Agreement Outline for Playboy TV/Latin America and Adult Vision/Latin America - Playboy Entertainment Group Inc. and Bloomfield Mercantile Inc.
PLAYBOY TV/LATIN AMERICA
ADULT VISION/LATIN AMERICA
AGREEMENT OUTLINE
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(As of March 29, 1996)
1. Overview and Definitions
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1.1 This Agreement Outline ("Agreement") sets forth the terms for the
formation of a limited liability company (the "Venture") by the Playboy
Entertainment Group, Inc. ("PEGI") and Bloomfield Mercantile Inc., a Panama
corporation and a member of the Cisneros Group of Companies ("Bloomfield"),
that will operate two adult oriented pay television services (the "Services")
throughout the Territory (as defined below): (a) Playboy TV/Latin America
("PTVLA"), a Service based on Playboy TV as currently programmed in the United
State; and (b) AdulTVision/Latin America ("ATV"), a Service based on AdulTVision
as currently programmed in the United States. Bloomfield, together with the
other companies under common control in the Cisneros Group of Companies
participating in the transactions contemplated herein are referred to as the
"Cisneros Affiliates".
As set forth in Section 8, Programming supplied to PTVLA and ATV will be
exclusive to the Services in the Territory.
The parties agree to use their respective best efforts to negotiate and
execute more formal agreement, including the Superseding Agreements described
below, as soon as reasonably practicable and the parties intend that such
agreements will be executed within 60 days of the date hereof. Such agreements
will incorporate the terms of this Agreement and such other terms as the parties
may mutually agree. In furtherance of such best efforts obligations, the parties
will cause their respective executives authorized to make final decisions
regarding these transactions and their counsel and other advisors to be
available on a first priority basis. Until such agreements are executed and if
such agreements are never executed, this Agreement, when executed by both
Bloomfield and PEGI, will constitute a binding agreement between the parties
with regard to all matters covered herein. Specifically, any terms described
herein to be included in a Superseding Agreement will, until such Superseding
Agreement is executed and if such Superseding Agreement is never executed, be
fully operative as terms of this Agreement. Upon execution of the Superseding
Agreements, this Agreement will terminate and be of no further force and effect.
1.2 Terms used in this Agreement are defined in Exhibit "A" attached
hereto, which includes a list of the terms defined in the text of this
Agreement.
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2. Superseding Agreements
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It is contemplated that the Venture, the parties and their respective
affiliates (as the case may be) will execute the following agreements in
connection with the formation of the Venture, all of which will be subject to
the mutual approval of the parties (the "Superseding Agreements"):
2.1 Operating Agreement and Articles of Association. PEGI and
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Bloomfield (together, the "Ventures") will enter into an Operating Agreement and
Articles of Association (collectively, the "Operating Agreement"), which will
establish the limited liability company and outline the structure of the
Venture, including board/governance issues, ownership provisions, option
mechanisms and price, termination provisions, minority owner protections, etc.
The Operating Agreement will contain the terms set forth in Section 14 (Venture
Ownership, Capitalization and Governance) and such further terms as the
Venturers may mutually agree. The parties acknowledge and agree that it is not
their intention by executing this Agreement to form a partnership or other
entity prior to the formation of the limited liability company and the execution
of the Operating Agreement and agree that neither party will take any action
that may subject the other to any liability, including but not limited to making
any agreements or incurring any obligations on behalf of the Venture prior to
such formation and execution.
2.2 Program Supply Agreement for PTVLA. PEGI and the Venture will
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enter into a Program Supply Agreement under which PEGI will license programming
to the Venture for PTVLA on an exclusive basis and receive compensation for such
programming (as described in Sections 8, 9 and 10 below). This agreement will
include PEGI's Standard Terms and Conditions, substantially as attached hereto
as Exhibit "B". If any term in the text of this Agreement is inconsistent with
the provisions of such Standard Terms and Conditions, the term as contained in
the text of this Agreement will prevail.
2.3 Trademark License Agreement. Playboy Enterprises, Inc. ("PEI") and
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the Venture will enter into a Trademark License Agreement (the "Trademark
License Agreement") under which PEI, for a ***% royalty (as described in Section
11 below), will grant to the Venture those rights to the "Playboy" name, marks,
etc. as are necessary for the effective marketing of the PTVLA Service. The
Trademark License will contain PEI's customary approval rights and procedures
for trademark usage and advertising, substantially as detailed in the Trademark
Usage Summary attached hereto as Exhibit "C", the terms described in Section 11
below, and such further terms as the parties may mutually agree. The Trademark
License Agreement will also contain similar terms regarding the use of
AdulTVision trademarks on ATV. No royalty will be payable with respect to the
AdulTVision trademarks. If any term in the text of this Agreement is
inconsistent with the provisions of such Trademark Usage Summary, the term as
contained in the text of this Agreement will prevail.
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
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2.4 Program Supply Agreement for ATV. PEGI and the Venture will enter into
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a Program Supply Agreement under which PEGI will license programming to the
Venture for ATV on an exclusive basis and receive compensation for such
programming (as described in Section 8, 9 and 10 below). This agreement will
include PEGI's Standard Terms and Conditions, substantially as attached hereto
as Exhibit "B". If any term in the text of this Agreement is inconsistent with
the provisions of such Standard Terms and Conditions, the term as contained in
the text of this Agreement will prevail.
2.5 Management Services Contract. The Venture and a Cisneros Affiliate
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generally engaged in delivering the following services will enter into a
Management Services Agreement under which such Cisneros Affiliate ("Management
Co.") will, for a ***% fee (as described in Section 13.2 below), provide back
office services, including bookkeeping and accounting, affiliate and subscriber
relations, collections and payables, etc.
These documents together with the Business Plan (Section 3), and any other
documents deemed necessary by the parties, will constitute the formal agreements
which establish and govern the Venture.
3. Business Plan/Annual Fiscal Year Budgets
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3.1 The Ventures have preliminarily agreed to a 10-year business plan
(dated March 27, 1996, version 9) which is attached hereto as Exhibit "D",
subject to such changes as they shall mutually agree prior to the commencement
of the Venture (as so modified, the "Business Plan"). The Business Plan is the
financial model for the operation of PTVLA and ATV and will be incorporated into
the Operating Agreement. Prior to the end of the fifth year of the Venture and
prior to the end of every succeeding five year period thereafter, the Venturers
will prepare 5 additional years of the Business Plan such that the Business Plan
continues to have between five and ten years of coverage throughout the term of
the Venture. Such additions to the Business Plan will require the approval of
both Venturers.
3.2 The Business Plan will be updated annually by a budget (each, an
"Annual Budget") for the coming fiscal year. The Venture's General Manager (See
Section 14) will prepare the Annual Budget and present it to PEGI and Bloomfield
for approval at least 90 days prior to commencement of the applicable fiscal
year. The approved Annual Budget for a given fiscal year will supersede the data
contained in the original Business Plan for that fiscal year. The Annual Budget
for any fiscal year will require the approval of both Venturers. The Annual
Budget for fiscal 1996 is included in the Business Plan.
4. Territory
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4.1 The "Territory" will include only the following: (a) each country
comprising Central and South America from the U.S.-Mexican border south to
Tierra del Fuego where the national language is Spanish, (b) Brazil and its
territories/possessions, and (c) each
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
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country and territory located in the Carribbean where the official language is
Spanish (including Cuba, but excluding Puerto Rico and U.S. Virgin Islands).
4.2 The Venture grant to PEGI an exclusive license to distribute the PTVLA
and ATV Spanish-language Services in the United States (including its
possessions and territories) in all forms of Non-Standard Television (as defined
in Section 7.1) in perpetuity (the "U.S. Rights"). The costs incurred by or on
behalf of the Venture in connection with the U.S. distribution (including but
not limited to uplink and other delivery costs), will be borne by the Venture.
Such cost will exclude the costs of PEGI with respect to the U.S. feed of
AdulTVision.
4.2.1 PEGI will receive a distribution fee equal to ***% of the revenue
received from systems operators on account of the U.S. Rights.
4.2.2 The remaining revenue ("revenue", for purposes of this Agreement,
means cash actually received by the relevant person) from the U.S. Rights (i.e,
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the revenue from systems operators minus PEGI's ***% fee and minus any costs in
connection with the U.S. distribution (as set forth in Section 4.2) will, after
the Venturer's have received distributions for return of capital equal to their
respective capital contributions, be allocated ***% to Bloomfield and ***% to
PEGI. The costs of dubbing/subtitling or other costs to "localize" the Services,
including but not limited to the costs to create a second language track on the
existing ATV feed, will be borne by the Venture as a regular operating expense
and not allocated to U.S. distribution of the Services.
4.2.3. Not later than 2 years after the date of launch of a Service,
PEGI shall make a good faith effort to distribute the U.S. Rights for that
Service via pay cable in the U.S.
4.2.3.1 With respect to PTVLA, this "good faith" test will be
conclusively deemed to be satisfied if such Service is available in at least 10%
of the Spanish-speaking addressable cable homes in the U.S. ("Spanish Cable
Homes") within such 2-year period.
4.2.3.2 With respect to ATV, this "good faith" test will be
conclusively deemed to be satisfied if such Service is available, within such
2-year period, in at least that percentage of the Spanish Cable Homes equal to
10% multiplied by a fraction, the numerator of which is the number of
addressable cable homes in the U.S. in which AdulTVision is then available
("AdulTVision Homes") and the denominator of which is the number of addressable
cable homes in the U.S. in which Playboy TV is then available ("Playboy Homes").
For example, if two years after the launch of ATV, the number of AdulTVision
Homes equals 500,00 and the number of Playboy Homes equal 1,000,000, then the
"good faith" test for ATV will be deemed satisfied if ATV is available in at
least 5% of the Spanish Cable Homes (10% x 500,000/1,000,000). The parties will
use their best
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
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efforts to agree to a source or methodology for determining the number of
Spanish Cable Homes.
4.2.4. PEGI will not be required to take any commercially unreasonable
actions to satisfy the "good faith" test, which may be satisfied notwithstanding
any failure to meet the conclusive thresholds described above. In the event PEGI
fails to satisfy the "good faith" test for either Service, the U.S. Rights for
that Service will revert to the Venture subject to any third party agreements
entered into prior to such time by PEGI, provided, however, that any deals made
by the Venture for distribution in the U.S. will be subject to PEGI's approval,
not to be unreasonably withheld.
5. Term
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5.1 Term. The term of the Venture shall be 25 years, automatically
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renewable for additional 10-year periods so long as the Venture is meeting
projections (within the variance permitted in Section 5.2.2).
5.2 Early Termination.
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5.2.1 Either Venturer may terminate the Venture if controlling
ownership of the other Venturer changes (other than a change to an affiliate of
such Venturer); provided, however, that the parties acknowledge that PEI, the
parent company of PEGI, is publicly held and that no change in its ownership
will constitute a change of control of PEGI as long as PEGI remains a controlled
subsidiary of PEI. Any such termination will be effective as of the last day of
the fiscal year in which such termination event occurs.
5.2.2 With respect to a particular Service (i.e., PTVLA or ATV) and
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starting at the end of fiscal year 7, either party may terminate that Service if
its net revenue per household (as defined in Exhibit "E" attached hereto) for
the previous 3 fiscal year period is below projections in the Business Plan (as
modified by the annual Budgets) for such period by more than 15%. Termination of
one Service does not terminate the other Service if the other Service is meeting
projections.
5.2.2.1 Either Venturer may cure the other Venturer's right to
terminate per Section 5.2.2 by making a payment to the Venture in the amount by
which revenues fall short of projections minus the allowed variance. If such
Venturer elects to invoke its cure right, it will guarantee any shortfall below
100% of budget in the following fiscal year.
5.2.3 If, within 6 months of the date when PEGI notifies the Venture
that sufficient programming to launch a Service is available and that PEGI has
taken all actions required on its part to be taken in connection with such
launch, the Venture is unable to negotiate a carriage agreement with the DTH
service known as Galaxy Latin America
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("GLA") that provides for such Service to be available in territories at least
inclusive of Mexico, Brazil, Argentina and Venezuela, PEGI shall have the right
to cause the Venture to seek alternative DTH distribution for any such
territories as are not covered by a GLA carriage agreement. The exercise of
such right shall not constitute an exercise of the Veto Option or result in any
decrease in the Program License Fees payable to PEGI.
5.2.3.1 In negotiating the initial carriage agreement and each
subsequent agreement with GLA, the Venture will use its best efforts to secure
the most favorable terms available from GLA regarding collections and allowances
for bad debt.
5.2.3.2 In the event that GLA breaches its obligation to
distribute the Services in all major countries served by GLA pursuant to the
carriage agreement with the Venture (excluding those countries in which the
distribution of the type of programming contained in the Services is prohibited
by statute regulation, court order or other governmental act or decree), the
Venture will take all appropriate actions (including but not limited to pursuing
litigation) to cause GLA to so distribute the Services (the "Remedial Actions").
In the event Bloomfield prevents the Venture from taking such Remedial Actions,
PEGI shall have the right to take such actions on the Venture's behalf and at
the Venture's cost. If PEGI is prevented from taking such actions in violation
of this Section, PEGI shall, in addition to any other rights or remedies it may
have, have the right to terminate the Venture for material breach on the part of
Bloomfield.
5.2.4 Either party may without prejudice to any other remedies it may
have terminate this Agreement immediately by notice in writing to the other on
or after the occurrence of any of the following:
5.2.4.1 the commission of one or more material breaches of this
Agreement by the other party which are not capable of remedy; or
5.2.4.2 the commission of material breach of this Agreement by
the other party which is capable of remedy (a "remediable breach") which shall
not have been remedied within a period of 30 days after the party in breach has
been given notice in writing specifying that remediable breach and requiring it
to be remedied; provided, however, that such 30 day period shall be extended for
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such additional period as shall be reasonably necessary if that remediable
breach is incapable of remedy within that one month period and during that 30
day period the party in breach shall diligently endeavor to remedy that
remediable breach, but only if such extension would not reasonably be expected
to have a material adverse effect on the party giving notice of such breach; or
5.2.4.3 the bankruptcy, insolvency, general assignment for the
benefit of creditors or similar event of or the appointment of a trustee,
receiver or similar person for the other party or of the Venture.
