Program Supply Agreement - Playboy Entertainment Group Inc., Playboy TV International LLC and PTV US LLC
-------------------------
PLAYBOY TV INTERNATIONAL
PROGRAM SUPPLY AGREEMENT
-------------------------
Among
PLAYBOY ENTERTAINMENT GROUP, INC.
as Licensor
and
PLAYBOY TV INTERNATIONAL LLC
and
PTV U.S., LLC
as Licensee
August 31, 1999
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omissions have been indicated by asterisks ("***"), and the omitted
text has been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
Page
1. DEFINITIONS.........................................................1
2. GRANT OF LICENSE....................................................7
2.1 To PTVI....................................................7
2.1(a) Existing Library. ................................7
2.1(b) Licensor Output. ................................8
2.1(c) "Wall-to-Wall" Material..........................8
2.2 To PTV U.S.................................................8
2.3 All Other Rights Retained by Licensor......................8
2.4 Approved Uses of Company Programming.......................8
2.4(a) Operation of the Channels.........................8
2.4(b) Sub-licensing.....................................9
2.4(c) Editing...........................................9
2.5 Assignment of Existing Licenses............................9
2.6 Residuals and Co-Production Payments.......................9
2.7 Alta Loma Programs........................................10
2.7(a) Option to Acquire Rights.........................10
2.7(b) Programs for Playboy TV "Lite"...................10
2.8 Exclusive Program Supplier................................10
3. LICENSE TERM AND MEDIA HOLDBACKS...................................10
3.1 License Term..............................................10
3.1(a) Program License Agreement........................10
3.1(b) Existing Library Programs........................11
3.1(c) Output Programs. ...............................11
3.1(d) Licensor Acquired Programs.......................11
3.2 Holdbacks. ...............................................11
3.3 Other Home Video Rights...................................11
4. CENSORSHIP; WITHDRAWAL OF PROGRAMS.................................11
4.1 Censorship................................................11
4.2 Withdrawal of Programs....................................12
4.3 Advertising...............................................12
5. DELIVERY AND RETURN................................................13
5.1 Access and Delivery Items.................................13
5.2 Title to Delivery Materials...............................13
6. PROGRAM LICENSE FEES...............................................13
6.1 Existing Program Library and Wallpaper....................13
6.2 Output Programs...........................................14
6.2(a) General Payment Terms............................14
6.2(b) Production Budget................................14
6.2(c) Licensor Production Obligations..................14
6.2(d) Calculation of License Fee for Output Programs...15
6.2(e) Fixed Percentage. ...............................15
6.2(f) The Reset Mechanism..............................15
6.2(g) Licensee Production Budget Option................16
6.2(h) Production Supply Option.........................16
6.2(i) * * *............................................17
6.3 Maintenance of Records and Audit Rights...................17
7. REPRESENTATIONS AND WARRANTIES; INDEMNITIES........................18
7.1 Representations and Warranties............................18
7.1(a) By Licensor......................................18
7.1(b) By Licensee......................................19
7.2 Indemnification...........................................19
7.2(a) By Licensor......................................19
7.2(b) By the Licensee..................................20
7.3 Musical Compositions......................................20
7.4 Procedure.................................................20
7.5 Taxes.....................................................21
8. TERMINATION........................................................21
8.1 Expiration of Term........................................21
8.2 Early Termination on Breach...............................21
9. EFFECTS OF TERMINATION.............................................22
9.1 Survival of Obligations...................................22
9.2 Termination of Rights.....................................22
9.3 Further Assurances........................................23
10. EQUITABLE RELIEF...................................................23
11. DISPUTE RESOLUTION.................................................23
11.1 General Agreement Regarding Dispute Resolution............23
11.2 Notification and Negotiation..............................23
11.3 Mediation. ...............................................23
11.4 Arbitration...............................................24
11.5 Damages. ...............................................24
11.6 Statute of Limitations....................................24
11.7 Confidential Negotiations.................................24
11.8 Service of Process; Forum.................................24
11.9 Additional Provisions to Enforce Awards...................25
12. MISCELLANEOUS......................................................25
12.1 Force Majeure.............................................25
12.2 Binding Effect; No Assignment.............................25
12.3 Invalidity................................................25
12.4 Waivers, Remedies Cumulative, Amendments, etc.............26
12.5 Notices...................................................26
12.6 Governing Law.............................................27
12.7 Entire Agreement..........................................27
12.8 Rules of Construction.....................................28
12.8(a) Headings.........................................28
12.8(b) Tense and Case...................................28
12.8(c) Agreement Negotiated.............................28
12.9 Counterparts..............................................28
12.10 Relationship Between the Parties..........................28
12.11 Time is of the Essence....................................28
12.12 Effectiveness.............................................28
THIS PROGRAM SUPPLY AGREEMENT (this "Agreement") is made and
entered into on August 31, 1999, among Playboy Entertainment Group, Inc., a
Delaware corporation ("PEGI"), Playboy TV International LLC, a Delaware
limited liability company ("PTVI"), and PTV U.S., LLC, a Delaware limited
liability company ("PTV U.S.").
RECITALS
WHEREAS, PTVI and PTV U.S. have been formed to engage in the
business of owning and operating television channels and of selling
television programming to third parties;
WHEREAS, PEGI and certain of its Affiliates are the owner of
certain rights in and to certain television programs and will acquire
certain rights in and to certain additional television programs, as
described herein;
WHEREAS, PEGI has transferred to PTVI the stock of certain Danish
companies which own rights in certain of the television programs which are
subject to this Agreement, and Licensee has agreed to certain restrictions
with respect to the use of such programs as set forth in this Agreement;
WHEREAS, PEGI has transferred to PTVI the stock of certain U.K.
companies which own rights in certain of the television programs which are
subject to this Agreement, and Licensee has agreed to certain restrictions
with respect to the use of such programs as set forth in this Agreement;
WHEREAS, PTVI and PTV U.S. each wish to license from Licensor and
Licensor has agreed to license to PTVI and PTV U.S. certain television
programs in their respective territories, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, and intending to be legally bound, the parties
agree as follows:
1. DEFINITIONS.
In this Agreement (including the Recitals hereto) the following
terms will have the following meanings unless otherwise stated:
"Actual Net Cash Flow" has the meaning set forth in Section
6.2(g).
"Acquired Movie" means a program acquired by Licensor (or any of
its Affiliates) from a third party that is at least 60 minutes in length
and represents an edited version of an adult film (i.e., a film which
contains actual sex acts).
"Affiliate" means any Person, directly or indirectly through one
or more intermediaries, controlling, controlled by, or under common control
with the specified Person. For purposes of the foregoing, "control" (and
"controlled" and "controlling," respectively), as used in the immediately
preceding sentence, means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of the
specified Person (whether by the holding of shares or other equity
interests, the possession of voting or contract rights or otherwise).
Notwithstanding the foregoing, Licensee will not be deemed an Affiliate of
either Licensor or VSI.
"After Tax Basis" means a basis such that any payment (the
"Original Payment") received or deemed to have been received by a Person
(the "recipient") will be supplemented by a further payment to the
recipient so that the sum of the two payments will equal the Original
Payment, after taking into account (x) all taxes that would result from the
receipt or accrual of such payments, if legally required, and (y) any
reduction in taxes that would result from the deduction of the expense
indemnified against, if legally permissible. In the event that the expense
indemnified against is used to reduce taxes by way of amortization or
depreciation, payments made on an After Tax Basis will be refunded in each
taxable year of the recipient in which such expense is deductible in an
amount equal to the sum of (i) the tax savings attributable to such
deduction plus (ii) any reduction in taxes that would result from the
deduction of any amounts described in clause (i) as increased hereby. All
payments hereunder will be calculated on the assumptions that the recipient
was subject to tax at the highest marginal rates of tax applicable to such
class of taxpayer and that it could benefit from the deduction of any
expense at such rate of tax. In the event that a taxing authority will
treat any indemnification payment as not includible in gross income or
disallow any deduction taken into account hereunder, the indemnification
will be recomputed and further payments or refunds made.
"Alta Loma Program" has the meaning set forth in Section 2.7.
"Annual Budget" has the meaning set forth in the Operating
Agreement.
"Applicable Percentage" has the meaning set forth in Section
6.2(d).
"Basic Cable" has the meaning currently or hereafter commonly
understood in the television industry, but will also include for all
purposes of this Agreement any broadcast or other transmission (whether by
satellite or otherwise) to television sets or other television devices, now
or hereafter known, of a program service (other than any free television
terrestrial broadcast station) (a) that is included as part of a package of
program services for which members of the public pay a periodic fee for the
right to receive such package of program services, and (b) for which
program service a separate fee is not generally charged for the right to
receive the particular service in question.
