligations under the

Asset Purchase Agreement.

PRAYER FOR RELIEF

WHEREFORE, Defendants and Counterclaim-Plaintiffs respectfully request that the Court:

(A) Dismiss Plaintiffs Complaint;

(B) Award Defendants and Counterclaim-Plaintiffs the costs and attorneys fees

incurred in this action;

(C) Award Defendants and Counterclaim-Plaintiffs damages, together with interest as

allowed by law, on their Counterclaim in an amount to be determined at trial;

(D) Award Defendants and Counterclaim-Plaintiffs such other and further relief as the

Court deems just and proper.

Dated: June 18, 2013New York, New York /s/ Dennis P. Orr

Dennis P. OrrKayvan B. SadeghiMORRISON & FOERSTER LLP1290 Avenue of the AmericasNew York, New York 10104Telephone: (212) 468-8000

Facsimile: (212) 468-7900

Counsel to Defendants and Counterclaim-

Plaintiffs Reed Elsevier, Inc., Variety, Inc.,Reed Elsevier Properties, Inc., and Reed

Business Information, Ltd.

$

oven at

ther with

o gat ons un er t ens un er t

EF

nt s respect u y request t at t e Court:s t u y req

unterc a m-P a nt s t e costs an attorney nte nt s

;

s and Counterclaim-Plaintiffs damages, toterclai aintiffs dama

aw, on t e r Counterc a m n an amount to, on t e r Co rc a m

e en ants an Counterc a m-P a nt s sucounterc a m-P

rt eems ust an proper.ust a

ne 18, 2013New York, New Yorkw York /s/

reed elsevier response to penske variety lawsuit

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