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5.3 Effect of Termination. Upon termination of the Venture, the
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Trademark License Agreement, Program License Agreement, Management Agreement and
related agreements will automatically terminate and all rights and obligations
of the respective parties thereto will terminate, except for any claims, etc,
that have arisen prior to such termination. Upon termination of the Venture,
each Venture shall have the right to compel the Venture to be promptly wound-up
and liquidated.
6. Languages
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6.1 PEGI will license the Venture to transmit in Spanish, Portuguese,
and English (excluding the U.S., which will be Spanish-only). PEGI may permit
the Venture to transmit in other languages at PEGI's option.
6.2 A Cisneros Affiliate generally engaged in the following services
will provide dubbing/subtitle services to Venture at the prevailing fair market
price. PEGI may purchase dubbed/subtitled programs for use in other territories,
or in other media within the Territory, at ***% of cost. If a Cisneros Affiliate
performs dubbing and/or subtitling services for the Venture, such Cisneros
Affiliate will provide such materials in sufficient time to provide for
efficient implementation by PEGI and/or Venture.
7. Media
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7.1 The Venture will be granted the exclusive license to transmit in
all forms of "Non-Standard Television", which means DSS, DTH, pay cable, STV,
MMDS, and SMATV, Non-Standard Television specifically excludes basic cable and
terrestrial broadcast television.
7.2 In no event may PEGI launch a Playboy-branded service or sell a
branded block of programming in basic cable or terrestrial broadcast television
in the Territory (although it may license programs into basic cable or
terrestrial broadcast television in accordance with Section 8).
7.3 The Venture will use its best efforts to launch ATV as a
retransmission of the U.S. feed via GLA on or about June 15, 1996. If such
distribution is not available by such date, the Venture will launch ATV via tape
delivery by such date. PEGI will provide the necessary taped material for such
launch with all costs associated therewith to be borne by the Venture.
7.4 Within 6 months after the launch of a Service, the Venture (via
Management Co.) will make a good faith effort to distribute such Service via pay
cable in Mexico and Argentina. This "good faith" test will be conclusively
deemed to be satisfied if the Venture has initiated contact and, if feasible,
negotiations, with the key cable operators in such countries within such 6
months period. Not later than 2 years after the launch of a Service,
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
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the Venture (via Management Co.) shall make a good faith effort to distribute
such Service via pay cable throughout the Territory. This "good faith" test will
be conclusively deemed to be satisfied if the PTVLA Service or ATV Service, as
the case may be, is available in 10% of the addressable cable homes in the
Territory within such 2-year period.
7.5 With respect to forms of Non-Standard Television other than pay cable,
PEGI may make a format request that the Venture distribute the PTVLA Service in
a particular media, and the Venture (via Management Co.) shall commence such
distribution within one year of PEGI's request and shall make a good faith
effort to distribute the Service in such media. This good faith test will be
conclusively deemed to be satisfied if the PTVLA Service is available to 10% of
the applicable homes within 2 years of PEGI's request.
7.6 Management Co. shall receive a fee equal to ***% of the revenue
received by the Venture from systems operators from the distribution described
in Sections 7.4 and 7.5 and the costs of such distribution will be borne by the
Venture .
7.7 The Venture will not be required to take any commercially unreasonable
actions to satisfy the "good faith" test, which may be satisfied notwithstanding
any failure to meet the conclusive thresholds described above. In the event the
Venture (via Management Co.) fails to satisfy the "good faith" requirement for
distribution of either Service in a particular form of Non-Standard Television
As set forth in Sections 7.4 and 7.5, PEGI will have the right to distribute
such Service in that media; provided, however, that any deals made by PEGI to
distribute either Service will be subject to the Venture's approval, not to be
unreasonably withheld. For the distribution of such Service, the Venture will
pay to PEGI a fee equal to ***% of the revenue received from systems operators
for such Service in such media, with the Venture to receive the remainder of
such revenue. The costs of such distribution will be borne by the Venture.
7.8 Each entity engaged in distributing the Services (including PEGI
pursuant to Section 4.2 and the Management Co. as set forth above) will in all
material respects incur costs for the account of the Venture in accordance with
the cost structure set forth in the Business Plan as modified by the Annual
Budget for the applicable period. If such compliance with the applicable Annual
Budget is not feasible, such distributor will obtain the Venture's approval for
variances, which approval will not be unreasonably withheld.
8. License Term and Media Holdbacks
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8.1 The Venture's License Term with respect to each program (the "License
Term") will commence on the later of the first day of the relevant fiscal year
and the date such program is first available in any media (as described and
subject to the limitations in Section 3.3 below) and will end at the termination
of the Window (as defined below). Subject to the terms of this Section 8.1 and
of Section 8.3, the programs will be exclusive to the Venture during the
respective License Terms. The Venture will have a window of 18 months for the
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
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transmission of each program (the "Window"), commencing on the date that such
program is first transmitted via the Venture. Following the Window, there will
be a 12-month dark period, after which PEGI may license such program into basic
cable and/or terrestrial television as it sees fit; provided, however, that such
programs cannot be run as part of a "Playboy" service and must be licensed on an
"unbranded" basis (i.e., such licenses shall not allow the use of the "Playboy"
name or trademarks in connection with the programs or the advertising thereof
other than in customary production, presentation and logo credits in the title
or end sequences of such programs, for use solely in the credit block in
advertising for such programs, and the title and content of the programs, where
applicable). Notwithstanding the foregoing, at any time, whether during or
after the Window, PEGI can distribute on a "branded" basis any program in the
home video or other private exhibition market (including, without limitation,
discs, cassettes or other forms of video grams now existing or invented in the
future, collectively, "Home Video").
8.2 The Venture will be entitled to transmit each program on 20
Broadcasting Days. Each Broadcast Day will include three airings of each
program within a consecutive 24 hour period. Attached hereto as Exhibit "F" is
a sample program schedule.
8.3 The starting date of the Venture's License Term for a given program
(other than feature films with a budget of more than $1 million) will be the
date set forth in Section 8.1, unless such program is subject to an agreement
which-pre-dates this Agreement. Notwithstanding the foregoing, PEGI will have
the right to grant earlier release dates for Home Video for not more than 15
core titles and not more than 20 additional films (with production costs under
$1 million), in each case per each 12 month period commencing with the launch
date of PTVLA. Attached hereto as Exhibit "G" are example titles of core
programs and films which may have earlier release dates in Home Video. In
addition, the parties acknowledge that PEGI may not control the Home Video or
other non-television distribution rights of certain programs it acquires from
third parties and, consequently, the starting date of the Venture's License Term
for any such program will be the date the television rights are available to
PEGI in the Territory, which may be after the date such program is released in
Home Video or other media by the parties holding such rights.
9. Program Supply
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9.1 Subject to Section 9.4, PEGI will make available to PTVLA all
Playboy Programming (as defined below) and all related interstitial, promo,
on-air identifications, logos or similar material.
9.2 PEGI will provide, and the Venture will license under the Program
License Agreement, 180 hours of New Programming to PTVLA for each 12 month
period commencing with the launch of PTVLA. For the purposes hereof, "New
Programming" means programs never-before broadcast by either of the Services.
Without limiting the
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foregoing, the parties acknowledge that PEGI has previously transmitted
programming in the Territory via HBO Ole, and that such programming will be
considered "New Programming" in the Venture. Home shopping programming will be
included with the 180 hours.
9.3 So long as ATV is a retransmission of the AdulTVision U.S. feed,
PEGI will provide, and the Venture will license under the Program License
Agreement, 204 new movies to ATV for each 12 month period commencing with the
launch of ATV until that Service reaches cash break-even. In addition, in the
first 12 month period, PEGI will provide up to 110 additional "encore" movies in
place of repeats, with the actual number of such movies to be set forth in the
program schedule to be attached to the Program License Agreement. In the event
that PEGI wishes to supply more than 204 new movies in such a 12 month period
prior to cash break-even, the Venture will not pay for such additional movies
(except for up to 110 additional "encore" movies in the first 12 month period as
provided above and in Section 10.1.2 below). After ATV reaches cash break-even,
PEGI may, in its sole discretion, increase the number of movies supplied to that
Service, provided, however, that the number of movies per such a 12 month period
that the Venture must pay PEGI for will be capped at 300. For purposes of the
foregoing, a "movie" is a 90 minute block of programming (e.g., if a particular
film is less than 90 minutes, PEGI will provide additional programming as is
necessary to provide a 90 minute block without additional cost to the Venture).
At any time commencing at the end of the 18th month following the launch of ATV,
the Venture may give PEGI written notice of its intention to offer ATV as an
independent feed, which notice will be given not less than 6 months prior to the
launch of such independent feed. Upon launch of such independent feed, the
Venture will determine the number of movies to be licensed for ATV for each 12
month period, not to be less than 120 movies per 12 month period.
9.4 The Venture acknowledges that PEGI produces and distributes certain
feature films with negative costs of at least $1,000,000. Although these films
are to be excluded from the Program Supply Agreement, the Venture will have a
right of first negotiation to acquire the Non-Standard Television rights to
these films for the Service upon release (or upon the expiration of pre-existing
commitments). The right of first negotiation will exclude films that are
offered by PEGI on a multiple territory basis which includes the Territory. The
right of first negotiation must be with respect to all rights offered (e.g., the
Venture does not have a right of first negotiation for pay cable only if the
film is being offered on an "all rights" basis). If the film is "bundled", the
right of first negotiation is with respect to all programs included in the
bundle. Exhibit "H" hereto provides examples of these films as well as the
rights that have already been sold to third parties in the Territory.
9.5 The Venture acknowledges that Playboy Productions, a division of
PEI, produces certain programming for network television and for other
distributors not controlled by PEI, which is not principally sexually oriented.
Such programming is to be excluded from the Program Supply Agreement. Each such
program, including "The Playboy Interview" series but excluding the Hugh Hefner
mini-series produced in association with David Wolper
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Productions and Warner Bros., to the extent PEI owns the distribution rights to
such Program in the Territory, is referred to as an "Option Program". A
Cisneros Affiliate designated by Bloomfield (the "Optionee") will have "first
look" and "last refusal" rights with respect to each Option Program as set forth
below.
9.5.1 Prior to any sale of distribution rights for an Option
Program in the Territory, PEGI will notify the Optionee of the availability of
the Option Program and negotiate in good faith with the Optionee to reach
mutually satisfactory terms for the distribution by the Optionee of such Option
Program. If within 30 days of such notice, PEGI and the Optionee are unable to
reach agreement, PEGI will have the right but not the obligation for a period of
60 days to seek other distribution opportunities. If such 60 day period expires
without PEGI entering into negotiations with an alternative distributor, PEGI
will thereafter be free to exploit such distribution rights in the Territory
without further obligation to the Optionee.
9.5.2 If PEGI enters into negotiations with an alternative
distributor within such 60 day period and wishes to consummate an agreement with
such distributor during such period or within 60 days thereafter, PEGI will
first notify Optionee of the proposed terms of such agreement and Optionee will
have the right to preempt such offer and acquire the distribution rights subject
to such offer by making a binding counter-offer that is more favorable to PEGI
by $1 or more. If Optionee does not exercise such right, PEGI will thereafter
have the right to license such Option Program to any person on terms no less
favorable to PEGI than the proposed terms disclosed to Optionee. If, during
such aggregate 120 day period, PEGI wishes to consummate an agreement to license
such Option Program on terms less favorable to PEGI, Optionee will again have a
right to last refusal with respect to such Option Program as provided in this
Section.
9.5.3 If PEGI licenses any distribution rights to Option
Programs in the Territory other than to Optionee, such program will be licensed
on an "unbranded" basis.
9.6 Notwithstanding the Standard Terms and Conditions attached hereto,
(i) the schedule of programs referenced in Section 1 thereof will be attached to
the Program License Agreement, (ii) PEGI will be responsible for clearing any
music or other copyright material incorporated in the programs (with the
royalties therefore being paid by Venture), (iii) the indemnification provisions
in Section 6 thereof will include lost profits and consequential damages awarded
to third parties, and (iv) the liquidated damages provision in Section 9 thereof
will be limited to the lesser of the licenses fees owing for the balance of the
term or 12 months of license fees and will exclude defaults by the Venture due
to PEGI's failure to make capital contributions to the Venture as required
pursuant to this Agreement.
10. Program License Fees The Venture shall pay PEGI program license fees as set
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forth below (the "Program License Fees"):
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10.1 Program License Fees During the Exclusive Period. During the
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Exclusive Period (defined in Section 17.2), the Venture will pay to PEGI Program
License Fees as follows:
10.1.1 For PTVLA, the greater of (a) the PTVLA Guaranteed Minimum
Program License Fee (as defined below) for each 12 month period of (b) the sum
of $*** per subscriber per program hour plus ***% of net pay per view revenue;
----
once (b) is greater than (a), this fee is subject to a cap of ***% of the
aggregate net revenue from subscribers and from pay-per-view. For purposes
hereof, "PTVLA Guaranteed Minimum Program License Fee" means (i) *** and (ii)
for each subsequent 12 month period, such increased amounts as are set forth in
the Business Plan as modified by the Annual Budget for such period.
The PTVLA Program License Fee shall be paid ***% in cash and ***%
deferred until the Venture reaches cash break-even. After cash break-even, free
cash will go ***% to PEGI for the payment of deferred Program License Fees,
until paid in full, and ***% to the venture to be used for the return of
capital.
10.1.2 For ATV, the ATV Guaranteed Program License Fee for a 12 month
period. For purposes hereof, "ATV Guaranteed Program License Fee" means (i) ***
and (ii) for each subsequent 12 month period, such increased amount as is set
forth in the Business Plan as modified by the Annual Budget for such period;
provided, however, that if the Venture elects to offer ATV as an independent
feed and in connection therewith elects to decrease the number of movies
licensed from PEGI as provided in Section 9.3 above, the "ATV Guaranteed Program
License Fee" per movie will be $*** subject to the same percentage increases as
apply to the initial license fees (i.e., as set forth in the Business Plan as
modified by the Annual Budget for the respective period).