"Business Plan" has the meaning set forth in the Operating
Agreement.
"Channels" means television channels operated by Licensee or its
subsidiaries, now or in the future (each, a "Channel").
"Company Aggregate Revenue" has the meaning set forth in Section
6.2(i)(ii).
"Company Programming" means, collectively, the Existing Library
Programs, the Output Programs, the Wallpaper and the Supplemental Programs.
"Delivery Materials" has the meaning set forth in Section 5.1.
"End Date" has the meaning set forth in Section 3.1(a).
"Existing Library" means the Existing Playboy Library, the
Existing Spice Library, and the Existing U.K. Library.
"Existing Playboy Library" means the programs listed on Schedule
2.1(a) - 1.
"Existing Spice Library" means the programs listed on Schedule
2.1(a) - 2.
"Existing U.K. Library" means the programs listed on Schedule
2.1(a) - 3 with respect to PTV U.K. and any and all programs in which HVC
owns rights in the Media in the Territory.
"Fiscal Year" has the meaning set forth in the Operating
Agreement.
"Fixed Percentage" has the meaning set forth in Section 6.2(e).
"Force Majeure" has the meaning set forth in Section 12.1.
"Funding Date" has the meaning set forth in the Operating
Agreement.
"HVC" means Home Video Channel Limited, a company organized under
the laws of England and Wales.
"License Term" has the meaning set forth in Section 3.1.
"Licensee" means collectively (i) PTVI and any of its Affiliates
that hold any of the rights licensed hereunder, including the Spice Rights
Subsidiaries and the U.K. Subsidiaries; (ii) PTV US; and (iii) any such
successor or assignee of either of them as may be permitted herein.
"Licensee Applicable Revenue" has the meaning set forth in Section
6.2(f)(iii).
"Licensee Indemnified Parties" has the meaning set forth in
Section 7.2(a).
"Licensor" means PEGI and any of its Affiliates that hold any of
the rights licensed hereunder, or such successor or assignee as may be
permitted herein.
"Licensor-Acquired Programs" has the meaning set forth in Section
3.2.
"Licensor Applicable Revenue" has the meaning set forth in Section
6.2(f)(ii).
"Licensor Indemnified Parties" has the meaning set forth in
Section 7.2(b).
"Licensor Shortfall" has the meaning set forth in Section 6.2(c).
"Licensor Streaming Revenue" has the meaning set forth in Section
6.2(i)(i).
"Licensor Taxes" has the meaning set forth in Section 7.5.
"Lifford" means Lifford International Co. Ltd., an International
Business Company incorporated under the laws of the British Virgin Islands.
"Losses" has the meaning set forth in Section 7.1(a).
"Measurement Year" has the meaning set forth in Section 6.2(i)(i).
"Media" means all forms of television exhibition, transmission and
distribution whether now existing or developed in the future and whether on
a subscription, pay-per-view or free basis, including but not limited to
the following: (i) conventional VHF or UHF television broadcast, (ii) Basic
Cable and pay cable, (iii) "over the air pay" subscription television
(STV), (iv) direct broadcasting by satellite (DBS), (v) master antenna
television systems (MATV), (vi) multipoint distribution services (MDS),
(vii) multichannel multipoint distribution services (MMDS), (viii)
satellite master antenna television systems (SMATV), and (ix) microwave
transmission; provided, however, that Media will exclude, to the extent
applicable, distribution of programs by Streaming through any form of
television.
"Member" has the meaning set forth in the Operating Agreement.
"Net Channel Revenues" has the meaning set forth in Section
6.2(e)(viii).
"Operating Agreement" means the Operating Agreement for Playboy TV
International, LLC, entered into concurrently herewith, as may be amended
from time to time.
"Option Percentage" has the meaning set forth in Section
6.2(g)(ii).
"Output Programs" has the meaning set forth in Section 2.1(b).
"Out Year Programs" has the meaning set forth in Section 3.1(c).
"Overhead Cap" has the meaning set forth in Section 6.2(b).
"PEGI" means Playboy Entertainment Group, Inc., a Delaware
corporation.
"PEI" means Licensor's ultimate parent company, Playboy
Enterprises, Inc., a Delaware corporation.
"PEII" means Licensor's direct parent company, Playboy Enterprises
International, Inc., a Delaware corporation.
"Person" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate,
association or any other entity.
"Plan Net Cash Flow" has the meaning set forth in Section 6.2(g).
"Production Budget" has the meaning set forth in Section 6.2(b).
"Production Budget Option" has the meaning set forth in Section
6.2(g).
"Production Supply Option" has the meaning set forth in Section
6.2(h).
"Program" means any television program which is, or is scheduled
to be, broadcast or transmitted in the Service, including, but not limited
to, any Company Programming.
"Program License Fees" has the meaning set forth in Section 6.
"PTVI" means Playboy TV International, LLC, a Delaware limited
liability company.
"PTV U.K." means Playboy TV U.K./Benelux, Limited, a company
organized under the laws of England and Wales.
"PTV U.S." means PTV U.S., LLC, a Delaware limited liability
company.
"PTVLA" means Playboy TV - Latin America, LLC, a California
limited liability company.
"PTVLA Program Supply Agreements" means Playboy TV - Latin America
Program Supply Agreement and the AdulTVision - Latin America Program Supply
Agreement, each entered into November 10, 1998 (effective as of June 14,
1996) between PEGI and PTVLA.
"PTVLA Territory" is defined in the PTVLA Program Supply
Agreements.
"PTVLA/I" means Playboy TV - Latin American/Iberia, LLC, a
Delaware limited liability company and a subsidiary of PTVI, into which
PTVLA will be merged following the contribution of PTVLA to PTVI.
"PTVLA Service" means the Spanish-and Portuguese-language
television channel known as "Playboy TV Latin American" which is produced
by PTVLA and will, following the contribution of PTVLA to PTVI and the
merger of PTVLA into PTVLA/I, be co-produced by PTVLA/I and PTV U.S.
"Remediable Breach" has the meaning set forth in Section 8.2(b).
"Reset Mechanism" has the meaning set forth in Section 6.2(f).
"Reset Percentage" has the meaning set forth in Section
6.2(f)(iv).
"Spice Closing" means March 15, 1999, the date on which the Spice
Transaction was consummated.
"Spice Rights Licensor" means SEI Inc. ApS, a company formed under
the laws of Denmark and a subsidiary of PEGI.
"Spice Rights Subsidiaries" means SEI 2 ApS and SEI 3 ApS, each a
company formed under the laws of Denmark, being those companies acquired by
the Licensee pursuant to the Spice Rights Subsidiaries Stock Purchase
Agreements of even date herewith.
"Spice Transaction" means the merger between PEI and one or more
of its Affiliates with Spice Entertainment Companies, Inc. and one or more
of its Affiliates (collectively, "Spice"), which was consummated pursuant
to that certain Agreement and Plan of Merger dated May 29, 1998.
"Supplemental Programs" means programming produced or acquired by
PTVI and/or PTV U.S. in accordance with the Operating Agreement, whose
primary use is exhibition on one or more of the Channels.
"Streaming" means * * *
"Termination Date" has the meaning set forth in Section 9.2.
"Territory" means the World, except for the United States and
Canada and their territories and possessions worldwide. For certain
Existing Library Programs and Output Programs, the Territory will exclude
certain countries in the Territory, as set forth in Schedules 2.1(a)-1,
2.1(a)-2, and 2.1(a)-3 hereto or the extent effecting programs in which HVC
owns rights.
"Threshold Revenue" has the meaning set forth in Section
6.2(e)(viii).
"Total Applicable Revenue" has the meaning set forth in Section
6.2(f)(iv).
"Trademark License Agreement" means the Trademark License
Agreement between PEII and PTVI, executed concurrently herewith.
"TV Lite Venture" has the meaning set forth in Section 6.3(b).
"U.K. Subsidiaries" means HVC and its subsidiary, PTV U.K.
"U.S. Hispanic Market" means those cities or regions of the United
States and its territories and possessions with a sufficient number of
Spanish-speaking households such that PTV U.S. elects, now or in the
future, to distribute the PTVLA Service in such city or region.
"VSI" means Victoria Springs Investments Ltd., a British Virgin
Islands corporation and a member of Licensee.
"Wallpaper" has the meaning set forth in Section 2.1(a)(iii).
