Playboy TV Latin America/Iberia Expansion Agreement - Playboy Entertainment Group Inc. and Bloomfield Mercantile Inc.
[LETTERHEAD OF GREENBERG GLUSKER FIELDS CLAMAN & MACHTINGER LLP APPEARS HERE]
January 13, 1997
BY FAX
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Mr. Anthony J. Lynn, President
Playboy Entertainment Group, Inc.
9242 Beverly Boulevard
Beverly Hills, CA 90210
Re: Playboy TV Latin America/Iberia Expansion
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Dear Tony:
I am writing to confirm the terms and conditions on which Playboy TV-Latin
America, LLC (the "Venture") will expand its operations into Spain and Portugal
("Iberia").
1. Expansion of Territory. The Venture's Operating Agreement shall be
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amended to provide that the Venture is authorized to operate the Playboy TV
("PTV") and AdulTVision ("ATV") television services in Iberia. The parties will
mutually approve a Budget and Business Plan for the operations in Iberia, and
the existing Budget and Business Plan (which are exhibits to the Operating
Agreement) will be amended to reflect the joint operations in Latin America and
Iberia.
The Operating Agreement shall be amended to provide that for the
purposes of triggering either party's right to terminate the Venture early for
failure to meet projections, the measure of "net revenue per household" shall be
determined separately for Latin America and Iberia. Therefore, a failure in one
territory will only trigger the right to terminate operations in that territory,
and the Venture will continue to operate in the other territory.
2. Media/Windows. All Playboy-branded programming will be available to the
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Venture after April 31, 1997. The unbranded series "Woman" (consisting of 26
half-hour episodes) is the only Playboy Entertainment Group, Inc. ("PEG")
program licensed in Spain, and that license expires in 2002.
<PAGE>
GREENBERG GLUSKER FIELDS
CLAMAN & MACHTINGER LLP
Mr. Anthony J. Lynn
January 13, 1997
Page 2
Each PTV and ATV program will be licensed to the Venture for the
same term, and with the same windows, as in Latin America. As in the existing
deal, upon the reversion of rights in PTV programs, PEG may not sell those
programs on a block or branded basis.
The Venture will have a license to exploit the PTV and ATV
programs in the same media as in Latin America, with the Venture to also have
the rights for "expanded basic" or "basic" cable if PTV is to be offered to
consumers in that manner.
3. Program Costs.
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3.1 PTV
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a. Minimum. $*** per hour.
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b. Overage. *** per subscriber plus ***% of net
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pay-per-view revenue.
c. Cap. ***% of net revenue.
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d. Escalator. The minimum hourly fee shall increase by ***%
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at the end of years ***.
e. Deferral of Program Fees. ***
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3.2 ATV. $*** per movie, increasing by ***% per year for the
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first *** years, and *** thereafter.
4. Royalty. Playboy Enterprises Inc. will grant the Venture a license
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to use the Playboy trademarks, service marks and trade name in Iberia in
exchange for a royalty payment equal to a percentage of the adjusted gross
revenue (as defined in the Operating Agreement) of the Iberian operations. ***
5. Ownership. The basic structure remains unchanged: 81% Cisneros/19%
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PEG, with PEG to have an option to increase to 49.9% at founder's price until
the sooner of cash breakeven (for the aggregate operations of the Venture in
both Latin America and Iberia) or the end of the fifth fiscal year.
The Operating Agreement and the Program License Agreement (for PTV
programs) between the Venture and PEG provide
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
<PAGE>
[LETTERHEAD OF GREENBERG GLUSKER FIELDS CLAMAN & MACHTINGER LLP APPEARS HERE]
Mr. Anthony J. Lynn
January 13, 1997
Page 3
for the deferral of a portion of the program license fees owed by the Venture
for Latin America (the "Deferred Fees"). With respect to such Deferred Fees:
a. If PEG does not exercise its option to acquire additional percentage
interests in the Venture prior to the date that the Deferred Fees become
payable, PEG will forgive, $*** of Deferred Fees.
b. If PEG exercises its option to acquire additional percentage
interests in the Venture prior to the date that the Deferred Fees become
payable, PEG will forgive an amount of the Deferred Fees equal to: ***
6. Launch Date. The Venture shall launch both the PTV and ATV services in
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Iberia prior to June 30, 1997, subject to the Venture having entered into an
agreement for carriage of the services on a digital platform which permits such
launch to occur by the date.
7. Distribution. The Venture itself will distribute PTV and ATV in Iberia.
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If the Venture determines that it would be beneficial for distribution or other
reasons to associate with one or more local parties in Iberia, the Venture may
grant distribution rights to such party(ies). The parties acknowledge that the
Portuguese subsidiary of Grupo Abril would be a desirable equity participant
and/or distributor of the services in Portugal.
8. First Negotiation/Matching Right. In the event PEG (or any of its
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affiliates) decides to operate PTV, ATV or similar services in all or any
territory of Sweden, Finland, Denmark, Norway, Germany, Australia, or
Switzerland via a venture with a non-Playboy entity, Bloomfield Mercantile Inc.
("Bloomfield") shall have a right of first negotiation to participate in such
new venture and a matching right with respect to the terms offered by any third
party. To the extent any third party proposal includes carriage of the services,
Bloomfield would not be required to match that element of the proposal. To the
extent that the entity whose offer Bloomfield has matched is an operator
*** Confidential information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
<PAGE>
GREENBERG GLUSKER FIELDS
CLAMAN & MACHTINGER LLP
Mr. Anthony J. Lynn
January 13, 1997
Page 4
of a digital platform or a dominant distributor of networks to cable in the
subject territory, Bloomfield will not unreasonably prevent such venture from
offering such distributor or operator an equity participation in the venture.
9. Documentation. Following execution of this letter, the parties agree to
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move expeditiously to amend the Operating Agreement and to execute a trademark
license agreement and program license agreements for Iberia (with the
boilerplate terms and conditions to be identical to those contained in the
corresponding agreements for Latin America.)
11. Announcement. The parties intend to announce this agreement on
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January 14, 1997 at the NATPE convention.
Very truly yours,
Greenberg Glusker Fields Claman &
Machtinger LLP
By /s/ Glenn A. Dryfoos
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Glenn A. Dryfoos
Attorneys for Bloomfield Mercantile Inc.
AGREED AND ACCEPTED
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PLAYBOY ENTERTAINMENT GROUP, INC.
By /s/ Anthony J. Lynn
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Anthony J. Lynn, President
GAD:rg
cc: Jay Scharer
Carlos Cisneros