10.2 Program License Fees after the Exclusive Period. Prior to the
-----------------------------------------------
expiration of the Exclusive Period as relevant to each Service, the Venture will
negotiate a new carriage agreement with GLA which may or may not provide GLA
with DHT exclusivity for PTVLA and/or ATV. Subsequent to the expiration (if any)
of the Exclusive Period as relevant to a given Service, the Program License Fees
payable to PEGI will be determined as follows:
10.2.1 For PTVLA:
10.2.1.1 The Program License Fee will continue as set forth in
Section 10.1.1 (i.e., continuing to increase for each 12 month period as set
forth in the Business
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities Exchange Commission.
12
<PAGE>
Plan) if (a) the Venture decides to contract with GLA as a non-exclusive DTH
distributor of PTVLA, or (b) the Venture decides to continue its DTH-exclusive
relationship with GLA for PTVLA and PEGI does not exercise its Veto Option (as
defined below).
10.2.1.2 PEGI shall have the right to veto the Venture's
decision to grant DTH, exclusivity for PTVLA to GLA after expiration of the
Exclusive Period (the "Veto Option"), thereby causing the Venture to thereafter
grant GLA a non-exclusive right to distribute PTVLA via DTH. In the event PEGI
exercises the Veto Option, the license fee payable to PEGI for PTVLA will be as
follows:
(i) If the Venture is not harmed by the exercise of the Veto Option,
then the license fee will be as set forth in Section 10.1.1.
(ii) If the Venture is harmed by the exercise of the Veto Option,
then the license fee will be reduced for the portion of the fiscal
year following such exercise and for each subsequent fiscal year by
the amount of the harm suffered in the respective period, subject to a
maximum reduction of such license fee to 2/3 of the amount pursuant
Section 10.1.1 for such fiscal year (i.e., subject to continuing
escalation for subsequent fiscal years as provided in the Business
Plan). The amount owed pursuant to this Section shall be payable in
cash and deferrals in the same ratio as would have been the case if no
such reduction had been made.
For the purposes of this Section 10.2.1.2, the "harm" attributable to
PEGI's exercise of the Veto Option shall be based on the decrease in profits of
the Venture directly attributable to the non-exclusivity of the GLA distribution
rights and shall be determined at the end of each fiscal year following the
exercise of the Veto Option manually by PEGI and Bloomfield by comparing the
profit (or loss) actually realized by the PTVLA Service in the applicable fiscal
year to the profit (or loss) that Service would have realized had PEGI not
exercised the Veto Option. For example, if in a given fiscal year following the
exercise of the Veto Option the PTVLA Service had an actual profit of $100, and
it would have otherwise had a profit of $80, then there was no harm and the
license fee is as provided in Section 10.1.1. As a further example, if in a
given fiscal year following the exercise of the Veto Option the PTVLA Service
had an actual accrual profit of $80, but would have had a profit of $100 had
PEGI not exercised the Veto Option, the Venture was harmed and the license fee
owing for such fiscal year would be $20 less than the amount provided for in
Section 10.1.1 (subject to a maximum reduction to 2/3 of the amount so
provided), and such fee would be payable ***% in cash and ***% deferred until
cash break-even.
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
13
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10.2.1.3 If the Venture asserts that the provisions for
reducing the Program License Fees described in Section 10.2.1.2 above should be
effected, the Venture will pay to PEGI the full amount of the Program License
Fee as if such reduction had not been in effect, according to the payment terms
described in Section 10.3 below. At the end of a fiscal year, the Venturers will
calculate the degree of harm, if any, resulting from PEGI's exercise of the Veto
Option for such fiscal year pursuant to Section 10.2.1.2 and the amount owing
from PEGI to the Venture with respect to such reduction in Program License Fees
will be allocated first to offset accrued deferrals owing to PEGI and then to
future payments due from the Venture to PEGI.
10.2.2 For ATV: The Program License Fees payable with respect to ATV
will continue as set forth in Section 10.1.2.
10.3 Payment of Program License Fees. The Program License Fees shall be due
-------------------------------
and payable to PEGI as follows: (a) the PTVLA Guaranteed Minimum Program License
Fee and the ATV Guaranteed Minimum Program License Fee shall be calculated on a
monthly basis and paid quarterly in arrears within 30 days after the close of
the quarter, and (b) any overages above the PTVLA Guaranteed Minimum Program
License Fee shall be calculated on a monthly basis and paid quarterly after the
close of the appropriate quarter.
11. Trademark License Agreement: Royalties
--------------------------------------
11.1 The Venture will pay to PEGI a trademark license royalty (the
"Trademark Royalty") of ***% of adjusted gross revenue from the PTVLA Service.
"Adjusted Gross Revenue" is defined as the gross revenue actually received by
the Venture from subscribers to the PTVLA Service (including pay per view
revenue) and all other revenues from operation of the PTVLA Service by the
Venture, minus consumption and other taxes (other than income taxes). Without
limiting the foregoing, in the event that the revenue of the PTVLA Service
includes streams from advertising and/or home shopping, such revenue will be
included in Adjusted Gross Revenue as defined herein. The Trademark Royalty
shall be calculated on a monthly basis and paid quarterly within 30 days after
the close of the appropriate quarter.
11.2 PEGI will cause PEI to grant to the Venture a license to use in
connection with PTVLA the trademarks "Playboy" and the "Rabbit Head Design" and
such other Playboy trademarks as will be described in the Trademark License
Agreement in and in connection with PTVLA and the marketing and promotion of
PTVLA. PEGI will cause PEI to grant to the Venture a license to use in
connection with ATV the "AdulTVision" trademarks and such other AdulTvision
trademarks owned by Playboy as will be described in the Trademark Agreement in
and in connection with ATV and the marketing and promotion of ATV. The grant of
licenses will be made to the Venture on an exclusive basis for the respective
service but only with respect to Non-Standard Television and only in the
Territory. The only
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
14
<PAGE>
exception to the foregoing exclusivity will be (a) customary presentation and
logo credits in the title and end credits sequences of programs licensed to
others as permitted hereunder and credit blocks in advertising therefor, and (b)
use of the trademarks in any television service which is not intended for
general reception in the Territory but which is received in the Territory. The
Venture will not sub-license any trademarks licensed under the Trademark License
Agreement except with the consent of PEI. PEI shall have the right to approve
any and all permutations of the trademarks and any secondary, combination or
derivative marks based on the trademarks, all of which, when approved, shall be
the property of PEI and be licensed to the Venture under the terms of the
Trademark License Agreement. PEI will have the right to control and conduct all
proceedings relating any infringement of the trademarks in the Territory and any
claim that the Venture's use of the trademarks in the Territory infringes the
rights of any third party. The Venture will indemnify and hold harmless PEI from
and against all losses arising from the use by the Venture of the trademarks.
11.3 Although the programs transmitted by the Services will depict nudity
and allow strong or explicit language, PEGI will not deliver and the Venture
will not transmit scenes or other material depicting any of the following: (i)
the glorification of violence of gratuitous violence, (ii) rape, non-consensual
intercourse or other non-consensual sexual activity, (iii) bondage, incest,
sadism or masochism, bestiality, extreme sexual explicitness or the graphic
close-up of genitals; or (iv) child pornography, including, without limitation,
instances where an actor is the legal age for consent but is portrayed as under
the legal age for consent. In that regard, no actor will appear in any program
transmitted by the Services who is not at least 18 years of age. Notwithstanding
the foregoing, the standards applied by PEGI from time to time for Playboy TV
and AdulTVision, respectively, in the United States shall be the controlling
standards and any materials transmitted on either such Playboy service and
shall be deemed acceptable for transmission on the respective Service.
11.4 The parties acknowledge that any material breach of the Trademark
License Agreement or of this Agreement with respect to the use of trademarks
will result in irreparable harm to the other party for which there is no
adequate remedy at law. Accordingly, each party shall be entitled to preliminary
or temporary equitable relief pending a final determination in accordance with
the dispute resolution provisions provided below, without the necessity of
posting bond, by way of any or all of the temporary and permanent injunctions
and such other relief as a court of competent jurisdiction may deem just and
proper.
11.5 Notwithstanding the Trademark Usage Summary attached hereto, (i) PEI
will permit advertising in English without prior approval, and (ii) advertising
and other uses of the trademarks and logos will be submitted for approval at
least 10 days in advance to PEI.
15
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12. PEGI Programming and Operational Responsibilities. Consistent with this
-------------------------------------------------
Agreement and the attachments hereto; PEGI will control and manage all facets of
the programming for PTVLA and ATV. This will include:
12.1 Exclusive Program Supplier. PEGI will be the exclusive supplier of all
--------------------------
programming shown on PTVLA and on ATV, regardless of whether such programming is
produced and owned by PEGI, or whether PEGI acquires such programming for the
Venture. The costs of producing or acquiring such programming for the
Venture will be borne by PEGI. Notwithstanding the foregoing, the Venture will
have the right at its own cost to product its own programming targeted to the
Latin American market pursuant to Section 12.2 ("Venture-produced Programming"
or a "Venture-produced Program").
12.2 Venture-Produced Programming. Venture-produced Programming will be
----------------------------
developed by mutual agreement between Bloomfield and PEGI. Such programming will
be produced locally by a Cisneros Affiliate or under Bloomfield's direction,
consistent with PEGI's standards and subject to PEGI's approval, not to be
unreasonably withheld. A budget for Venture-produced programming will be
identified in the Business Plan and annual Budgets.
12.2.1 PEGI may recommend a supervising producer for a
Venture-produced program. If such person is approved by Bloomfield (which
approval will not be unreasonably withheld), he/she will be paid in accordance
with the Venture's production budget; if not approved, the Venture will allow
such person to supervise production, but at PEGI's expense. Such supervising
producer shall have control over the content and look of the program, consistent
with the standards for the Playboy Programming.
12.2.2 With respect to each Venture-produced Program, PEGI will have
10 business days following the receipt of a program to approve such program or
request changes in writing; if no such approval or request for changes is
delivered to the Venture within this 10 business day period, PEGI will be deemed
to have approved such program. The costs of making changes requested by PEGI
will be borne by the Venture.
12.2.3 After the Venture makes any changes requested by PEGI pursuant
to Section 12.2.2, PEGI will have 5 business days from receipt of the changed
program to approve such program or request additional changes in writing; if no
such approval or request for changes is delivered within this 5 business day
period, PEGI will be deemed to have approved such program. If the changes
initially requested by PEGI have not been made to PEGI's reasonable
satisfaction, the costs of making further changes to conform to such initial
comments will be borne by the Venture. The costs of making any new
changes pursuant to this Section 12.2.3 will be borne by the Venture, up to a
cap of 2.5% or the program's original production cost, with any overage to be
paid by PEGI.
16
<PAGE>
12.2.4 After the Venture makes any changes requested by PEGI
pursuant to Section 12.2.3, PEGI will have 5 business days from receipt of the
changed program to approve such program or request additional changes in
writing; if no such approval or request for changes is delivered in this 5
business day period, PEGI will be deemed to have approved such program. The
costs of making any further changes not initially requested by PEGI will be
borne by PEGI.
12.2.5 The inclusion of Venture-produced Programming in the
Venture's program block will be in addition to the minimum number of hours to be
supplied by PEGI.
12.2.6 The Venture will grant PEGI a license to distribute the
Venture-produced Programming outside the Territory in all media and within the
Territory in all media other than the media for which the Venture has rights
pursuant to Section 7 above. For this distribution, PEGI will receive a
distribution fee equal to ***. Remittance of distribution fees will be on a
quarterly basis, payable within 30 days after the close of the relevant quarter
with the excess, to the extent received by PEGI, to be paid over to the Venture.
Although PEGI makes no guaranties to the Venture regarding such distribution,
PEGI will use its commercially reasonable efforts to maximize the license fees
it obtains from third parties for such Venture-produced Programming. PEGI will
license such programming on terms substantially equivalent to terms applicable
to the licensing of PEGI's own similar programming; provided, that the Venture
will have the right to approve any such transaction within the Territory and
will have the annual right to review the records of PEGI with respect to all
such licensing activities, upon reasonable notice, to ensure compliance with the
terms hereof. If PEGI acquires Venture-produced Programming (or specific
programs or series of programs therefrom) for use in a PEGI-owned or -operated
service or media, PEGI will acquire such programs on arms' length terms to
achieve fair market prices for the Venture with respect to such programs. If the
Venture-produced Programming is "bundled" with other programming by PEGI in the
course of its distribution efforts, PEGI will make a fair and good faith
allocation to such Venture-produced Programming of the fees received.
12.3 Program Mix.
-----------
12.3.1 PTVLA: PEGI will program the PTVLA Service with three
-----
types of programming, as follows: (a) "Playboy Programming", which is
programming produced, co-produced or owned by PEGI or one of its affiliates, or
which is programming acquired by PEGI or one of its affiliates for multiple
territories around the world; (b) "Venture Acquired Programming", which is
programming acquired by PEGI or one of its affiliates specifically for PTVLA,;
and (c) Venture-produced Programming, which is programming produced by the
Venture according to Section 12.2
PEGI will determine the mix of Playboy programming and Venture
Acquired Programming. PEGI and Bloomfield will mutually determine the manner in
which the
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
17
<PAGE>
Venture-produced Programming is scheduled. The 180 hours of New Programming (as
defined in Section 9.2 above) supplied by PEGI each fiscal year will include a
mix of Playboy Programming and Venture Acquired Programming. As per the Business
Plan, the following are the targets for the programming mix of such 180 hours:
Year 1 90% Playboy Programming
10% Venture Acquired Programming
Year 2 85% Playboy Programming
15% Venture Acquired Programming
Year 3 80% Playboy Programming
20% Venture Acquired Programming
Year 4 and 75% Playboy Programming
Thereafter 25% Venture Acquired Programming
The parties acknowledge that these are target ranges and that PEGI will use its
reasonable efforts to meet these targets. Any variance of more than 5% from
these targets will be subject to the Venture's approval. As noted in Section
12.2.5, Venture-produced Programming will be in addition to the 180 hours of New
Programming supplied by PEGI each fiscal year.