2. GRANT OF LICENSE.
2.1 To PTVI. Upon and subject to the terms and conditions set
forth in this Agreement and to Licensor's retained rights described in
Section 2.3, Licensor hereby grants to PTVI and PTVI hereby accepts a
license of exclusive rights under copyright during the License Term in the
Media throughout the Territory to the programs and other material described
below.
2.1(a) Existing Library. Licensor licenses to PTVI all of
the programs comprising the Existing Playboy Library. To the extent the
Existing Playboy Library includes Acquired Movies, such Movies will be
licensed to the appropriate Spice Rights Subsidiary. Rights in the Existing
Spice Library and in the Existing U.K. Library in the Media throughout the
Territory have been provided to PTVI through its acquisition of the Spice
Rights Subsidiaries and the U.K. Subsidiaries. Licensor represents and
warrants that the Existing Library consists of all programs for which
Licensor (and/or its Affiliates) owns rights in the Media in the Territory
as of the date hereof, except for the series known as "Hot Rocks" (which
series or the individual programs thereof may not be licensed by Licensor
or its Affiliates to third parties for exhibition in the Territory),
including (but not limited to) "Playboy"-branded programs, "Spice"-branded
programs, adult films licensed by Licensor, and any other programming,
including the Wallpaper (as described in Section 2.1(c)). For clarity, the
parties acknowledge that the Existing Playboy Library includes all programs
produced or acquired by Licensor and/or its Affiliates pursuant to
Licensor's 1998 production budget, the Existing Spice Library includes all
programs (other than programs which are part of the Existing U.K. Library)
that Licensor (or its Affiliates) acquired in the Spice Transaction, and
the Existing U.K. Library includes all programs that Licensor (or its
Affiliates) acquired through the U.K. Subsidiaries . In the event PTVI
wishes to exploit any program for which Licensor has disclosed it, the
Spice Rights Subsidiaries, or the U.K. Subsidiaries does not have all
ancillary rights necessary for such exploitation, Licensor will employ
commercially reasonable best efforts to secure the necessary rights.
2.1(b) Licensor Output. Each Fiscal Year Licensor will
license to PTVI all of the programs which Licensor and/or its Affiliates
produce or for which Licensor and/or its Affiliates have acquired the
rights in the Media in the Territory during that year (the "Output
Programs"). The parties acknowledge that to the extent the rights to Output
Programs are controlled by the Spice Rights Licensor, Licensor will cause
the Spice Rights Licensor to license such programs to the appropriate Spice
Rights Subsidiary. For the avoidance of doubt, the parties acknowledge that
the Output Programs for Fiscal Year 1999 include those programs produced or
acquired by Licensor (or its Affiliates) pursuant to Licensor's 1999
Production Budget, including those programs produced or acquired prior to
the date of this Agreement. The Output Programs will be similar in content,
style, mix and budget to the Existing Library Programs which were produced
during 1997 and 1998; provided, however, that the parties acknowledge that
the budgets for individual Output Programs may change over time due to
changes in general market conditions (e.g., inflation). Whenever Licensor
and/or its Affiliates acquire the rights to a program (excluding Acquired
Movies) for exploitation in the United States, it will also acquire the
rights for such program in the Media in the Territory, unless such rights
are unavailable or are not available on commercially reasonable terms. If
the rights to such program for the Territory are not available or are not
acquired by Licensor, Licensor's cost to acquire such Program will not be
included in the Production Budget (as defined in Section 6.2(b)). If the
rights to such program are not available in the Media for the Territory on
commercially reasonable terms, Licensor will so notify PTVI, and PTVI will
determine whether it wishes to acquire such program. In the event PTVI
instructs Licensor to make such an acquisition, the parties will make an
appropriate adjustment for the impact of such acquisition on the Production
Budget and the payment by PTVI of the overage. If Licensor is able to
acquire the rights to a program (other than an Acquired Movie) for only a
portion of the Territory, it will so notify PTVI, and Licensor will acquire
such rights for PTVI only if PTVI agrees to the terms of such acquisition.
2.1(c) "Wall-to-Wall" Material. Licensor will provide PTVI
with copies of, or laboratory access to, all bumpers, promos, interstitials
and other raw materials produced by Licensor and/or its Affiliates for use
in its television business (collectively, the "Wallpaper"). PTVI may
exhibit such materials in the form provided or may modify, edit or utilize
them to create appropriate interstitial and promotional material for the
Channels, subject to the terms and conditions of the Trademark License
Agreement.
2.2 To PTV U.S. Upon and subject to the terms and conditions set
forth in this Agreement and to Licensor's retained rights described in
Section 2.3, Licensor hereby grants to PTV U.S., effective upon the
effective date of the Operating Agreement of PTV U.S., and PTV U.S. will
accept as of such date, a license of exclusive rights under copyright
during the License Term in and to the Existing Playboy Library, Output
Programs and Wallpaper for the sole purposes of exhibiting such material on
the PTVLA Service and distributing and promoting the PTVLA Service in the
Media throughout the U.S. Hispanic Market. PTV U.S. will not have any right
to use the Existing Playboy Library, Output Programs or Wallpaper except in
connection with the operation of the PTVLA Service in the U.S. Hispanic
Market. Pursuant to that certain Distribution Agreement to be entered
between PEGI and PTV U.S., PEGI will be the exclusive sales agent for the
PTVLA Service in the U.S. Hispanic Market.
2.3 All Other Rights Retained by Licensor. All rights not
expressly granted to PTVI and PTV U.S. hereunder are reserved to Licensor
for its own use and benefit.
2.4 Approved Uses of Company Programming. PTVI may exploit the
Company Programming as follows:
2.4(a) Operation of the Channels. Throughout the Territory,
PTVI will have the right to exhibit the Company Programming on the
Channels. Licensor and PTVI acknowledge and agree that the accidental or de
minimis "spillover" into the Territory of transmissions to Licensor
customers outside of the Territory will not be a breach of the grant of
rights hereunder and that the accidental or de minimis "spillover" outside
of the Territory of transmissions to PTVI customers inside the Territory
will not be a breach of the grant of rights hereunder.
2.4(b) Sub-licensing. PTVI will have the right to license
the Company Programming to third parties for exhibition in the Territory.
Except as otherwise specifically provided herein, such sub-licensing may be
conducted in any manner that PTVI determines. The parties acknowledge that
in regions where Channels exist (or will exist in the future), PTVI may, as
it determines in its sole discretion, sub-license the Company Programs to
third parties in "prior windows" (i.e., before a given program has been
exhibited on the Channel(s)), in "downstream windows" (i.e., after a given
program has been exhibited on the Channel(s)), or in "contemporaneous
windows" (i.e., where the program being licensed to third parties has been
carved out of the programming intended for use on the Channel(s)). PTVI
may, in its sole discretion and in compliance with this Section, utilize
sales agents to handle licensing of Company Programming to third parties;
provided, however, without Licensor's prior written consent, which will not
be unreasonably withheld, (i) any such sales agent will be engaged only on
a territory-by-territory basis; (ii) a sales agent may not enter into any
outright sales or sales of unlimited runs; (iii) all agreements negotiated
on PTVI's behalf by any sales agent will be subject to PTVI's prior
approval, and all contracts will be entered into by PTVI directly with the
purchaser, which must be an end-user (e.g., a broadcaster or DTH operator);
(iv) any sales agent will be compensated on a commissions-only basis; and
(v) and any sales agency agreement must be terminable at will by PTVI on
not more than 6 months' notice.
2.4(c) Editing. Subject to and consistent with the Trademark
License Agreement, Licensee may edit, dub or subtitle in any language, or
otherwise alter Company Programming as necessary to comply with local
language or custom or local broadcasting requirements; provided that PTV
U.S. may only dub or subtitle into Spanish or Portuguese.
2.5 Assignment of Existing Licenses. Licensor hereby assigns to
PTVI all of Licensor's rights with respect to periods from and after July
1, 1999 under its existing licenses with third parties for the distribution
or exhibition of Existing Library Programs and Output Programs in the
Territory in the Media including the right to receive payments thereunder;
provided, however, that to the extent such existing licenses contain a
grant of trademark rights, such rights will be retained by Licensor and its
Affiliates, including all rights of approval and control. To the extent
that Licensor has existing licenses with third parties which grant such
third parties rights for both the Media and other media not included
hereunder, such licenses will be assigned to PTVI only with respect to the
Media. Licensee hereby assumes and agrees to perform all obligations of
Licensor under such licenses arising with respect to periods from and after
July 1, 1999, and all of Licensor's benefits under such licenses arising
with respect to periods from and after July 1, 1999, including the right to
receive payments, will inure to the benefit of PTVI. Without limiting the
generality of the foregoing, PTVI agrees to comply with the terms of the
PTVLA Program Supply Agreements and agrees that it will not exploit Company
Programming in the PTVLA Territory in any manner which conflicts with such
agreements. PTVI will be entitled to receive all revenues generated in the
Territory by the Output Programs produced or acquired pursuant to
Licensor's 1999 Production Budget, including revenues collected by Licensor
prior to the date of the Agreement, net of any amounts actually paid by
Licensor or its Affiliates that would have been PTVI's obligation had the
Output Programs been acquired by PTVI on January 1, 1999 (such as
residuals, music clearance fees, etc.). Schedule 2.5 contains a complete
list of the program license agreements which Licensor is assigning to PTVI.
Upon termination of this Agreement, the foregoing assignment of the
existing licenses will automatically terminate and all rights in the
assigned licenses arising from and after the date of such termination will
revert to Licensor.
2.6 Residuals and Co-Production Payments. Licensee will be
responsible for * * * relating to * * * but Licensor will use its
commercially reasonable efforts to * * *. Licensee will be responsible for
* * * provided that Licensor will provide Licensee with * * *
2.7 Alta Loma Programs. The parties acknowledge that Licensor
and/or its Affiliates produce an additional stream of programs that do not
carry the "Playboy" or "Spice" brands and which do not contain nudity.
These programs are intended for "first run" on domestic television networks
or channels other than Playboy TV, Spice or AdulTVision. Licensor produces
and sells such programming under the Alta Loma banner. This programming
stream may consist, from time to time, of movies, series, and/or specials.
(Any such non-nude program, whether produced by Licensor or one of its
Affiliates, and whether carrying the "Alta Loma" or any other brand, will
be referred to as an "Alta Loma Program").
2.7(a) Option to Acquire Rights. At any time prior to the
start of principal photography for each Alta Loma Program, Licensor will
offer PTVI the opportunity to pay a license fee equal to * * * of the
budget for that program. If Licensee chooses to pay such license fee, it
will obtain the same rights as if that program were an Output Program
(except that the budget for that program will not be included under the
Production Budget for Output Programs for that year). If PTVI does not
choose to obtain a license for a given Alta Loma Program, PTVI will have
the right to act as Licensor's exclusive sales agent for that program
throughout the Territory and will receive a * * * distribution fee on such
sales, plus reimbursement of reasonable costs; provided, however, that in
the event an Alta Loma Program is produced pursuant to an agreement which
gives a third-party co-producer or commissioning network the right to
distribute such program in a region or regions of the Territory (or
otherwise restricts Licensor's right to grant Licensee the right to act as
sales agent for such program), Licensor will pay to PTVI * * * of the total
revenue which Licensor (or its affiliates) receives from the exploitation
of such program in the Media in such region(s).
2.7(b) Programs for Playboy TV "Lite". * * *
2.8 Exclusive Program Supplier. Except for Supplemental Programs,
programs acquired by Licensee in the event of a Licensor Shortfall, and
programs acquired by PTVI through its acquisition of the Spice Rights
Subsidiaries, Licensor will be the exclusive supplier of all programming to
Licensee.
3. LICENSE TERM AND MEDIA HOLDBACKS
3.1 License Term. The term of this Agreement and the license
periods for each type of Company Programming will be as follows:
3.1(a) Program License Agreement. The term of this Agreement
will commence on the date hereof and run through the date which is the 50th
anniversary hereof (the "End Date"); provided, however, that Licensor may
sooner terminate this Agreement and the license periods described in
Sections 3.1(b), 3.1(c), 3.1(d) and 3.1(e) below in the event: (i) Licensee
is in material default of its obligations under this Agreement and such
default, if curable, is not cured with thirty (30) days after Licensee has
received written notice thereof from Licensor (provided such default is not
the result of action or inaction by Licensor as a Member of PTVI; e.g.,
Licensor's failing to make a mandatory capital contribution); (ii) PEII has
terminated the Trademark License Agreement; (iii) VSI is in material
default of its obligations under the Operating Agreement and Licensor
elects to dissolve PTVI as the result of such default; or (iv) PTVI is in
material default of its obligations under the Stock Purchase Agreements (as
defined in the Operating Agreement) and such default, if curable, is not
cured within thirty (30) days after PTVI has received written notice
thereof from Licensor (provided such default is not the result of action or
inaction by Licensor as a Member of PTVI).
3.1(b) Existing Library Programs. The license period for
each Existing Library Program (other than as set forth on Schedules
2.1(a)-1, 2.1(a)-2, and 2.1(a)-3) will begin on the date hereof and end on
the End Date, except with respect to programs in which HVC owns rights
which will end on the dates such rights expire.
3.1(c) Output Programs. The license period for each Output
Program (other than acquired programs) will begin on the date such program
is made available to Licensee pursuant to Section 5.1 and will end on the
End Date. * * *
3.1(d) Licensor Acquired Programs. The license period for
Output Programs (other than Acquired Movies) which Licensor acquires by
license from third parties will be at least as long as the license period
obtained by Licensor for North America.
3.2 Holdbacks. Several of the Existing Library and Output Programs
will only be available for exhibition via the Media after an "upstream"
window in home video (i.e., an exhibition period prior to any television
exhibition by any party, including Licensee). Licensor warrants that of the
Output Programs produced each year no more than fifteen (15) hours of
series and specials and no more than fifteen (15) movies (carrying the
"Eros," "Impulse" or other brands) will be subject to such "upstream" home
video windows. The extent to which the Existing Playboy Library is subject
to such windows is set forth in Schedule 3.2. The maximum length of the
windows going forward from the Execution Date will be as follows: for
Fiscal Year 1, 2 years; for Fiscal Years 2, 3 and 4, 1 year; for all Fiscal
Years commencing with Fiscal Year 5, 6 months. At the time its annual
production slate is set, Licensor will deliver to Licensee a list of the
titles to be held back for that year.
3.3 Other Home Video Rights. Licensor will consult with Licensee
prior to acquiring the rights to a program from a third party for home
video distribution in a region or regions within the Territory where
Licensor believes that the terms for acquiring the television rights for
the Territory are not favorable to Licensee, or the Media rights to such
program are not available in some or all of the Territory. At Licensee's
request, Licensor will acquire the program to the extent it is available.
If Licensee does not request such program, Licensor may nonetheless acquire
the video rights.
4. CENSORSHIP; WITHDRAWAL OF PROGRAMS.
4.1 Censorship. Licensee is willing to accept and pay for the
Existing Library Programs and Output Programs regardless of censorship
regulations or the potential for same throughout the Territory or in any
individual country or political subdivision within the Territory (or, with
respect to PTV U.S., the U.S. Hispanic Market). Licensee will be obliged
either to edit the programming as supplied by Licensor (subject to
Licensor's approval) or blackout the region(s) where the censorship problem
occurs, with all costs of editing and/or blackout to be borne by Licensee;
provided that Licensee will make good faith efforts to obtain waivers of
such restrictions or will permit Licensor to make such efforts on behalf of
Licensee. Without limiting Licensee's rights under Section 2.4(c), Licensee
will only make such cuts or deletions as are necessary to conform to
applicable censorship regulations.
4.2 Withdrawal of Programs.
4.2(a) Notwithstanding any other term of this Agreement to
the contrary, Licensor may, in its sole discretion, withdraw any Program if
Licensor determines that the transmission thereof would or might reasonably
be expected to (i) infringe upon the rights of others; (ii) violate the
law, court order, government regulation or other ruling of any governmental
agency; or (iii) subject Licensor to any liability, other than due to a
breach by Licensor of its covenants and representations in this Agreement.
4.2(b) If Licensor elects to withdraw any Program as set
forth in paragraph 4.2(a) above before any telecast, Licensee will have the
right, in its sole discretion, to require Licensor to deliver another
program of comparable quality (which program will constitute a Program
hereunder). If Licensor elects to withdraw any Program, any transportation,
dubbing and assembly costs incurred and paid by Licensee with respect to
the withdrawn Program will be refunded by Licensor promptly upon Licensee's
presentation of reasonable evidence of such expenditures.
4.2(c) If a withdrawn Program has been delivered, Licensee
will, at Licensor's request, either promptly erase such program or return
it to Licensor at Licensor's expense.
4.3 Advertising.
4.3(a) In all advertising and publicity relating to any
Program or any transmission thereof, Licensee will comply with the
advertising and billing credit requirements furnished by Licensor. Licensee
will not make or permit to be made, in any advertising, publicity or
otherwise, any statements which (i) constitute or may be understood to be
an endorsement of any sponsor, product, article or service by Licensor or
any of its Affiliates or by any person or entity that appears in or
otherwise renders any services or provides any materials for use in any
Program or (ii) indicate or may be understood to indicate the Licensor, any
of its Affiliates, or any person that appears in or otherwise renders any
services or provides any materials for use in any Program is connected or
associated with any sponsor, product, article or service.