12.3.2 ATV: Initially, the ATV Service will be a retransmission of the
---
U.S. AdulTVision feed in the English language. If the Venture determines that a
separate ATV feed is commercially viable and desires to proceed with such
separate feed, the Venture will pay all costs associated with the development
and implementation of such separate feed (including satellite and transponder),
and the number of movies supplied by PEGI will be as set forth in Section 9.3
(subject to the rights of the Venture to decrease the number of movies as
described in such Section).
12.4 Interstitials/Promos/On-Air Look. In consultation with the Venture,
--------------------------------
PEGI will determine and direct the production and compilation of all
interstitial and promotional materials, as well as developing the on-air look of
PTVLA and ATV. The costs of such production and compilation will be borne by the
Venture. Bloomfield intends to produce or cause another Cisneros Affiliate to
produce local host wraps and other interstitial material, under PEGI supervision
and subject to PEGI's approval. The price paid by the Venture for such material
will be prevailing fair market price.
12.5 Delivery Material.
-----------------
12.5.1 For PTVLA: PEGI will supply one copy of each program,
---------
intersitial, promo or other relevant item to the Venture, with the costs of
duplication and shipping from
18
<PAGE>
Los Angeles to be borne by the Venture. Assembly of the finished program block
will be implemented by the Venture at PEGI's direction and to PEGI's
specification. PEGI will provide a nightly program log to enable the Venture's
technical personnel to properly compile a given night's programming. The Venture
will bear the costs of dubbing/subtitling and any necessary format conversions.
PEGI will provide such materials to the Venture in sufficient time to provide
for efficient implementation by the Venture.
12.5.2 For ATV: Initially, the ATV Service will be a retransmission of
-------
the US AdulTVision feed in the English language. Should the Venture determine
that the Service be transmitted off this same US AdulTVision feed in Spanish
and/or Portuguese (via a Second Audio Program or similar means), the costs of
implementing such transmission in these languages will be paid by the Venture.
The transmission to the Venture's ATV customers will be via the Galaxy III-R
satellite or any successor.
12.5.3 Certificate of Erasure. At the end of the Window for each item
----------------------
delivered to the Venture (excluding items that have been dubbed or subtitled and
which PEGI desires to acquire pursuant to the terms hereof), the Venture will
erase the tapes of such items and deliver to PEGI a certificate of erasure with
respect thereto.
12.6 Alternative Means of Performance. In the event the Venture can more
--------------------------------
cost effectively perform some or all of the functions described in Section 12.4,
the Venture may assume such functions, although PEGI will retain control over
control and quality of such transferred functions.
13. Operating Responsibilities
--------------------------
13.1 The Venture will employ a staff of sufficient size to efficiently
handle sales and distribution, affiliate relations, technical matters and other
appropriate matters.
13.2 Pursuant to the Management Services Contract, Management Co. will
handle many of the day-to-day operational and financial responsibilities of the
Venture under the supervision of the General Manager, including but not limited
to financial management, payroll services and accounting; collections and
accounts payable; and facilities acquisition and management. Management Co. will
receive a fee of ***% of the Adjusted Gross Revenue of PTVLA. In the event that
ATV launches prior to PTVLA, the 1996 Annual Budget will be modified to provide
for ATV to manage itself until the launch of PTVLA.
13.3 The Venture will be responsible for making arrangements for satellite
transponders as necessary to insure coverage of the entire Territory. All costs
of assembly, dubbing, subtitling, shipping, duplication, production of original
"wrap around" material, and similar functions will be paid by the Venture. In
the event PEGI expands its own funds for such services, such costs will be
"rebilled" to the Venture, with the Venture to reimburse PEGI within 30 days.
All costs shall be rebilled "at costs" with no markup by PEGI. A
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
19
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Cisneros Affiliate will provide dubbing/subtitle services on the terms set forth
in Section 6.2, payable within 30 days. The Business Plan will attempt to
identify the type and magnitude of these costs, with operating changes to be
made as needed via subsequent Annual Budgets.
13.4 The Venture will obtain office facilities/computer and
telecommunications infrastructure/other support services as needed. Such
facilities and/or services will be provided by a Cisneros Affiliate, and the
Venture will pay the actual or a reasonable allocation of costs of such
facilities and/or services, including a reasonable allocation of the overhead
associated therewith.
14. Venture Ownership, Capitalization and Governance
------------------------------------------------
14.1 Formation of Venture. The Venture will be organized as a limited
--------------------
liability company under the laws of the State of California. The parties intend
that the terms of the limited liability company be sufficient to qualify to be
taxed as if the Venture were a partnership. Consequently, the Venture will have
limited transferability of interests (as described below) and a limited life
(terminating on the 50th anniversary of its organization).
14.2 Ownership Provisions.
--------------------
14.2.1 The Venture will initially be owned 81% by Bloomfield and 19%
by PEGI.
14.2.2 PEGI has the right to increase its percentage interest, but
Bloomfield can never be diluted below 50.1%. PEGI can buy its additional
percentage interests from Bloomfield once per fiscal year, in minimum increments
of 5%. Until the sooner of cash break even or the end of 5 fiscal years, PEGI
can buy additional percentage interests from Bloomfield at the founders' price;
after fiscal year 5 or break even, PEGI's buy-in price will be a pro rata
portion of the going concern value of the Venture, to be mutually-agreed by the
parties or determined by a mutually agreed third-party expert. PEGI's buy-in
cannot be "paid" with deferred license fees.
14.2.3 Restrictions on Transfers of Interests. No member of the
--------------------------------------
Venture may transfer ownership interests to affiliates or any third party
without the consent of all the other members, provided, however, that
Confidential Shelf 16 Limited, a corporation organized under the laws of England
("Flextech"), may obtain an equity interest in the Venture and be admitted as a
member on the terms set forth below.
14.2.4 Flextech Buy-In. On or before the 105th day following the date
---------------
this Agreement is executed by the parties hereto, Flextech may purchase a 10%
equity interest in the Venture from Bloomfield at the founders' price. If
Flextech exercises such option, PEGI's maximum interest in the Venture will be
decreased from 49.9% to 39.9%
20
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14.2.5 Subject to the limitations set forth in this paragraph, and
provided that Flextech has purchased the 10% equity interest in the Venture
described in Section 14.2.4, at any time after July 1, 1996 either Bloomfield or
PEGI may sell to Flextech additional percentage interests in the Venture at a
price to be mutually-agreed between the selling party and Flextech. At any time
while PEGI's buy-in price pursuant to Section 4.2.2 above is the founders'
price, PEGI will have the right to preempt any proposed sale by Bloomfield to
Flextech by purchasing such interest from Bloomfield at the lower of the price
offered by Flextech and the founders' price. PEGI will have 60 days from written
notice from Bloomfield confirming the amount of the interest to be sold, the
terms of such sale, and Flextech's binding commitment to purchase such interest
in the event PEGI does not exercise its preemptive option. Subject to the rights
of PEGI set forth in the preceding two sentences, if any member of the Venture
(the "Selling Party") wishes to sell interests (the "Offered Interest") to any
other member, the third member (the "Non-Selling Party") may "tag-along" in such
sale on the same terms as negotiated by the Selling Party, with each having the
right to sell its pro rata share of the Offered Interest. Notwithstanding
anything to the contrary set forth herein, (i) without PEGI's approval,
Bloomfield cannot sell Flextech any interest that would have the effect of
transferring control of the Venture to Flextech and (ii) without Bloomfield's
and PEGI's approval, PEGI's interest in the Venture cannot fall below 19%.
14.2.5.1 For example, if PEGI wishes to sell a 10% interest in
the Venture to Flextech for $30 at a time when Bloomfield owns 60% of the
Venture, PEGI owns 30% and Flextech owns 10%, then if Bloomfield exercises its
tag-along right, PEGI may sell 3.33% (10% x 30/90) for $10 and Bloomfield may
sell 6.66% (10% x 60/90) for $20.
14.2.6 In connection with Flextech's possible buy-in and participation
in the Venture, PEGI and Bloomfield agree that (i) no information or material
available to the Venture which constitutes confidential or proprietary
information of GLA or DirecTV will be provided or disseminated to Flextech, and
(ii) each will use its best efforts to protect the confidentiality of such
information or material. The foregoing restrictions will be disclosed to
Flextech prior to any acquisition by Flextech of an interest in the Venture.
14.3 Capitalization.
--------------
14.3.1 The initial capital contribution of Bloomfield will be
$1,128,000 and the initial capital contribution of PEGI will be $265,000 (the
anticipated capital requirements of the Venture for the first two fiscal
quarters). Bloomfield shall fund its initial capital contribution in cash.
PEGI's initial capital contribution can be in the form of cash or paid from the
cash portion of the license fees payable pursuant to Section 10; this decision
must be made at the formation of the LLC.
14.3.2 If necessary to cover the deficits of the Venture, each member
shall contribute additional capital pro rata in accordance with their respective
percentage interests,
21
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with such capital calls subject to the aggregate maximum of the highest deficit
shown in the Business Plan. The Operating Agreement will include an estimated
schedule of such additional capital calls, which are expected to occur quarterly
at the beginning of the respective quarter, commencing with the third fiscal
quarter. PEGI will have the right to fund its portion of such additional capital
requirements through non-payment of the Program License Fees and Trademark
Royalties, to the extent sufficient to cover such requirements. If any member
fails to make such additional capital contributions, the other members may loan
the Venture the amount of the shortfall, which loan will bear interest and will
be paid out of any distribution or payment otherwise owing from the Venture to
the defaulting member. The parties will negotiate other appropriate terms
regarding required capital contributions to be included in the Operating
Agreement, including but not limited to additional remedies regarding defaulting
members (e.g., the purchase of interest of any member that fails on multiple
occasions to make required captial contributions).
14.4 Governance Provisions
---------------------
14.4.1 The general management of the Venture will be delegated to a
General Manager to be mutually approved by the Venturers. The General Manager
will report to and be subject to the direction of a Management committee
comprised of three representatives of each of Bloomfield and PEGI. If Flextech
purchases an interest in the Venture pursuant to Section 14.2, the Management
Committee will be increased to include on representative of Flextech.
Notwithstanding the number of representatives a member has on the Management
Committee, such representatives will collectively vote the percentage interest
the member holds in the Venture and will collectively exercise each member's
approval rights.
14.4.2 The Operating Agreement will include appropriate minority
protections, including, but not limited, to provisions requiring the appoval of
PEGI prior to the Venture taking any of the following actions: (i) any amendment
to the Superseding Agreements, (ii) any merger or other reorganization of the
Venture, (iii) the issuance of additional interests in the Venture, (iv) any
distribution by the Venture with respect to the interests therin other than
distributions of excess cash (including, but not limited to, any distribution of
non-cash assets), (v) the Venture taking actions that are inconsistent with an
approved Business Plan or Annual Budget, or which are otherwise outside the
ordinary course of business, including but not limited to the incurrence of
indebtness in excess of the levels comtemplated by the applicable Business Plan
or Annual Budget, (vi) the Venture entering into any business activities except
as contemplated herein, (vii) loans by the Venture to any member, (viii) any
transaction with an affiliate of any member (other than the Superseding
Agreements), or (ix) except as expressly provided herein, the termination,
dissolution or liquidation or the Venture.
14.4.3 It is the parties intent that the structure of the Venture as a
limited liability company will limit the liability of the members for
liabilities of the Venture to their respective interests in the Venture.
However, if either Bloomfield or PEGI becomes
22
<PAGE>
directly liable for any liability of the Venture resulting from an action of the
other Venturer taken without the approval (on the terms provided herein) of such
Venturer, then the Venturer taking such action will indemnify and hold the
Venturer suffering such liability harmless from and against any liability
arising from such action (subject to the exclusion for PEGI's responsibility
for local laws regarding censorship as set forth in Section 19).
14.4.4 Each member of the Venture will have the right to examine the
books and records of the Venture, and will have the annual right to audit or
cause an audit of the books and records of the Venture upon not less than 10
business days prior notice. The Management Co. under the supervision of the
General Manager will prepare regular periodic financial statements and annual
financial statements to be prepared in accordance with GAAP. At the request of
any member, the annual financial statements will be audited by a nationally
recognized accounting firm.
15. Distribution of Profits The Venture will make distributions of operating
-----------------------
profits on a quarterly basis to each partner, in proportion to its percentage
interests at the end of that quarter. The Venture will not withhold
distributions except as necessary to provide for the reasonable conduct of the
Venture's Business as detailed in the Business Plan (as modified by the Approved
Budget for a given fiscal year).
16. Advertising It is the intention of the parties that the Venture secure
-----------
cross-channel promotional advertising with the other channels carried by GLA. If
GLA is unable or unwilling to facilitate such promotional advertising, the
Venture will seek promotional advertising directly from the owners of such
channels. Except as set forth above, the Venture shall determine whether and
when to sell advertising time to third-parties. If the Venture decides to carry
advertising, the Services will at all times abide by the following advertising
standards:
16.1 Categories that are not acceptable for advertising are firearms (or
advertisements from any gun lobby organization) and other weapons; explosives or
fireworks; massage parlors; telephone sex lines; sex clubs; sexually explicit
audio visual products (e.g., X-rated or similar "hardcore" videos); sex toys;
materials depicting graphic sexual conduct, violence, sadism, sadomasochism,
bondage, incest, bestiality or child pornography; classified advertising;
advertising for psychics or similar services; religious organizations and/or
cults.
16.2 The Venture will not accept advertisements for magazines which compete
with any edition of the "Playboy" magazine or for any other publication or
audio-visual products published, produced or distributed by any person who is
engaged in the publication and distribution of any magazine which competes with
any edition of the "Playboy" magazine.
16.3 Once advertising commences on a Service (other than cross-channel
promotional advertising), if the Venture decides to offer free or discounted
advertising time
23
<PAGE>
to either Venturer (whether for products bearing trademarks owned or licensed by
such Venturer or by affiliates of such Venturer), the Venture will offer such
advertising time to each Venturer equally and such advertising time will not, in
the aggregate, exceed 5% of the total advertising time on such Service.
17. Non-Competition and Exclusivity
-------------------------------
17.1 Neither of the parties nor their affiliates will hold an ownership
position of any kind in any competing primarily adult-oriented television
service (excluding a Cisneros Affiliates' interest in GLA) or (except as
permitted herein) distribute adult oriented programming to Non-Standard
Television in the Territory without the express written permission of the other.