4.3(b) Licensee will not advertise or promote, in any
manner, any Program withdrawn by Licensor.
4.3(c) Licensee will not authorize or permit any excerpt or
clip from any Program to be used for promotional purposes to be in excess
of one (1) minute in length.
4.3(d) Licensee will not advertise or promote any Program
earlier than sixty (60) days prior to the first day of the month in which
the program will first air.
5. DELIVERY AND RETURN.
5.1 Access and Delivery Items. Licensee will have full and
immediate access to all masters and versions of Existing Library Programs,
completed Output Programs and completed Wallpaper. Schedule 5.1 sets forth
the other delivery materials which Licensor will supply to Licensee. Any
and all masters, versions or copies of the Existing Library Programs,
Output Programs, Wallpaper and the items described in Schedule 5.1 will be
referred to collectively as the "Delivery Materials."
5.2 Title to Delivery Materials. It is expressly agreed that title
in and to any Delivery Material provided to Licensee hereunder will remain
in Licensor at all times and that title, including copyrights therein, will
vest in Licensor upon the creation thereof, subject only to the possession
and control thereof by Licensee from the date of delivery through the end
of the related license period solely for the purposes of exercising its
rights hereunder. Licensee will execute, acknowledge and deliver to
Licensor any instruments of transfer, conveyance or assignment in or to any
such Delivery Materials 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 will be deemed to be, and Licensee hereby nominates,
constitutes and appoints Licensor, its true and lawful attorney-in-fact
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. Licensee will not have the right to use any Delivery Materials
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. Notwithstanding the foregoing, if Licensor wishes to exploit any
version of a Program included in the Delivery Materials that Licensee has
caused to be dubbed into another language, Licensor will reimburse Licensee
for * * * of the direct costs of creating such dubbed version (unless
Licensor at such time holds an ownership interest in Licensee of * * * or
more, in which case Licensor will reimburse Licensee for * * * of such
costs).
6. PROGRAM LICENSE FEES. Licensee will pay Licensor program license fees as
set forth below (collectively, the "Program License Fees"), it being agreed
that the full amount of all payments to be made by "Licensee" under this
Agreement will be made by PTVI and that the portion thereof to be paid by
PTV US will be paid by PTV US to PTVI pursuant to arrangements between
them:
6.1 Existing Program Library and Wallpaper. The license fee for
the rights granted hereunder with respect to the Existing Library Programs
and the Wallpaper is included in the Rights Acquisition Fee described in
the Operating Agreement and is payable as set forth in the Operating
Agreement.
6.2 Output Programs.
6.2(a) General Payment Terms. For the rights granted
hereunder with respect to the Output Programs, Licensee will pay to
Licensor a license fee which will be calculated as a specified percentage
of the total cost to Licensor to produce, or acquire the worldwide rights
to, such Output Programs each Fiscal Year. For each Fiscal Year, the
Program License Fee for the Output Programs (as determined in reference to
the Fixed Percentage, Reset Mechanism, Production Budget Option and
Licensor Production Supply Option, as hereinafter defined), will be paid in
* * * payable within ten (10) business days after Licensor delivers to
Licensee the last Program produced or acquired under the Production Budget
for the applicable Fiscal Year; provided, however, in the event that in a
given Fiscal Year PEGI actually spends less than the amount of the
Production Budget for the production and acquisition of Output Programs,
the final payment due with respect to such year will be reduced
accordingly. Licensee will pay the installments that otherwise would have
been due on March 20, 1999, June 20, 1999 and September 20, 1999 on the
Funding Date.
6.2(b) Production Budget. Licensor agrees to produce (and/or
acquire the worldwide rights to) Output Programs. For the purposes of
calculating the Program License Fee for the Output Programs, the Output
Programs for Fiscal Year 1 will carry an actual total
production/acquisition cost (the "Production Budget") of no more than * * *
The Production Budget for each Fiscal Year may increase by no more than * *
* over the prior Fiscal Year, except by agreement of Licensor and Licensee.
The Production Budget for Fiscal Year 1 will include overhead of no more
than * * *, and overhead may increase in subsequent Production Budgets by
no more than * * * per year (the "Overhead Cap"); provided, however, that
in any Fiscal Year that Licensor exercises the Production Supply Option (as
described in Section 6.2(h)), the overhead in that year's Production Budget
will be reduced pro rata with respect to the overhead that would have been
includible had Licensor not elected the Production Supply Option (without
otherwise affecting the growth of the Overhead Cap in Fiscal Years in which
the Production Supply Option is not in effect).
6.2(c) Licensor Production Obligations. Licensor warrants
that the annual Production Budget for Output Programs will fund the
production and acquisition of "Playboy"-and "Spice"-type programs only,
and not any Alta Loma programs (as described in Section 6.3). Licensor
further warrants that the style, content, mix and budgets of the Output
Programs will be generally consistent with the current programming of the
Playboy TV and Spice channels as they are constituted in the United States
(with respect to the Spice channel, such Output Programs will be consistent
with that channel as modified by Licensor after the Spice Closing). For
purposes of clarity, this means that in each Fiscal Year (i) the relative
number of hours of series, specials, and movies (taking into account the
number of movies acquired by Spice Entertainment Companies, Inc. in 1998)
will be substantially similar to those produced or acquired by Licensor in
1998 (excluding Alta Loma programs); and (ii) the ratio of the number of
hours of Licensor-produced programs relative to the total number of hours
of Output Programs will be no less than as in 1998. Relevant information
about the current mix of Licensor programming is set forth in Schedule
6.2(c). In the event Licensor fails to produce Output Programs at a level
of hours and mix which is substantially similar to such levels as
contemplated herein (the "Licensor Shortfall"), Licensee will have the
right to provide for the production and acquisition of a sufficient supply
of programs to replace the Licensor Shortfall. (For the avoidance of doubt,
the parties acknowledge that in the event of a Licensor Shortfall, the
Program License Fee due for such year will be calculated based on the total
cost of the Output Programs actually produced or acquired during such
year.)
6.2(d) Calculation of License Fee for Output Programs. For
each Fiscal Year, the Program License Fee for the Output Programs will be
determined by reference to the Fixed Percentage, Reset Mechanism,
Production Budget Option and Production Supply Option (as defined below).
The aggregate amount due with respect to the percentage of the Production
Budget or Licensor Budget Option to be paid by Licensee as a Program
License Fee for the Output Programs pursuant to this Section (the
"Applicable Percentage") is subject to the crediting of certain amounts
pursuant to the Streaming adjustment described in Section 6.2(i), if
applicable.
6.2(e) Fixed Percentage. Unless the Reset Mechanism,
Production Budget Option or Production Supply Option otherwise apply, the
annual Program License Fee for Output Programs will be a "Fixed Percentage"
of the Production Budget for the applicable Fiscal Year, as follows:
6.2.(e)(i) For Fiscal Years 1 and 2: * * *
6.2.(e)(ii) For Fiscal Year 3: * * *
6.2.(e)(iii) For Fiscal Year 4: * * *
6.2.(e)(iv) For Fiscal Year 5: * * *
6.2.(e)(v) For Fiscal Year 6: * * *
6.2.(e)(vi) For Fiscal Year 7: * * *
6.2.(e)(vii) For Fiscal Year 8: * * *
6.2.(e)(viii) For Fiscal Year 9 and thereafter: * * *;
provided, that in any Fiscal Year commencing in Fiscal Year 9 * * *, and
in such event, Licensor will refund the excess Program License Fee actually
paid by Licensee for such Fiscal Year within thirty (30) days after
Licensor issues its audited financial statements for such year. "Net
Channel Revenues" will mean all revenues received by the Channels as
reflected in the audited year end statements of Licensee, and "Threshold
Revenues" will mean the Net Channel Revenues for Fiscal Year 10; provided,
that for any Fiscal Year in which Licensee * * *
6.2(f) The Reset Mechanism. For each Fiscal Year commencing
with Fiscal Year 6, Licensee and Licensor will recalculate the percentage
of the Production Budget to be paid by Licensee as the Program License Fee
for Output Programs (the "Reset Mechanism"), using the following method:
6.2.(f)(i) * * *
6.2.(f)(ii) * * *
6.2.(f)(iii) * * *
6.2.(f)(iv) * * *
6.2.(f)(v) * * *
* * *
6.2(g) Licensee Production Budget Option. Starting in Fiscal
Year 4, Licensee may choose to fund a reduced percentage of the Production
Budget for a given Fiscal Year (the "Production Budget Option") if either:
(i) earnings before interest and taxes (i.e., EBIT) of Licensee for the
Fiscal Year just ended (according to the audited financial statements of
Licensee) (the "Actual Net Cash Flow") fell below the EBIT projected in the
approved Business Plan for that Fiscal Year (the "Plan Net Cash Flow") by
(a) 15% or more for Fiscal Year 4 and (b) 10% or more (in the event
Licensor then owns less than 50% of the percentage interests in Licensee)
or by 20% or more (in the event Licensor then owns at least 50% of the
percentage interests in Licensee) for any other Fiscal Year; or (ii) the
product of (y) the absolute value of the amount by which the Plan Net Cash
Flow is greater than the Actual Net Cash Flow multiplied by (z) Lifford's
percentage interest in Licensee as of the first day of the Fiscal Year then
beginning equals One Million Dollars ($1,000,000) or more, as follows:
6.2.(g)(i) On or about March 1, Licensee will notify
Licensor of (i) Licensee's Actual Net Cash Flow for the Fiscal Year just
completed and (ii) the Plan Net Cash Flow for that Fiscal Year. If the
Actual Net Cash Flow fell short of the Plan Net Cash Flow so as to satisfy
either of the conditions of Section 6.2(g), Licensee may notify Licensor
that Licensee is exercising the Production Budget Option by the later of
March 10 or ten (10) days after Licensor has received Licensee's audited
financial statements for the previous year.