Further, neither of the parties nor their affiliates will distribute
adult-oriented programming in any media that is "branded" programming of the
publisher of a magazine or other publication that competes with any edition of
the "Playboy" Magazine. The ownership or distribution of R-rated feature film
product for major studios does not represent ownership or distribution of
"adult-oriented" programming for the purposes of this provision. Notwithstanding
the foregoing, a Cisneros Affiliate's distribution in Venezuela pay cable to the
extent currently conducted (i.e., restricted to the current territory, number of
hours type of programming, etc. ) will not constitute a breach of this Section
17.1.
17.2 Subject to Section 5.2.3, the parties agree that GLA will be exclusive
DTH platform for the PTVLA Service through and including June 15, 1999 (the
"Exclusive Period"). GLA will be the exclusive DTH platform for the ATV for a
period of 5 years commencing on the date that ATV is first distributed via GLA
to subscribers.
17.3 In negotiating a carriage agreement with GLA, the Venture will
endeavor to obtain GLA's agreement that PTVLA and ATV will be the only primarily
adult-oriented services carried by GLA during the Exclusive Period. The parties
acknowledge, however, that Bloomfield cannot guarantee that the Venture will be
the exclusive provider of adult-oriented programming to GLA.
18. Mutivision The parties agree that the Venture will negotiate with the
----------
Multivision, a cable and DTH operator in Mexico, regarding the granting of
suitable performance-based incentives for the distribution of the Services in
Mexico via systems owned or controlled by Multivision. Any such agreement will
require the approval of both PEGI and Bloomfield.
19. Censorship
----------
The Venture is willing to accept and pay for programs supplied by PEGI for
the Services regardless of consorship regulations or the potential for same
throughout the Territory or in any individual country or politial subdivision
within the Territory. The Venture will be obliged either to edit the programming
as supplied by PEGI (subject to PEGI's approval) or blackout the territory(ies)
where the censorship problem occurs, with all
24
<PAGE>
costs of editing and/or blackout to be borne by the Venture; provided that the
Venture will make good faith efforts to obtain waivers of such restrictions or
will permit PEGI to make such efforts on behalf of the Venture.
20. Guaranty: Non-Disclosure
------------------------
20.1 A Cisneros Affiliate reasonably acceptable to PEGI will provide a
guaranty in favor of PEGI and PEI guarantying the Cisneros Affiliates'
obligations hereunder and under the Superseding Agreements (including but not
limited to any claims for which PEGI is entitled to satisfaction pursuant to the
dispute resolution provision set forth in Section 21 below). Such guaranty will
be irrevocable and will include financial assurances with respect to the
Cisneros Affiliates (including, if necessary, the infusion of additional
capital). The parties specifically agree that the bankruptcy, insolvency or
other similar financial condition of the Cisneros Affiliates will not in any
event form a defense to any claim by PEGI or PEI under the Guaranty.
20.2 The parties acknowledge that it is Cisneros Groups's intention to hold
its ownership interest in the Venture through an entity which will not be
publicly known to be a Cisneros Affiliate. PEGI will not publicize to
third-parties the participation of the Cisneros family in the Venture, without
Bloomfield's express approval, unless and only to the extent that such
disclosure is required by applicable law or to enforce the provisions of this
Agreement. If such disclosure is so required, PEGI will, to the extent
reasonably feasible, notify Bloomfield in advance of such disclosure and
cooperate with Bloomfield in seeking a protective order or other appropriate
protections. Prior to any investment in the Venture, Flextech will be required
to acknowledge and agree to be similarly bound by the foregoing.
21. Dispute Resolution
------------------
21.1 Any dispute arising out of or relating to this Agreement shall be
resolved in accordance with the procedures specified in this Section 21, which
shall be the sole and exclusive procedures for the resolution of any such
disputes. The parties intend to include substantially similar provisions in the
Superseding Documents so that the following provisions will continue to govern
dispute resolution with respect to the Venture and the Venturers. The parties
intend that these provisions shall be valid, binding, enforceable and
irrevocable and shall survive any termination of this Agreement or the
Superseding Agreements.
21.2 The parties shall promptly notify each other in writing of any dispute
arising out of or relating to this Agreement. The parties shall attempt in good
faith to resolve any dispute arising out of or relating to this Agreement
promptly by negotiation between executives who have authority to settle the
controversy. All reasonable requests for information made by one party to the
other will be honored. All negotiations pursuant to this
25
<PAGE>
clause are confidential and shall be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.
21.3 If any such dispute remains unresolved within 30 days of original
notice thereof, the parties shall endeavor to resolve any dispute arising out of
or relating to this agreement by mediation under the CPR Mediation Procedure for
Business Disputes. Unless the parties agree otherwise, the mediator will be
selected from the CPR Panel of Neutrals with notification to CPR.
21.4 Any controversy or claim arising out of or relating to this
contract or the breach, termination or validity thereof, which remains
unresolved 45 days after appointment of a mediator, shall be settled by
arbitration by a sole arbitrator in accordance with the CPR Non-Administered
Arbitration Rules; provided, however, that if either party will not participate
in a non-binding procedure described above, the other may initiate binding
arbitration before expiration of the above period. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C.(S)1-16, and judgment
upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of arbitration shall be Los Angeles, California.
21.5 Except as expressly provided below, the arbitrator is not
empowered to award damages in excess of compensatory damages and each party
hereby irrevocably waives any right to recover such damages with respect to any
dispute resolved by arbitration. The arbitrator shall have the authority to
include, as an item of damages, the costs of arbitration, including legal fees
and expenses, incurred by the prevailing party and to apportion such costs among
the parties on a claim by claim basis as such party prevails thereon. For
purposes of the foregoing, the "prevailing party" shall mean the party whose
final settlement offer (or other position or monetary claim) prior to the start
of arbitration is closest to the judgement awarded by the arbitrator, regardless
of whether such judgement is entered into in favor of or against such party.
21.6 The statute of limitations of the State of California applicable to
the commencement of a lawsuit shall apply to the commencement of an arbitration
hereunder, except that no defenses shall be available based upon the passage of
time during any negotiation or mediation called for by the preceding paragraphs
of this Section 21.
21.7 All negotiations pursuant to Sections 21.2 and 22.3 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.
21.8 Each party agrees that service by registered or certified mail,
return receipt requested, delivered to such party at the address provided in
Section 22.8 (Notices) below, will be deemed in every respect effective service
of process upon such person for all purposes of these provisions relating to
mediation and arbitration. Each party irrevocably
26
<PAGE>
submits to the jurisdiction of the courts of the State of California and to any
federal court located within such state for the purpose of any action or
judgement with respect to this Agreement, regardless of where any alleged breach
or other action, omission, fact or occurrence giving rise thereto occurred. Each
party hereby irrevocably waives any claim that any action or proceeding brought
in California has been brought in any inconvenient forum.
21.9 The parties will negotiate in good faith and agree on such further or
modified arbitration provisions as are reasonably necessary for awards and other
judgements resulting from the provisions set forth above to be recognized and
enforceable in the respective jurisdictions of organization of PEGI and the
Cisneros Affiliates and, to the extent necessary, in other jurisdictions in the
Territory.
22. Miscellaneous
-------------
22.1 Currency; Payments
------------------
Except where otherwise expressly provided to the contrary in the
Superseding Agreements:
22.1.1 All amounts due from either party to the other or from the
Venture to a Venturer pursuant to this Agreement shall be paid in U.S. Dollars.
If any portion of such payment is calculated on the basis of revenues received
in other currencies, such revenues shall be calculated using the exchange rate
published in the Wall Street Journal or, with respect to Mexico, Brazil,
Argentina and Venezuela, as quoted by the Central Bank of such country, as of
the business day immediately preceding the date on which the payment initially
is due. Such exchange rate shall also apply to any portion of a payment which is
permitted to be deferred, regardless of whether such deferred payment is
represented by a promissory note or other instrument.
22.1.2 All payments owing pursuant to this Agreement will be made by
wire transfer of immediately available funds, net of any withholding required by
applicable law. Each party will from time to time designate one or more accounts
into which such payments will be made and may designate one or more affiliates
to receive such payments.
22.1.3 Any payment hereunder not made when due will bear interest from
the date due to and including the date of payment in full at a rate equal to the
reference rate of the Bank of America for domestic customers as in effect on the
date payment was due.
22.1.4 The parties agree that if any payment owing by it or any of its
affiliates is precluded or limited by a restriction imposed by jurisdiction of
organization or operation of the payor or the jurisdiction where the payor's
funds are deposited, then an affiliate of such payor not subject to such
restriction shall make the required payment.
27
<PAGE>
22.2 Governing Law. This Agreement has been negotiated and entered into in
-------------
the State of California and all questions with respect to the Agreement and the
relationships of the parties hereunder will be governed by the internal laws of
the State of California, regardless of the choice of law principles of
California or any other jurisdiction.
22.3 Authority. Each party represents that (i) it has full power and
---------
authority to enter into and perform this Agreement, (ii) this Agreement is the
valid and binding obligation of such party, enforceable against it in accordance
with its terms, and (iii) the performance by such party of its obligations under
this Agreement does not violate any law, rule or regulation binding on such
party or such party's charter documents.
22.4 Assignment: No Third Party Beneficiary. No party shall assign its
--------------------------------------
rights or delegate its obligations hereunder without written consent of the
other party except to an affiliate of such party; provided that no such
assignment shall relieve the assignor of its obligations. The provisions of this
Agreement are for the benefit only of the parties, and no third party may seek
to enforce or benefit from these provisions.
22.5 Agreement Negotiated. The parties hereto are sophisticated and have
--------------------
been represented by lawyers throughout the negotiation and execution of this
Agreement who have carefully negotiated the provisions hereof. As a consequence,
the parties do not believe the presumption of California Civil Code Section 1654
and similar laws or rules relating to the interpretation of contracts against
the drafter of any particular clause should be applied in this case and
therefore waive its effects.
22.6 Waivers, Remedies, Cumulative, Amendments, etc.
-----------------------------------------------
22.6.1 No failure or delay by any of the parties hereto in exercising
any right, power or privilege under this Agreement shall operated as a waiver
thereof nor shall any single or partial exercise by any of the parties hereto of
any right, power or privilege precluding any further exercise thereof or the
exercise of any other right, power or privilege.
22.6.2 The rights and remedies herein provided are cumulative and not
exclusive of any rights and remedies provided by law.
22.6.3 No provision of this Agreement may be amended, modified,
waived, discharged or terminated, other than by the express written agreement of
the parties hereto nor may any breach of any provision of this Agreement be
waived or discharged except with the express written consent of the party not in
breach.
22.7 Notices. All notices, requests, demands and other communications
-------
required to be given under this Agreement shall be in writing and shall
conclusively deemed to have been duly given (a) when hand delivered to the other
party, (b) the next business day if sent
28
<PAGE>
by a generally recognized overnight courier services that provides written
acknowledgement by the addressee of receipt, or (c) when received, if sent by
facsimile or other generally accepted means of electronic transmission.
if to PEGI to:
-------------
Playboy Entertainment Group, Inc.
Attention: President
9242 Beverly Boulevard
Beverly Hills, CA 90210
United States of America
Fax number: (310) 246-4065
with a copy to:
Playboy Enterprises, Inc.
Attention: General Counsel
680 North Lake Shore Drive
Chicago, IL 60611
United States of America
Fax number: (312) 266-2042
if to Bloomfield to:
-------------------
Bloomfield Mercantile Inc.
c/o Glenn Dryfoos, Esq.
Greenberg Glusker Fields Claman
& Machtinger LLP
1900 Avenue of the Stars
Suite 2200
Los Angeles, CA 90067
United States of America
Fax Number: (310) 553-0687
or to such other address, or facsimile transmission number as the relevant
addressee may hereafter by notice hereunder substitute.
22.8 Confidentiality.
---------------
22.8.1 Each Venturer and its respective affiliates shall maintain
the confidentiality of all information of a confidential or proprietary nature
which it may have or
29
<PAGE>
acquire regarding the customers, business, finances, assets or affairs of the
Venture or the other Venturer and its affiliates except for (a) any information
which is generally available to the public or becomes generally available to the
public other than through disclosure in violation of this provision or (b) which
is required to be disclosed by applicable law or to enforce the provisions of
this Agreement.
22.8.2 In recognition of each party's understanding that the
other may in the future invite third parties to participate as equity or
non-equity investors or other providers of finance in or to such party or its
respective affiliates, the parties agree that each may provide to such entities
copies of the Operating Agreement, Program License Agreement, Trademark License
Agreement and other agreements governing the Venture, the Business Plan,
financial statements and other financial information provided by the Venture to
its members, and such other information as would be reasonable in the
circumstances for a potential investor to require. Notwithstanding the
foregoing, no such information will be provided until a confidentiality
agreement for the benefit of the Venture, the Venturers and their respective
affiliates has been signed by such potential investor.
22.8.3 In recognition of the fact that PEGI is a subsidiary of a
publicly held company, the parties agree that PEGI may provide to institutional
investors and analysts such information concerning the Venturer as in
conventional to assist such investors in deciding whether to invest or such
analysts to prepare their reports; provided, that no information may be
disclosed without the prior consent of the Venture that would reasonably be
expected to cause harm to the Venture, including with respect to its competitive
position.
22.8.4 Notwithstanding Section 22.8.2 and 22.8.3 to the
contrary, neither the Venture nor the parties may disclose any proprietary
information of GLA that would violate the terms of the GLA carriage agreement
(which is expected to include customary confidentiality provisions) without
obtaining GLA's approval thereof. Bloomfield and Management Co. agree to use
their best efforts to obtain such approval upon request by PEGI.
22.9 Public Announcements. Unless otherwise agreed by the parties or as
--------------------
required by law or by the stock exchange on which PEI's stock is traded, no
public announcement
30
<PAGE>
will be made by either party or any of their respective affiliates with respect
to the subject matter of this Agreement.
AGREED AND ACCEPTED:
-------------------
PLAYBOY ENTERTAINMENT BLOOMFIELD MERCANTILE INC.
GROUP, INC.
By:/s/ Anthony J. Lynn By: /s/ Maria Batista de Upegui
---------------------- ----------------------------
Name: Anthony J. Lynn Name: Maria Batista de Upegui
Title: President Title: President
31
<PAGE>
EXHIBIT "A"
DEFINED TERMS
The following terms are defined in the indicated Sections of the text of the
within Agreement:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Adjusted Gross Revenue 11.1
AdulTVision Homes 4.2.3.2
Agreement 1.1
Annual Budget 3.2
ATV 1.1
ATV Guaranteed Program License Fee 10.1.2
Bloomfield 1.1
Business Plan 3.1
Cisneros Affiliates 1.1
Exclusive Period 17.2
Flextech 14.2.3
GLA 5.2.3
Home Video 8.1
License Term 8.1
Management Co. 2.5
movie 9.3
New Programming 9.2
Non-Selling Party 14.4.2
Non-Standard Television 7.1
Offered Interest 14.4.2
Operating Agreement 2.1
Optionee 9.5
Option Program 9.4
PEGI 1.1
PEI 2.3
Playboy Homes 4.2.3.2
Playboy Programming 12.3.1
Program License Fees 10.1
PTVLA 1.1
PTVLA Guaranteed Minimum Program License Fee 10.1.1
Remedial Actions 5.2.3.1
revenue 4.2.2
Selling Party 14.4.2
Services 1.1
Spanish Cable Homes 4.3.2.1
</TABLE>
EXHIBIT A-1
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Superseding Agreements 2
Territory 4.1
Trademark License Agreement 2.3
Trademark Royalty 11.1
U.S. Rights 4.2
Venture 1.1
Venture Acquired Programming 12.3.1
Venture-produced Programming or Venture-produced Program 12.1
Ventures 2.1
Veto Option 10.2.1.2
Window 8.1
</TABLE>
The following additional terms shall have the meanings set forth below:
"affiliate" means any person controlled, controlling or under common
control with the specified person.
"control" (and controlled and controlling, respectively) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of the relevent person (whether by the holding of
shares, the possession of voting rights or otherwise).
"person" means any individual, corporation, partnership, limited liability
company, trust, association or other legal entity.
EXHIBIT A-2
<PAGE>
EXHIBIT "B"
STANDARD TERMS AND CONDITIONS OF PAY TELEVISION
LICENSE AGREEMENT
1. LICENSE: Subject to the payment of the License Fee and the due
-------
performance by Licensee of the obligations hereunder, Licensor grants and
Licensee accepts a limited license of rights under copyright of each of the
Programs during the periods set forth in Schedule "A" attached hereto by means
of direct broadcast satellite pay television, satellite television and pay cable
television. This license does not grant any right to Licensee to transmit or
authorize others to transmit exhibitions of the Programs over so-called
subscription and/or theatre television rights, i.e., the right to exhibit the
Programs for reception by those paying a fee therefor or in places where an
admission fee is charged. The license does not grant any right to the Licensee
to transmit or to authorize others to transmit exhibitions of the Programs by
means of free broadcast television.
2. DELIVERY AND RETURN: Licensor shall deliver to Licensee one tape of
-------------------
each Program on the dates specified in Schedule "A". Delivery to Licensee at the
address set forth in Schedule "A" shall be deemed delivery hereunder. All costs
of delivery and return of tapes and all risks of loss in transit or while in
Licensee's possession or control shall be borne by Licensee. At all times after
receipt of tapes, Licensee shall keep the tapes in Licensee's exclusive
possession and control until retuned or erased as hereafter provided. Licensee
will not make or authorize others to make copies of the Programs other than the
minimum number of copies necessary to exhibit the Programs. Licensee shall
furnish an affidavit with respect to any lost, stolen or destroyed tapes. All
tapes and parts or replacements thereof shall remain the property of Licensor at
all times. Licensee shall promptly examine each tape and shall give Licensor
immediate written notice if said tape is not physically suitable for telecast
other than the need to dub the tapes into the Spanish and/or Portuguese
language(s). The tape or tapes shall be deemed acceptable unless Licensor is
notified a minimum of ten (10) days prior to any scheduled broadcast that a tape
is defective. At its option, Licensor may furnish another tape of said Program,
or a suitable tape or another program in the series, or grant Licensee a
proportionate credit in the license fees but Licensor shall have no other
obligation or liability whatsoever. Original undubbed Licensor-supplied tapes
and reels of each Program shall be either the subject of a certificate of
erasure delivered to Licensor within sixty (60) days of receipt by Licenses or
returned to Licensor at Licensee's expense (including customs fees) in the same
condition as received, normal wear and tear excepted, either directly to
Licensor or to such address as Licensor may designate. Licensee shall within
sixty (60) days after the date of the last scheduled telecast of each Program,
deliver to Licensor a certificate of erasure concerning all retained copies of
Program tapes of all dubbed sound tracks, subtitled or subtitling material, and
all optical and/or magnetic sound tracks and/or tapes of Programs containing
optical and/or magnetic sound tracks, which were manufactured by or at the
instance of Licensee, whether or not any of said sound tracks, materials or
tapes were actually utilized by Licensee in connection with the exercise of
rights granted to Licensee hereunder. It is expressly agreed that title in and
to any such material provided to Licensee hereunder shall remain in Licensor,
and that title in and to any such material created by, for or at the instance of
Licensee and all rights including copyrights therein shall vest in Licensor upon
the creation thereof, subject only to possession and control thereof by Licensee
during the terms of this license solely for the purpose of exercise of the
rights granted herein. Licensee will execute, acknowledge and deliver to
Licensor any instruments of transfer, conveyance or assignment in or to any such
material necessary or desirable to evidence or effectuate Licensor's ownership
thereof and in the event that Licensee fails or refuses to execute, acknowledge
or deliver any such instrument or documents then Licensor shall be deemed to be
and Licensee hereby nominates, constitutes and appoints Licensor its true and
lawful attorney-in-fact
<PAGE>
irrevocably to execute and deliver all such instruments in Licensee's name or
otherwise, it being acknowledged that such power is a power coupled with an
interest. Anything herein to the contrary notwithstanding, Licensee shall not
have the right to use any dubbed sound tracks, sub-titled materials, optical
sound tracks, or tapes made therefor except in the exercise of the rights
granted to Licensee hereunder and in accordance with all limitations on said
rights as are contained in this Agreement. It is distinctly understood and
agreed that all payments, fees, royalties, residual payments and the like shall
be the sole obligation of Licensee with respect to the production of and use of
any and all dubbed magnetic sound tracks, sub-titled materials, and all optical
sound tracks and tapes of Programs containing optical sound tracks made by, for
or at the instance of the Licensee and Licensee hereby indemnifies Licensor with
respect thereto.
3. CREDITS AND ALTERATION OF TAPES: Licensee may make only such cuts or
--------------------------------
deletions as are necessary to make the Programs conform to the orders of any
duly authorized public censorship authority, its time segment requirements and
its continuity acceptance standards and may add commercial matter provided it is
made clear to the television viewers that such commercial matter is not part of
the continuity of the Programs. Additionally, once the editing is completed,
such edited version shall be supplied to Licensor for its prior-to-broadcast
approval (such approval not to be unreasonably delayed or withheld). Licensee
will not delete the copyright notice and/or credits incorporated in the Programs
as delivered by Licensor. Licensee shall replace such cuts and alterations and
delete such commercial matter so that the tapes are returned in the same
condition as received, normal wear and tear excepted. Licensee will not and will
not authorize others to copy, duplicate or sub-license any tape nor part with
possession thereof.
4. PAYMENT: Licensee shall pay Licensor the license fees stipulated in
--------
Schedule "A" at the times and in the manner therein specified. Said license fees
shall be due and payable whether or not any one or more of the Programs is
actually telecast. Any payment not made within thirty (30) days of its due date
shall bear legal interest not to exceed 12% per annum but in no event more than
the maximum legal rate from the due date until paid. Acceptance of any payment
after its due date shall constitute a waiver by Licensor of any of its rights
except as to such payment. All payments shall be made only in United States
dollars by wire transfer of immediately available federal funds to LaSalle
National Bank, 120 South LaSalle Street, Chicago, IL 60603, ABA #071000505
(Playboy Entertainment Group, Inc.), A/C No. 22-9214-8.
5. SUBSTITUTION OF PROGRAMS: CERTIFICATE OF PERFORMANCE:
-----------------------------------------------------
a. Licensor may, in its absolute discretion, withdraw any licensed
Program if Licensor determines that the telecasting thereof would or might (i)
infringe upon the rights of others; (ii) violate the law, court order,
government regulation or other ruling of any governmental agency; (iii)
interfere with the actual or contemplated use of the licensed Program or the
material or rights contained therein for any purpose other than the telecasting
of the Program in Licensee's basic area; or (iv) subject Licensor to any
liability.
b. If Licensor elects to withdraw any Program as set forth in the
preceding sub-paragraph (a) of this Paragraph 6, before its initial telecast.
Licensee shall have the right, in its sole discretion to require Licensor either
to deliver another Program of comparable quality (which Program shall be deemed
to replace the Program withdrawn). Should Licensor's decision to withdraw be
made, any transportation and dubbing costs incurred and paid by Licensee in
regard to the withdrawn Program shall be refunded by Licensor immediately upon
Licensee's presentation of reasonable evidence of such
B-2
<PAGE>
expenditures.
c. If a tape of any withdrawn Program has bee shipped to Licensee.
Licensee will promptly return it to Licensor.
6. WARRANTY AND INDEMNITY: Licensor MAKES NO REPRESENTATIONS. WARRANTIES OR
----------------------
INDEMNITIES, EXPRESS OR IMPLIED EXCEPT AS SPECIFICALLY SET FORTH IN THIS
PARAGRAPH:
a. Subject to Paragraph 18. hereof, Licensor agrees to indemnify and save
Licensee harmless from the amounts of any damages (except loss of profits and
consequential damages, if any) awarded in any final judgement entered against it
together with reasonable costs and expenses of litigation and reasonable counsel
fees of Licensee incurred in connection therewith by reason of any claim which
may be made alleging that any of the Programs infringe upon the copyright,
literary or dramatic right or right of privacy of any claimant or constitutes a
libel or slander of such person, except with respect to any material added by
Licensee and except with respect to music which is specifically covered by
Paragraph 8 below.
b. Licensee shall indemnify and hold Licensor, its officers and directors
harmless from any and all claims, damages, liabilities, reasonable costs and
expenses of litigation, including reasonable counsel fees, arising directly or
indirectly from the breach of any provisions of this Agreement by Licensee from
the broadcasting of any material other than material contained in the Programs
as delivered by Licensor, in connection with, or relating directly or indirectly
to, said Programs.
7. ADDITIONAL WARRANTIES: Licensor warrants and represents that to the best
---------------------
of its knowledge, information and belief, the performing right in all musical
compositions contained in the Program are controlled by (a) a performing rights
society having jurisdiction; or (b) Licensor, or (c) in the public domain.
Licensor does not represent or warrant that Licensee may exercise the performing
rights to said musical compositions without the payment of a performing rights
royalty or license fee. If Licensee is required to pay a performing rights
royalty or license fee, Licensee shall be solely responsible for the payment of
such royalty of fee and shall hold Licensor free and harmless therefrom.
8. FORCE MAJEURE: Neither party shall be liable to the other for any failure
-------------
or delay in delivery of tapes, or the inability to telecast any of the Programs,
due to labor disputes, act of God, failure of carriers, failure of delay of
laboratories, or for any other cause beyond the control of the parties and such
performances shall be excused to the extent that it is prevented by reason of
any of the foregoing conditions. If at the end of the term the Licensor in good
faith determines that any act of force majeure materially decreased the value
of this license, Licensor in Licensor's sole discretion to be exercised in good
faith may make an adjustment of said license payments. In no event shall any
governmental action taken which deems the content of any Program to be
unacceptable constitute an event of force majeure.
9. DEFAULT AND TERMINATION: If Licensee defaults in the payment of any
-----------------------
installment of the license fee, or if Licensee defaults in the performance of
any of the other obligations hereunder and such default shall not be cured
within ten (10) days after written notice thereof to Licensee, or if Licensee
(which petition, if filed against Licensee, shall not have been dismissed within
thirty (30) days thereafter), or if Licensee executed an assignment for the
benefit of creditors, or if a receiver is
B-3
<PAGE>
appointed for the assets of Licensee, or if Licensee takes advantage of any
applicable insolvency or any other like statute, or if Licensor notifies
Licensee that it in good faith has reasonable doubts that Licensee can or will
continue to perform hereunder, and Licensee fails to give adequate financial
security and assurances within fifteen (15) days off mailing of said notice (any
of the above acts is hereinafter called "event of default"), then Licensor may,
in addition to any and all other rights which it may have against Licensee,
terminate this Agreement and any other agreements between the parties then in
existence by giving written notice to Licensee at any time after the occurence
of such event of default. Whether or not Licensor exercises such right of
termination, Licensor shall upon the occurrence of such event of default have no
further obligation to deliver tapes of Programs hereunder and shall be entitled
to immediate return of all tapes theretofore delivered to and in possession of
Licensee. Upon termination, Licensor may recover from Licensee the entire unpaid
license fee, plus interest at 12% per annum on that portion of the license fee
which was delinquent prior to the termination, and any consequential damages.
Licensee acknowledges that the terms hereof and the industry custom of licensing
Programs substantially in advance of the scheduled telecast dates, have the
effect of rendering the Programs hereunder unremarkable in the area covered by
the Licensee during any period which includes the period of this license or any
part thereof. Licensee also acknowledges that, by reason of the foregoing, no
method exists for accurate measurement of damages for any breach of Licensee's
agreement to pay Licensor as provided in this Agreement. It is therefore agreed
that, in addition to all other remedies available at law, in equity, or under
other provisions of this Agreement, Licensor shall be entitled (upon breach by
Licensee of such agreement to pay Licensor) to recover from licensee, as
liquidated damages, the total unpaid license fees for all telecasts authorized
hereunder, whether or not such telecasts actually occur, and in addition,
reasonable attorney's fees or collection agency fees if an attorney is retained
by Licensor at any time to enforce the provisions hereof, plus such other
amounts as may be due hereunder. The remedies provided herein are not exclusive
but are cumulative and in addition to all other remedies existing at law, in
equity, or in courts of bankruptcy. In the event that neither party commences
litigation to enforce, interpret or declare any of the terms, covenants,
conditions or obligations of this Agreement, prevailing party shall be entitled
to recover all costs, fees and expenses of or in preparation for, litigation,
appeal, review, or post-judgement or order, collection or enforcement efforts.