6.2.(g)(ii) Upon exercising the Production Budget
Option, Licensee will be obliged to pay a license fee for the Output
Programs equal to the product of 40% of the Production Budget for that
Fiscal Year. This 40% will be referred to as the "Option Percentage." By
way of example, if Licensee timely notifies Licensor that the difference
between the Actual Net Cash Flow for Fiscal Year 5 and the Plan Net Cash
Flow for Fiscal Year 5 satisfies either of the conditions of Section 6.2(g)
and that Licensee is exercising the Production Budget Option, the 40%
Option Percentage will supersede whichever of the Fixed Percentage or the
Reset Percentage would have otherwise been in effect for Fiscal Year 6.
6.2(h) Production Supply Option. In the event that Licensee
notifies Licensor that it is exercising the Production Budget Option for a
given Fiscal Year, Licensor may elect to supply Output Programs for that
Fiscal Year (the "Production Supply Option"), as follows:
6.2.(h)(i) Licensor may elect either: (i) to produce a
slate of programming at the Production Budget for that Fiscal Year, in
which case the Program License Fee will be equal to * * * of the Production
Budget; or (ii) to produce a slate of programming whose budget (the
"Licensor Budget Option") will be equal to * * * of the Production Budget
divided by the Fixed Percentage for that Fiscal Year, in which case the
Program License Fee will be equal to the product of the Fixed Percentage
multiplied by the Licensor Budget Option. If Licensor elects the Licensor
Budget Option, the mix of Output Programs supplied (as described in Section
6.2(c)) must remain substantially unchanged.
6.2.(h)(ii) Licensor will notify Licensee of its
election under the Production Supply Option within ten (10) days of
receiving Licensee's notice it is exercising the Production Budget Option.
Example: * * *
6.2(i) * * *
6.2.(i)(i) On or about each March 1 (or as soon
thereafter as PEI's audited financial statements are available) Licensor
will notify Licensee of the * * *. To assist Licensee in its budgeting
process, on or about each October 15, Licensor will * * *
6.2.(i)(ii) On or about each March 1 (or as soon
thereafter as Licensee's audited financial statements are available) * * *
6.2.(i)(iii) * * *
6.2.(i)(iv) * * *
Example: * * *
6.3 Maintenance of Records and Audit Rights.
6.3(a) Licensor and Licensee will keep accurate books of
account and records covering all transactions relating to or arising out of
this Agreement, including all items necessary to calculate the Program
License Fees for Output Programs (i.e., the Production Budget and Licensor
Applicable Revenue for Licensor, and Net Channel Revenues, Plan Net Cash
Flow and Actual Net Cash Flow for Licensee). Either party will have the
right, within 24 months after the end of a given Fiscal Year, to inspect
the books and records of the other party in connection with the Program
License Fees paid with respect to such Fiscal Year. Upon receipt of written
notice that a party wishes to commence such an inspection or examination,
the other party will permit such party and its employees, accountants and
agents to (i) have reasonable access to and inspect such books and records
during normal business hours upon reasonable notice, and (ii) to review and
copy all such books and records, to the extent relevant to the calculation
of the Program License Fee. Each party will maintain in good order and
condition all such books and records relating to a given Fiscal Year for
not less than three years after the end of such Fiscal Year, or in the
event of a dispute between the parties, until such dispute is resolved,
whichever date is later. Receipt or acceptance by Licensor, or payment by
Licensee, of all or a portion of the Program License Fee for a given Fiscal
Year will not preclude such party from exercising its rights hereunder.
6.3(b) If an inspection or examination conducted pursuant to
Section 6.3(a) discloses, or Licensor or Licensee otherwise discover, an
underpayment of Program License Fees, the amount of such underpayment will
be paid by Licensee to Licensor not later than thirty (30) days after the
determination thereof, and, if such underpayment was due to the
misstatement by Licensee of Net Channel Revenues, Actual Net Cash Flow or
Plan Net Cash Flow, then such payment will also include interest from the
date the payment should have been made to and including the date of payment
at the Reference Rate in effect on the date payment should have been made.
If such underpayment of Program License Fees by Licensee is due to
Licensee's misstatement of Net Channel Revenues, Actual Net Cash Flow or
Plan Net Cash Flow and such underpayment is in excess of ten percent (10%)
of the aggregate Program License Fees owed for such Fiscal Year, Licensee
will, in addition to paying Licensor the amount of such underpayment plus
interest, reimburse Licensor for all reasonable costs and expenses of
conducting such inspection or examination.
6.3(c) If an inspection or examination referred to in
Section 6.4(a) discloses, or Licensee otherwise discovers, an overpayment
of Program License Fees for a given Fiscal Year, the amount of such
overpayment will be credited against future payments of Program License
Fees, unless the period for which such overpayment was made is the final
period covered by this Agreement, in which case the amount of the
overpayment will be paid by Licensor to Licensee within thirty (30) days
after determination thereof. If such overpayment of Program License Fees is
the result of a misstatement by Licensor of the Production Budget or
Licensor Applicable Revenue, and the amount of such overpayment is in
excess of ten percent (10%) of the Program License Fees actually owed for
such Fiscal Year, Licensor will reimburse Licensee for all reasonable costs
and expenses of conducting such inspection or examination.
7. REPRESENTATIONS AND WARRANTIES; INDEMNITIES.
7.1 Representations and Warranties.
7.1(a) By Licensor. Licensor represents and warrants that,
except as set forth in the Schedules hereto: (i) it is duly authorized to
enter into the transactions contemplated by this Agreement; (ii) this
Agreement is a valid and binding obligation of Licensor, enforceable
against it in accordance with its terms; (iii) the performance of
Licensor's obligations hereunder does not violate any agreement, law, rule,
or regulation binding on Licensor or Licensor's charter documents; (iv)
subject to Section 7.4, it has, and will continue to have, all rights in
and to the Existing Library Programs, Output Programs and Wallpaper
necessary to fulfill its obligations hereunder (except that with respect to
the Existing Library, no such representation is made as to any program not
listed on Schedules 2.1(a)-1, 2.1(a)-2 and 2.1(a)-3); (v) except for the
license between Licensor and third parties which Licensor is assigning to
Licensee, the Existing Library Programs, Output Programs and Wallpaper are
not subject to licenses which conflict with the rights granted herein, and
the use thereof by Licensee as contemplated herein will not infringe upon
the copyright, literary or dramatic right or right of privacy of any third
party or constitute a libel or slander of any third party; (vi) the
licenses between Licensor and third parties which Licensor is assigning to
Licensee are assignable, valid and enforceable, that the licensees under
such licenses have not pre-paid the license fees, if any, due thereunder
(except in accordance with the terms of such licenses), and, to the best of
Licensor's knowledge and belief, such licensees do not have any claims,
offsets or defenses which are adverse to Licensee's rights hereunder; and
(vii) Licensor has disclosed all material information relating to the
rights granted hereunder, and that all such information is true and correct
to the best of Licensor's knowledge and belief.