All parties to this Agreement agree that the court shall retain and reserve
jurisdiction in any judgement over the parties and the subject matter for
purposes of enforcing this paragraph.
10. COMPLETION OF TELECAST PRIOR TO EXPIRATION OF TERM: Anything herein
--------------------------------------------------
contained to the contrary notwithstanding, if Licensee telecasts such Program
the number of times permitted hereunder prior to the expiration of the terms set
forth in Schedule "A", this license shall for all purposes be deemed terminated
as of the date upon which the last permitted telecast occurs and any then
remaining unpaid portion of the license fee will forthwith become due and
payable. Failure by the Licensee to complete the remaining number of telecasts
permitted hereunder on or before the expiration of the term of the license
granted herein shall not serve to extend the term of this Agreement of the
grant of any other right hereunder.
11. ASSIGNMENT: Except in the case of retransmission of the Programs within the
-----------
Territory and the scope of this Agreement, this Agreement and the rights and
licenses granted hereunder to the Licensee are personal to Licensee and Licensee
shall not sell, assign, mortgage, pledge or hypothecate any such rights of
licenses in whole or in part without obtaining the prior written consent of the
Licensor, nor shall any of said rights or licenses be assigned or transferred by
the Licensee to any third party by operation of law or otherwise. Any assignment
in violation of the foregoing sentence shall be null and void and without
effect. In the event Licensor consents to any such assignment by Licensee.
B-4
<PAGE>
Licensee shall nevertheless continue to remain fully and primarily responsible
and liable to the Licensor for due, full, complete and faithful performance of
all terms and conditions of this Agreement to be performed on the part of the
Licensee. Licensor may assign, transfer, pledge or hypothecate all or any part
of the license fees to be received by Licensor hereunder. Licensee agrees that
in the event of receipt of written notice of assignment by Licensor, monies due
to the Licensor shall be paid to any third party assignee in accordance with
such instruction without offset, deduction, counter-claim, or other credits
which the Licensee may have or claim to have against the Licensor. Licensor may
assign the agreement to any corporation controlling, controlled by or under
common control with Licensor or to any person, firm or corporation which may
hereafter become the Licensor of the Programs.
12. RESERVATION OF RIGHTS: All licenses, rights and interest in, to and with
---------------------
respect to the Programs and the Playboy Marks not specifically granted to
Licensee, including but not limited to all theatrical and non-theatrical rights
and all direct mail and other home video rights shall be and are specifically
and entirely reserved to Licensor and may be fully exploited and utilized by
Licensor, without regard to the extent to which any such rights may be
competitive with Licensee or the license granted hereunder.
13. TAXES: Licensee shall pay, without limitation, any tax, levy or charge
howsoever denominated, imposed or levied (excluding only any applicable net
income or franchise taxes ("Licensor Taxes") imposed or levied against Licensor)
by any statute, law, rule or regulation now in effect or hereafter enacted
including, without limitation, sales, use, property and excise or other similar
taxes, licenses, import permits, state, county, city or other taxes howsoever
denominated relating to or imposed on license fees, rentals, negatives, tapes or
other material, or the right or privilege to use the same in connection with any
Program licensed hereunder whether or not billed or demanded by Licensor, it
being the intent hereof that the license fee specified as the consideration of
the license granted herein shall be net amount, free and clear of any tax,
levy or charge of whatsoever kind or nature howsoever denominated except
Licensor Taxes. In regard to Licensor Taxes, if Licensee pays any such tax for
Licensor to local tax authorities, it may do so only if it simultaneously
delivers written evidence of such payment (in the form of tax payment
certificate or other similar document) to allow Licensor to deduct such tax
payment in America. To the extent that any such other taxes, levies or charges
or penalties and interest thereon are paid by Licensor, the Licensee shall
reimburse Licensor on demand, and on the failure of Licensee to reimburse the
Licensor, the Licensee will have available to it all of the remedies provided
for herein with respect to unpaid license fees as well as such other remedies
as may be provided by law. If Licensee denies liability for any tax, levy or
charge which Licensor must pay or collect, Licensee shall indemnify Licensor for
any liability, penalty or interest which may result and Licensor shall have the
immediately aforementioned remedies against Licensee for the collection of same.
Licensor shall have no obligation to contest or dispute any tax assessed or
levied. Licensee shall have the right to do so at its sole cost and expense.
14. INDEMNITY: Licensee will indemnify Licensor, its officers, directors and
---------
employees from all claims, liabilities and judgments together with reasonable
costs and expenses of litigation and reasonable counsel fees arising from the
breach or alleged breach of any provision of this Agreement by Licensee.
Licensee shall specifically so indemnify Licensor and such other parties from
such claims, liabilities, judgments, costs, expenses and fees made or assessed
against Licensor arising from the telecasting of any material in connection with
or relating to the Program other than material contained in any Program as
delivered by Licensor, or from the temporary or permanent loss of any such
material.
15. RECEPTION FROM OUTSIDE BROADCAST: Licensee acknowledges that broadcasts of
--------------------------------
the
B-5
<PAGE>
Programs in the Language permitted hereunder originating outside the Territory
and broadcasts in other languages originating within and without the Territory
served by Licensee may be received by television sets located within such
exclusive Territory and Licensee agrees that such reception shall not constitute
a breach of this Agreement by Licensor.
16. ADVERTISING CREDITS: Licensee will comply with all instructions furnished
--------------------
to it by Licensor or with respect to advertising credits and Licensee agrees to
and will indemnify and hold Licensor harmless from any loss, damage, cost or
expense (including reasonable attorney's fees) incurred or suffered by Licensor
by reason of the failure by the Licensee to adhere to and observe any such
credit instructions.
17. CONTINGENT ROYALTIES: In the event that any monies are paid to or become
---------------------
due to or can be claimed by Licensee in connection with any use of the subject
copyright or related materials other than as licensed hereunder, such monies
shall be received and held by Licensee in trust for Licensor.
18. REQUIREMENTS FOR LICENSOR CONTENT INDEMNITY: Notwithstanding any other
--------------------------------------------
terms herein to the contrary, Licensor's indemnification will be valid in the
event of a claim involving an allegation of violation of the laws insofar as
the content of the Programs is concerned, only in the event each of the
following conditions is met:
a. Immediate telephone contact be made with both the General Counsel's
office of Licensor in Chicago at 312-751-3000 and Licensor's Senior Vice
President, International Sales, in Beverly Hills at 310-246-4000 or other
numbers hereafter specified by Licensor. Such telephone notification should be
immediately followed with a letter containing copies of all papers that have
been served and giving complete information then available regarding the
incident.
b. Licensor shall have the right to approve Licensee's choice of counsel
and to determine in advance the terms of retention.
c. Licensor will assist in defended actions only and will not be
responsible in cases where there is any admissions of guilt by anyone charged
with violation of the law as to the content of any Program. Settlement or
dismissal of any case will not be allowed, except with Licensor's prior written
consent.
d. Actual or prospective parties involved in such prosecution shall make
no voluntary disclosure regarding support or lack thereof by Licensor under
this policy.
19. WAIVER: A waiver by either party of any breach or default by the other
------
party will not be construed as a continuing waiver of the same or any other
breach or default under this Agreement.
20. CONSTRUCTION, JURISDICTION, DISPUTE RESOLUTION: This Agreement shall be
-----------------------------------------------
deemed to have been made in California and shall be construed in all respects in
accordance with the laws of California applicable to agreements to be performed
wholly within California. Any dispute based on, arising out of or relating,
directly or indirectly, to this Agreement or its subject matter shall be
resolved by an action or proceeding filed and prosecuted in the County of Los
Angeles, State of California. Licensee hereby consents to the exclusive
jurisdiction of the courts of the State of California the United States District
Court for the Central District of California, and the Los Angeles
B-6
<PAGE>
office of the Judicial Arbitration and Mediation Service for the resolution of
such dispute. The parties acknowledge and agree that the County of Los Angeles,
State of California, is the appropriate locale for the resolution of any such
dispute and that such locale will not subject any party to unreasonable
inconvenience or hardship. The party filing or instituting the action or
proceeding may select the forum and that selection shall be binding upon the
other party. Service of any process permitted or required in any such action or
proceeding may be made by personal delivery; telex, telegraph, or facsimile
transmission; or mail at the address for the party specified in Schedule "A."
Service shall be deemed complete upon actual delivery in the case of personal
delivery, transmission in the case of telex, telegraph, or facsimile, or on
deposit in the mail enclosed in a properly addressed envelope with postage
prepaid for the most expeditious form of mail delivery available.
21. NOTICES: All notices required to be given hereunder to the Licensor shall,
--------
in the absence of specific written advice to the contrary, be telexed,
telecopied, or facsimilied to Licensor at its home office, the address of
which is set forth in Schedule "A", or as such other address as Licensor may
hereafter specify; and all notices required to be given to Licensee hereunder
shall, in the absence of specific written advice to the contrary, be sent by
telex, telecopier, or facsimile to the Licensee at the address set forth in
Schedule "A".
22. COUNTERPART EXECUTION: This Agreement may be executed in counterparts but
----------------------
shall not be deemed to be effective until and unless executed by the Licensor
at its home office and the date of execution by the Licensor shall be deemed to
be the effective date of the agreement. When so executed by each party, the
counterparts together shall be deemed an original and shall constitute one and
the same instrument.
23. TIME OF ESSENCE: Time shall be of the essence with respect to each and every
----------------
obligation of Licensee and Licensor hereunder.
24. ENTIRE AGREEMENT: This Agreement, including Schedule "A", constitutes the
-----------------
complete and entire agreement between the parties and all prior understandings
are merged herein. This Agreement cannot be changed or terminated orally and no
amendments, modifications or assignments hereof shall be binding upon Licensor
until accepted in writing by a duly authorized agent or officer of Licensor in
California. The titles of the paragraphs of this Agreement are for convenience
only and shall not in any way affect the interpretation of this Agreement of any
paragraph hereof.
25. INVALIDITY: If any provision or any application of any provision hereof is
-----------
adjudged illegal, unenforceable or invalid and such adjudication has become
final and non-appealable, such provision or application shall be deemed deleted
without affecting the remainder of this Agreement unless such deletion shall
have a material adverse effect upon the rights or obligations of either party
hereto and notice of such effect is given as provided in the following sentence.
Either party may notify the other within forty-five (45) days after such
adjudication has become final and non-appealable that in its opinion such
deletion would have a material adverse effect upon the notifying party and that
this Agreement is terminated by reason thereof; but the existence of such effect
and the termination of this License shall be subject to contest by the
partyreceiving such notice if it notifies the other party, within forty-five
(45) days after service of the notice of termination upon it of its desire so to
contest the matter and thereafter proceeds promptly with a proceeding so to
contest the matter. During such time as the matter is being contested, this
Agreement shall remain in full force and effect.
-END OF DOCUMENT-
B-7
<PAGE>
EXHIBIT "C"
TRADEMARK USAGE SUMMARY
Licensee may publicize and advertise telecasts of the Programs or any person
appearing therein (unless specifically notified to the contrary) in the market
served by Licensee for publicity and exploitation only of the Programs, but in
no event shall the names of such persons or of Licensor be used in such manner
so that such use may be construed as an endorsement, express or implied, of any
party, sponsor, product or service. All such advertising may be only in the
Spanish or Portugese (or, at Playboy's discretion, English) language and shall
be subject to Licensor's prior written approval at least thirty (30) days prior
to its intended distribution.
In regard to those Programs utilizing the Playboy Marks (as defined below) in
the title, Licensor hereby acknowledges that the trade names "Playboy" and
"Playmate" and the registered trademark and service mark "Playboy", the Playboy
"Rabbit Head Design" and trade names "The Playboy Channel", "Playboy At Night"
and "Playboy Television" (collectively, the "Playboy Marks") are the sole and
exclusive property of Licensor and that all uses of the Playboy Marks shall
inure solely to the benefit of Licensor, Licensee shall have the right to
develop and distribute advertising, publicity and promotional materials relating
to the Programs incorporating the Playboy Marks in connection with Licensee's
rights hereunder, provided, however, that any such materials (other than
material obtained directly from Producer) shall:
(a) clearly identify the Playboy Marks with a legible credit line with
the wording "Playboy' (or the 'Rabbit Head Design' or 'The Playboy Channel' or
'Playboy At Night' or 'Playboy Television' or 'Playmate', as the case may be) is
the mark of and used with the permission of Playboy Enterprises, Inc." or such
other words as Licensor may designate;
(b) submit any such materials (except for Licensee's usual and ordinary
program information sheets distributed to the presss and other similar
organizations) in representative form to Licensor for Licensor's prior written
approval at least thirty (30) days prior to their intended distribution.
Licensor may disapprove any use if such use (i) jeopardizes the validity of any
of the Playboy Marks, (ii) does not conform to previously approved uses of the
Playboy Marks, or (iii) does not conform to Licensor's standards, which may vary
from time to time. Licensee will not disseminate any material or packaging that
has not been approved by Licensor, and
(c) be issued only in Spanish, Portuguese or, at Playboy's discretion,
English.
It is expressly understood that Licensor shall retain all good will associated
with the Playboy Marks, and no good will from same will inure to Licensee or to
any portion of the Programs or any other owner of any rights therein or thereto.
Other than as expressly set forth in this Paragraph 9, Licensee shall make no
use of the Playboy Marks or any confusingly similar designation without the
prior express written consent of Licensor in each instance. Licensee shall also
make no use whatsoever of any other trademark, trade name or service mark that
is the property of Licensor or any of its programs, suppliers or producers
without the prior express written consent of Licensor in each instance.
Licensee similarly agrees that it will not authorize or purport to authorize any
third party to make any such use, and it will expressly provide in any
applicable third party agreements that such third parties will only be entitled
to use such names and markes on material supplied to them by Licensee in
accordance with Licensee's rights hereunder.