7.1(b) By Licensee. Licensee represents and warrants that:
(i) it is duly authorized to enter into the transactions contemplated by
this Agreement; (ii) this Agreement is a valid and binding obligation of
Licensee, enforceable against it in accordance with its terms; (iii) the
performance of Licensee's obligations hereunder does not violate any
agreement, law, rule, or regulation binding on Licensee or Licensee's
charter documents; and (iv) it will not use the Company Programing except
as authorized by this Agreement.
7.2 Indemnification.
7.2(a) By Licensor. Licensor will indemnify and hold
harmless Licensee and its and members, managers, directors, officers,
shareholders, employees, agents, representatives and affiliates
(collectively, the "Licensee Indemnified Parties"), on an After Tax Basis,
from and against all claims, losses, damages (including loss of profits and
consequential damages awarded to unrelated third parties, if any, but
excluding loss of profits and consequential damages otherwise suffered by
the Licensee Indemnified Parties), expenses, judgements, costs and
liabilities (including reasonable attorneys' fees and costs) (collectively,
"Losses") incurred by the Licensee Indemnified Parties arising from
Licensor's breach of any obligation, representation or warranty contained
in this Agreement. Notwithstanding the foregoing any claims for
indemnification that any Licensee Indemnified Parties may have pursuant to
this Section 7.2(a) will exclude claims based on information known by
Lifford (or its Affiliates, including Bloomfield) as of the Funding Date
whether or not such information formed the basis of the issues raised by
Bloomfield during Due Diligence (as defined in the Operating Agreement) and
whether or not asserted prior to the Walk Away Notice (as defined in the
Operating Agreement) or thereafter. In the event of a dispute regarding a
claim for indemnification, the Licensee Indemnified Party will have the
burden of proof in establishing the validity and amount of the claim, and
Licensor will have the burden of proof in establishing any defense to such
claim, including but not limited to, a defense asserted by Licensor that
Lifford (or its Affiliates) had knowledge of the requisite facts.
Notwithstanding the foregoing, Licensor will not be obligated to provide
indemnification where there is any admission of guilt by any Licensee
Indemnified Party charged with violation of the law as to the content of
any Company Program.
7.2(b) By the Licensee. Licensee will indemnify and hold
harmless Licensor and its directors, officers, shareholders, employees,
agents, representatives and affiliates (collectively, the "Licensor
Indemnified Parties"), on or After Tax Basis, from and against all Losses
incurred by the Licensor Indemnified Parties arising from Licensee's breach
of any obligation, representation or warranty contained in this Agreement.
7.3 Musical Compositions. Licensor warrants and represents that to
the best of its knowledge, information and belief, the performing rights in
all musical compositions contained in the Programs are (a) controlled by a
performing rights society having jurisdiction, (b) controlled by 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. Licensee
will be solely responsible for the payment of such royalty or fee and will
hold Licensor free and harmless therefrom.
7.4 Procedure. If a claim by a third party is made against an
indemnified party, the indemnified party will promptly notify the
indemnifying party of such claim. Failure to so notify the indemnifying
party will not relieve the indemnifying party of any liability which the
indemnifying party might have, except to the extent that such failure
materially prejudices the indemnifying party's legal rights. The
indemnifying party will have thirty (30) days after receipt of such notice
to undertake, conduct and control through counsel of its own choosing
(subject to the approval of the indemnified party, such approval not to be
unreasonably withheld) and at its expense, the settlement or defense of
such claim, and the indemnified party will cooperate with the indemnifying
party in connection therewith; provided, however, that (i) the indemnifying
party will permit the indemnified party to participate in such settlement
or defense through counsel chosen by the indemnified party, provided that
the fees and expenses of such counsel will be borne by the indemnified
party and (ii) the indemnifying party will reimburse the indemnified party
for the full amount of any Loss resulting from such claim and all related
expenses incurred by the indemnified party within the limits of this
Section 7 as such are incurred. If the indemnifying party does not notify
the indemnified party within thirty (30) days after actual receipt of the
indemnified party's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof (which may be with a reservation of rights
by such indemnifying party) or so notifies the indemnified party but fails
to undertake or maintain such defense promptly and in good faith so that a
default is threatened, the indemnified party will promptly notify the
indemnifying party whether it desires to undertake the defense of such
claim. If the indemnifying party does not within ten (10) business days
thereafter elect to undertake the defense thereof, the indemnified party
will have the right to contest, settle or compromise the claim in the
exercise of its reasonable judgment and without prejudice to the rights of
the indemnified party to indemnification hereunder. Notwithstanding
anything contained herein, the indemnified party will not enter into any
settlement or compromise that provides for any remedy other than money
damages without the prior written approval of the indemnifying party, which
approval will not be unreasonably withheld.
7.5 Taxes. Licensee will 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 hereinafter 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
hereunder whether or not billed or demanded by Licensor; it being the
intent hereof that the Program License Fees will be a net amount, free and
clear of any tax, levy or charge of whatsoever kind or nature howsoever
denominated except: (i) Licensor Taxes; (ii) any tax imposed on Licensor
that would not have been imposed had it engaged only in the transactions
contemplated hereunder; or (iii) any tax for which Licensor (or any member
of its affiliated group) obtains a foreign tax credit or could have
obtained such credit had it sought to. 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 a tax payment certificate or other similar document) to allow
Licensor to deduct such tax payment in the United States. To the extent
that any such other taxes, levies, or charges or penalties and interest
thereon are paid by Licensor, Licensee will reimburse Licensor on demand,
and on the failure of Licensee to reimburse Licensor, Licensor will have
available to it all of the remedies provided for herein with respect to
unpaid Program 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 will indemnify Licensor for
any liability, penalty or interest which may result and Licensor will have
the immediately aforementioned remedies against Licensee for the collection
of same. Licensor will have no obligation to contest or to dispute any tax
assessed or levied. Licensee will have the right to do so at its sole cost
and expense, and Licensor will provide Licensee with reasonable cooperation
relating to any such contest or dispute.
8. TERMINATION.
8.1 Expiration of Term. The License Term is fifty (50) years
commencing on the date of formation of PTVI unless sooner terminated
pursuant to the other provisions of this Section 8.
8.2 Early Termination on Breach. Licensor may without prejudice to
its other remedies terminate this Agreement by notice in writing to
Licensee on or after the occurrence of any of the following:
8.2(a) PEII has terminated the Trademark License Agreement;
8.2(b) Licensor elects to dissolve Licensee as the result of
VSI's (or its Affiliates that are members of Licensee) being in default of
its obligations under the Operating Agreement; or
8.2(c) PTVI is in material default of its obligations under
the Stock Purchase Agreements (as defined in the Operating Agreement) and
such default, if curable, is not cured within thirty (30) days after PTVI
has received written notice thereof from Licensor (provided such default is
not the result of action or inaction by Licensor as a Member of PTVI).
A party may without prejudice to its other remedies
terminate this Agreement by notice in writing to the other on or after
either of the following:
8.2(d) the commission of one or more material breaches of
this Agreement by the other party which are not capable of remedy; provided
that in the case of a breach by the Licensee, such breach is not caused by
Licensor as a Member of PTVI; or
8.2(e) the commission of a material breach of this Agreement
by the other party which is capable of remedy (a "Remediable Breach") which
will not have been remedied within a period of thirty (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 thirty
(30)-day period will be extended for such additional period as will be
reasonably necessary if that Remediable Breach is incapable of remedy
within that thirty (30) day period and during that thirty (30)-day period
the party in breach will 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; and
further provided that such breach is not caused by Licensor as a Member of
PTVI. The parties agree that any inadvertent breach relating to Licensor's
obligations with respect to any individual program will constitute a
Remediable Breach and will not constitute grounds for termination hereof if
Licensor provides comparable substitute programming for the applicable
program.
9. EFFECTS OF TERMINATION.
9.1 Survival of Obligations. The termination of this
Agreement for whatever reason will not affect any provision of this
Agreement which is expressed to survive or operate in the event of its
termination and will not prejudice or affect the rights of either party
against the other in respect of any breach of this Agreement or in respect
of any moneys payable by one party to the other in relation to any period
prior to termination.
9.2 Termination of Rights. Upon the date on which any
termination of this Agreement for whatever reason takes effect (the
"Termination Date") all rights of Licensee hereunder will immediately
terminate and automatically revert to Licensor and Licensee will cease to
make any use of the Programs and other materials provided by Licensor
hereunder.
9.3 Further Assurances. Upon termination of this Agreement,
the parties will perform all other acts which may be necessary or useful to
render effective the termination of Licensee's interests in the Programs
and other materials furnished by Licensor hereunder and Licensee will
execute any assignment, conveyance, acknowledgment or other document that
Licensor may reasonably request relinquishing such interests.
10. EQUITABLE RELIEF.
Each of Licensor and Licensee acknowledges that any material
breach of this Agreement by such party, including, by way of example,
Licensee's failure to cease using the any programming supplied hereunder
upon the expiration or termination of this Agreement, will result in
irreparable harm to the other party for which there is no adequate remedy
at law. Accordingly, in such event, Licensor or Licensee, as the case may
be, will be entitled to preliminary or temporary equitable relief in any
Federal or State Court of competent jurisdiction located in Los Angeles
County, California pending a final determination in accordance with Section
11, without the necessity of posting bond unless otherwise required by
applicable law by way of any or all of the temporary and permanent
injunctions and such other relief as any court of competent jurisdiction
may deem just and proper.
11. DISPUTE RESOLUTION.
11.1 General Agreement Regarding Dispute Resolution. Any dispute
arising out of or relating to this Agreement will be resolved in accordance
with the procedures specified in this Section 11, which will be the sole
and exclusive procedures for the resolution of any such disputes. The
parties intend that these provisions will be valid, binding, enforceable
and irrevocable and will survive any termination of this Agreement;
provided, however, that this Article will not apply to any dispute
concerning the validity, ownership or control of the trademarks licensed by
PEII to the Company pursuant to the Trademark License Agreement or the
copyrights to any programming supplied by Licensor to the Program Supply
Agreement, and instead any such dispute will be litigated in a court of
law.
11.2 Notification and Negotiation. The parties will promptly
notify each other in writing of any dispute arising out of or relating to
this Agreement. The parties will 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 clause are
confidential and will be treated as compromise and settlement negotiations
for purposes of applicable rules of evidence.
11.3 Mediation. If any such dispute remains unresolved within
thirty (30) days of original notice thereof, the parties will 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.
11.4 Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach, termination or validity thereof,
which remains unresolved forty-five (45) days after appointment of a
mediator, will 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 in Sections 11.2 and 11.3, the other may initiate binding arbitration
before expiration of the above period for negotiation and mediation. The
arbitration will be governed by the United States Arbitration Act, 9 U.S.C.
ss. 1-16, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of arbitration
will be Los Angeles, California.
11.5 Damages. 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 will have
the authority to include, as an item of damages, the costs of arbitration,
including reasonable 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" will 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.
11.6 Statute of Limitations. The statute of limitations of the
State of California applicable to the commencement of a lawsuit will apply
to the commencement of an arbitration hereunder, except that no defenses
will be available based upon the passage of time during any negotiation or
mediation called for by the preceding paragraphs of this Section 11.
11.7 Confidential Negotiations. All negotiations pursuant to
Sections 11.2 and 11.3 are confidential and will be treated as compromise
and settlement negotiations for purposes of applicable rules of evidence.
11.8 Service of Process; Forum. Each party agrees that service by
registered or certified mail, return receipt requested, delivered to such
party at the address provided in Section 12.6 (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 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.
11.9 Additional Provisions to Enforce Awards. 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 other jurisdictions in the Territory.
12. MISCELLANEOUS.
12.1 Force Majeure. Subject to the right to terminate set forth in
Section 8.2(e), neither party will be liable to the other for any failure
or delay in delivery of Delivery Materials, or the inability to telecast
any of the Programs, due to accident involving breakdown of any satellite
or of transmission facilities or equipment, labor disputes, acts of God,
failure of carriers, failure or delay of laboratories, of or any other
cause beyond the control of such party (each, an event of "Force Majeure")
and such performances will be excused to the extent that it is prevented by
reason of any of the foregoing conditions. Notwithstanding the foregoing,
an event of "Force Majeure" will not include censorship restrictions or any
restriction by any jurisdiction on a party's right to transfer funds. If at
the end of the term the Licensor in good faith determines that any event 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.
12.2 Binding Effect; No Assignment. The provisions of this
Agreement will be binding on and enure to the benefit of the successors of
each party hereto; provided, however, that no party may assign, transfer,
pledge, hypothecate, charge or otherwise dispose of or subcontract any of
its rights or obligations hereunder without the prior written consent of
the other party. Notwithstanding the foregoing: (i) either party may assign
its rights and obligations hereunder to an Affiliate of such party, but the
original party will remain responsible and liable for such Affiliate's
compliance with all of such original party's obligations hereunder, and in
the case of an assignment by Licensor, such Affiliate must be the owner of
the rights in the programming and materials necessary to perform Licensor's
obligations hereunder; and (ii) in the event Lifford (or an Affiliate of
Lifford which is then a member of Licensee) dissolves Licensee due to a
breach by Licensor (or an Affiliate of Licensor which is then a member of
Licensee) of the Operating Agreement, Lifford (or such Affiliate) may cause
Licensee's rights hereunder to be assigned to Lifford (or to an Affiliate
of Lifford), provided that Licensee's rights under the Trademark License
Agreement are assigned to the same assignee. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective permitted successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
12.3 Invalidity. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdictions.
12.4 Waivers, Remedies Cumulative, Amendments, etc.
12.4(a) No failure or delay by any of the parties hereto in
exercising any right, power or privilege under this Agreement will operate
as a waiver thereof nor will any single or partial exercise by any of the
parties hereto of any right, power or privilege preclude any further
exercise thereof or the exercise of any other right, power or privilege.
12.4(b) Except as otherwise provided in this Agreement, the
rights and remedies herein provided are cumulative and not exclusive of any
rights and remedies provided by law.
12.4(c) 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.
12.5 Notices.
12.5(a) All notices, requests, demands and other
communications required to be given under this Agreement will conclusively
be deemed to have been duly given (a) when hand delivered, (b) the next
business day if sent by a generally recognized overnight courier service
that provides written acknowledgment by the addressee of receipt, or (c)
when received (with appropriate answerback), if sent by facsimile
transmission or other generally accepted means of electronic transmission
addressed as follows:
If to Licensor 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 PTVI or PTV U.S.:
Playboy TV International LLC
c/o Cisneros Television Group
Attention: Director Legal and Business Affairs
404 Washington Avenue, 8th Floor
Miami Beach, FL 33139
United States of America
Fax Number: (305) 894-3606
With copies to:
Playboy Enterprises, Inc.
Attention: General Counsel
680 North Lake Shore Drive
Chicago, IL 60611
United States of America
Fax Number: (312) 266-2042
and
Glenn Dryfoos, Esq.
Greenberg, Glusker, Fields, Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
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.
12.5(b) All notices will be deemed given when received at
the address(es) as provided in paragraph (a) above.
12.6 Governing Law. ALL QUESTIONS WITH RESPECT TO THIS AGREEMENT
AND THE RIGHTS AND LIABILITIES OF THE PARTIES WILL BE GOVERNED BY THE LAWS
OF THE STATE OF DELAWARE, IRRESPECTIVE OF THE CHOICE OF LAWS PROVISIONS OF
DELAWARE OR OF ANY OTHER JURISDICTION.
12.7 Entire Agreement. This Agreement, together with its
attachments, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral and written, between the parties hereto
with respect to the subject matter hereof.
12.8 Rules of Construction.
12.8(a) Headings. The section headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit, or
extend or interpret the scope of this Agreement or of any particular
section.
12.8(b) Tense and Case. Throughout this Agreement, as the
context may require, references to any word used in one tense or case will
include all other appropriate tenses or cases.
12.8(c) 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.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
12.10 Relationship Between the Parties. This Agreement will not be
construed to place the parties in the relationship of partners or joint
venturers.
12.11 Time is of the Essence. Time will be of the essence with
respect to each and every obligation of Licensee and Licensor hereunder.
12.12 Effectiveness. This Agreement will be binding on, and
effective with respect to PTVI, as of the date hereof. This Agreement will
be binding on, and effective with respect to PTV U.S., as of the date of it
executes this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the date
first above written.
Date: 8/31/99 LICENSOR:
PLAYBOY ENTERTAINMENT GROUP, INC.
By: /s/ Anthony J. Lynn
-------------------------------
Name: Anthony J. Lynn
Title: President
Date: 8/31/99 LICENSEE:
PLAYBOY TV INTERNATIONAL LLC
By: /s/ Anthony J. Lynn
-------------------------------
Name: Anthony J. Lynn
Title: Director
Date: PTV U.S., LLC
--------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
ACKNOWLEDGED, ACCEPTED AND AGREED
ON BEHALF OF ALL LICENSOR AFFILIATES:
PLAYBOY ENTERPRISES, INC.
By: /s/ Anthony J. Lynn
---------------------------------
Name: Anthony J. Lynn
Title: Executive Vice President