It is expressly understood that those Programs which may not be otherwise
associated with the Playboy Marks will not be promoted, telecast, exhibited,
advertised or otherwise exploited in any manner using the name "Playboy" or the
Playboy Marks without the express prior aproval of Licensor.
C-1
<PAGE>
Exhibit "D"
-----------
***
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
D-1
<PAGE>
EXHIBIT "E"
NET REVENUE PER HOUSEHOLD
-------------------------
1. In this Schedule a "Household" means:
a. for any year (or portion thereof) during which the Service is being
transmitted by means of a satellite (such as, for example, the Galaxy
III-R), any home in the Territory which on January 1 or December 31 (as
the case may be) in that year is equipped with a satellite dish and any
other receiving, decoding equipment or decompression equipment which is
necessary in order to receive and view a television channel transmitted
by such Satellite; and/or
b. any home in the Territory which by January 1 or December 31 (as the case
may be) in that year has been connected to a cable television system in
the Territory by means of which the Service, as of January 1 or December
31 in that year (as the case may be), is being re-transmitted by any
means for reception by subscribers to that cable television system.
2. The "net revenue per household" for any year shall be calculated by dividing
the net revenue of the Venture by the average number of Households for that
Year. The average
1
E-1
<PAGE>
number of Households shall be calculated by aggregating the total numbers
of Households on January 1 and on December 31 in that year and by dividing
the resulting figure by two.
3. The number of Households which on January 1 and December 31 in each year
fall within paragraph 1 (a) of this Schedule shall be determined by
reference to the relevent figures published or provided by any
direct-to-home provider carrying the Service (for example, Galaxy Latin
America), as of January 1 or December 31 in that year (as the case may be)
or as of the date which is closest to January 1 or December 31 in that year
and for which such a figure is available by March 31 in the immediately
following year.
4. The number of Households which on January 1 and December 31 in each year
fall within paragraph 1(b) of this Schedule shall be determined by
reference to the relevant figures published or provided by a source to be
mutually-acceptable to the Venturers, as of January 1 or December 31 in
that year (as the case may be) or as of the date which is closest to
January 1 or December 31 in that year and for which such figure is or are
available by March 31 in the immediate following year.
2
E-2
<PAGE>
EXHIBIT "F"
PLAYBOY TELEVISION
INTERNATIONAL PROGRAMMING MODEL
Product Model
-------------
I. Premiere Programming
--------------------
<TABLE>
<CAPTION>
Categories # Titles per Month/Annual Hours per Month/Annual
---------- ------------------------- ----------------------
<S> <C> <C>
. Playboy Specials 2.0/24 2.0/24
. Couples (every other month) .5/6 .5/6
. Playboy Series 2.5/30 2.5/30
. PBTV Specials & Mini-Series 2.0/24 2.0/24
. Acquired Specials 1.0/12 1.0/12
. "Made by" Playboy Movies 1.0/12 1.5/18
. Acquired Movies 3.5/42 5.25/63
----------- ------------
SUB TOTAL 12.5/150 14.75/177
------------------------------------------------------------------------------
<CAPTION>
II. Additional Programming
--- ----------------------
<S> <C> <C>
. Encore Product
- Movies 2.0/24 3.5/42
- Specials/Series 3.0/36 3.0/36
----------- ------------
SUB TOTAL 17.5/210 21.25/255
. Locally produced product
(after one or two years
of operation)
- Specials .5/6 .5/6
- LIVE 1.0/12 1.0/12
----------- ------------
GRAND TOTAL 19.0/228 22.75/273
</TABLE>
November 13, 1995
-1-
<PAGE>
TWENTY-FOUR HOUR OPERATIONAL PLAN
8X3 ROTATION
One 8-hour block would include two (2) movies and four (4) special or series
programs...
<TABLE>
<S> <C>
==============================
8:00 p.m. Special
------------------------------
9:00 p.m. Special
------------------------------
10:00 p.m. Movie
------------------------------
12:00 a.m. Special
------------------------------
1:00 a.m. Special
------------------------------
2:00 a.m. Movie
==============================
</TABLE>
Four "special/series" slots x 30 days = 120 slots divided by 11
"specials/series" each month results in 11.0 exhibitions per "special/series"
per month.
Two "movie" slots x 30 days = 60 slots divided by 6.5 "movies" each month
results in 9 exhibitions per "movie" per month.
Therefore, if Playboy TV is to run 24-hours a day in the 8 x 3 block
configuration each; 1) "special/series" would receive 11 exhibition days per
month with a total of 33 exhibitions, 2) "movie" would receive 9 exhibition days
per month with a total of 27 exhibitions.
Notes:
1) A premiering special, series or movie would initially be exhibited over
a two month period.
2) Excluding issues related to the "start-up" of the schedule, each
special, series or movie would be "rested" for a period of 6 to 10
months, after its two month premiere period, before it is "Encored".
3) Only selected, specials, series or movies would be "Encored".
November 13, 1995
-2-
F-2
<PAGE>
CATEGORY EXAMPLES
-----------------
. Playboy Specials
- Playmate of the Year
- Annual Calendar Review
- Celebrity Centerfold
- Maui Playmate Challenge
- Girls of Radio
. Couples
- Love, Sex and Intimacy
- Massage Series
- Secrets of Making Love
- 101 Ways to Excite Your Lover
. Playboy Series
- Eden
- Erotic Fantasies
- Sexy Lingerie
- Love & Sex Test
- Late Night
. Playboy TV Specials and Mini-Series
- Really Naked Truth (4 x 60)
- Women of Color (4 x 60)
- Adult Stars Close-Up
- 360
- StripSearch
. Acquired Specials
- LaToya Jackson Exotic Club Tour
. Made by Playboy Movies (Playboy's Eros Collection & After Dark)
- The Affair
- Lover's Leap
- Watch Me
- Scoring
- Killing for Love
. Acquired Movies
- Varies by Territory
-3-
F-3
<PAGE>
January 1996
Overview - Premiere Product Schedule
<TABLE>
<CAPTION>
=====================================================================================
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 7
Playboy Special Playboy Playboy
#1 Movie Series #1
-------------------------------------------------------------------------------------
8 9 10 11 12 13 14
PBTV Special Movie Playboy
#1 Series #2
-------------------------------------------------------------------------------------
15 16 17 18 19 20 21
Playboy Special Movie Playboy
#2 Series #3 or
Couples
-------------------------------------------------------------------------------------
22 23 24 25 26 27 28
PBTV Special Movie Acquired
#2 Special
-------------------------------------------------------------------------------------
29 30 31 [Calendar of December 1995] [Calendar of February 1996]
=====================================================================================
</TABLE>
Printed by Calendar Creator Plus on 11/13/95
F-4
<PAGE>
[PLAYBOY LOGO] WEEKLY SCHEDULE
PRIMETIME GRID
=================
PREMIERE PROGRAMS
=================
<TABLE>
<CAPTION>
===================================================================================================
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEEK #1 8 Special Movie Special Movie PLAYMATE #1 PB MOVIE PB SERIES
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #2 8 Special Movie Special Movie PBTV SPECIAL MOVIE PB SERIES #2
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #3 8 Special Movie Special Movie PLAYMATE #2 MOVIE PB SERIES #3
OR COUPLES
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #4 8 Special Movie Special Movie PBTV SPECIAL 2 MOVIE ACQUIRED
SPECIAL
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
===================================================================================================
</TABLE>
November 13, 1995
F-5
<PAGE>
[PLAYBOY LOGO] WEEKLY SCHEDULE
PRIMETIME GRID
=============
MOVIE PATTERN
=============
<TABLE>
<CAPTION>
===================================================================================================
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEEK #1 8 Special Movie Special Movie PLAYMATE #1 PB MOVIE PB SERIES
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #2 8 Special Movie Special Movie PBTV SPECIAL MOVIE PB SERIES #2
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #3 8 Special Movie Special Movie PLAYMATE #2 MOVIE PB SERIES #3
OR COUPLES
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
---------------------------------------------------------------------------------------------------
WEEK #4 8 Special Movie Special Movie PBTV SPECIAL 2 MOVIE ACQUIRED
SPECIAL
9 Special Special Special Special
10 Movie Movie Movie Movie Movie Movie Movie
===================================================================================================
</TABLE>
November 13, 1995
F-6
<PAGE>
EXHIBIT "G"
PLAYBOY TV LATIN AMERICA
Types of Products Subject to Home Video Holdback
1. Films with Production Costs under $1 Million
--------------------------------------------
A. Films with pay television holdbacks in Latin America through 1995:
Erotic Showcase I (produced in 1994)
Erotic Showcase II (1994)
Love and Desire (1994)
Tales of Erotica (1988)
Young Lady Chatterly II (1987)
A Matter of Cunning (1983)
Candy the Stripper (1983)
Birds in Paradise I (1984)
Birds in Paradise II (1984)
Carnival in Rio (1983)
Man & Women (1995)
Total Films: 11
B. Films to date with pay television holdbacks in Latin America through 1996:
Erotic Showcase III (1994)
Lusty Liasions I (1988)
Lusty Liasions II (1988)
Passionate Interludes I (1988)
Passionate Interludes II (1988)
Dr. Yes: The Hyannis Affair (1983)
On the Edge (1994)
Lover's Leap (1994)
Scoring (1995)
Playtime (1994)
I Like to Play Games (1994)
Killing for Love (1995)
Romancing Sara (1995)
The Affair (1995)
Watch Me (1995)
Total Films: 15
G-1
<PAGE>
C. Films to date with pay television holdbacks in Latin America through 1997:
Gentlemen's Bet (1995)
Who Killed Buddy Blue? (1995)
Walnut Creek (1995)
Fanny Hill (1995)
Lap Dancing (1995)
Over the Wire (1995)
Other Men's Wives (1995)
Love in the Night (1995)
Ultimate Taboo (1994)
Maui Heat (1996)
Night Shade (1996)
Total Films to Date: 11
D. Films to date with pay television holdbacks in Latin America through 1998:
Hard Time (1996)
Access Denied (1996)
Jane Street (1996)
Phantom Seductress (1996)
Club V.R. (1996)
Charade (1996)
Total Films to Date: 6
Summary: As additional films are produced each year and sold into home video in
Latin America, the number of films subject to pay television holdback in 1996
and beyond will, naturally, increase above these figures (which represent a "to
date" snapshot).
PEG will agree to limit to number of such films subject to holdback to 20 per
year.
G-2
<PAGE>
2. One-Hour Programs ("Core Product")
----------------------------------
A. Core programs with pay television holdbacks in Latin America through 1995:
Secrets of Making Love to the Same Person Forever (produced in 1990)
Secrets of EuroMassage (1991)
Sensual Pleasures of Oriental Massage (1992)
Ultimate Sensual Massage (1991)
Sexy Lingerie II (1990)
Sexy Lingerie III (1991)
Sexy Lingerie IV (1992)
Sexy Lingerie V (1993)
Wet & Wild II (1990)
Wet & Wild III (1991)
Wet & Wild IV (1992)
Playmate Video Calendar 1994 (1993)
Playmate of the Year 1994: Jenny McCarthy (1994)
Total Programs: 13
B. Core programs to date with pay television holdbacks in Latin America
through 1996:
Erotic Fantasies II (1992)
Erotic Fantasies III (1993)
Secret Confessions (1993)
Secret Confessions II (1994)
College Girls (1993)
Erotic Weekend Getaways (1992)
How to Reawaken Your Sexual Powers (1992)
Secrets of Making Love to the Same Person Forever, Volume II (1993)
Wet & Wild V (1993)
Playmate Video Calendar 1995 (1994)
Playmate Video Calendar 1996 (1995)
Playmate of the Year 1995: Julie Cialini (1995)
Playmate of the Year 1996: Playmate to be Determined (1996)
Total Programs: 13
G-3
<PAGE>
C. Core programs to date with pay television holdbacks in Latin America
through 1997:
Erotic Fantasies IV (1995)
Private Diaries (1994)
International Playmates (1993)
Secret Confessions III (1994)
Real Couples (1995)
Fabulous Forties (1994)
Girls of Hawaiian Tropics (1995)
Girls of Radio (1995)
Women of Color : Summer Nights (1994)
Sensual Fantasy for Lovers (1994)
Love, Sex and Intimacy for New Relationships (1993)
Night Dreams (1994)
Sexy Lingerie: Dreams and Desire (1995)
Wet & Wild VI: The Locker Room (1994)
Wet & Wild VII: Hot Holidays (1995)
The Best of Pamela Anderson (1995)
Total Programs to Date: 16
D. Core programs to date with pay television holdbacks in Latin America
through 1996:
Hot Latin Ladies (1996)
Girls of the Internet (1996)
Sisters (1995)
Strip (1995)
Women of Color: Star Island (1995)
Women of Color: Colors (1995)
Arousal, Foreplay and Orgasm (1994)
Tantric Lovemaking (1994)
Ten Secrets for Greatest Sensual Pleasure (1995)
The Best of Anna Nicole Smith (1995)
Total Programs to Date: 10
Summary: As additional core programs are produced each year and sold into home
video in Latin America, the number of core programs subject to pay television
holdback in 1996 and beyond will, naturally, increase above these figures (which
represent a "to date" snapshot).
PEG will agree to limit to number of such core programs subject to holdback to
15 per year.
G-4
<PAGE>
EXHIBIT "H"
PLAYBOY TV LATIN AMERICA
Feature Film Distribution Contracts to Date
1. Films 1-4 (Production Costs in Excess of $1 Million)
----------------------------------------------------
<TABLE>
<CAPTION>
A. Argentina/Bolivia/Chile/Paraguay/Uruguay
<S> <C>
Temptress (produced in 1995) all rights
Cover Me (1995) all rights
Playback (1995) all rights
Glass Cage (1996) all rights
B. Brazil
Temptress (produced in 1995) all rights
Cover Me (1995) all rights
Playback (1995) all rights
Glass Cage (1996) all rights
</TABLE>
Summary: As of this date, we are still in negotiation with potential customers
in several key territories in Latin America. This information is therefore
likely to change in the near future.
H-1