Exhibit 10.3
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.
EXECUTION COPY
SATELLITE CAPACITY LEASE
This Satellite Capacity Lease (the "Lease") is entered into as of August
21, 2006 (the "Effective Date") by and between Playboy Entertainment Group,
Inc., a Delaware corporation, and Spice Hot Entertainment, Inc., a Delaware
corporation (collectively, "Playboy"), on the one hand, and Transponder
Encryption Services Corporation, a Colorado corporation ("TESC"), on the other
hand.
RECITALS
A. TESC is in the business of leasing satellite capacity on satellites using
Ku-Band and/or Ka-Band frequencies.
B. Playboy desires to lease certain satellite capacity from TESC for the purpose
of transmitting the Services in a digitally-compressed and encrypted format for
receipt by end users in the Territory.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties mutually agree as follows:
LEASE
1. CERTAIN DEFINITIONS:
The following terms shall have the meanings set forth below:
(a) "Adult" means any programming edited to the "X" standard (also referred to
herein as a version or a rating) or higher, as such standard is commonly
referred to in the Adult programming industry).
(b) "Adult Package" means a package of some or all of the Services with other
Adult oriented programming services available to be purchased by Subscribers as
part of a "cascaded" or "tiered" package of multiple services during the same
discrete period of time, including without limitation the Adult Showcase as
described below.
(c) "Affiliate" with respect to either party to this Lease means any person or
entity that directly or indirectly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with a party to this
Lease. For the purposes of this definition, the term "Control" (including the
words "controlling" or "controlled by") shall mean the power to direct or cause
the direction of the management, policies and/or affairs of a person or entity
whether through the ownership of voting securities, by contract or otherwise.
Confidential and Proprietary Page 1 of 30
(d) *****
(e) "Contract Year" means the twelve (12) month period during the Term following
the ***** Commencement Date or any anniversary of the ***** Commencement Date
(as such term is defined in Section 5(a) of this Lease).
(f) "Distributor" means any multi-channel video program distributor (as defined
in Section 76.1000 of the Federal Communications Commission rules) of a Service
in the Territory that has a multi-channel video distribution business
distributing broadcast and cable network channels.
(g) "Distributor Affiliate" means an Affiliate of a Distributor which itself is
not a Distributor.
(h) "Facility" means the reception, compression and uplink facility(ies)
operated by TESC or its Affiliate in Cheyenne, Wyoming; Gilbert, Arizona, or any
additional location(s) in the continental United States designated by TESC.
(i) "Internet" means the publicly available worldwide system of interconnected
computer networks that transmit data by packet switching using IP technology.
(j) "Marks" means the service marks, trademarks, trade names and logos used in
connection with the Services and VOD programs that are owned by Playboy or its
parent corporation Playboy Enterprises, Inc. ("PEI"), including without
limitation "PLAYBOY," "PLAYMATE," "PLAYBOY TELEVISION," "PLAYBOY TV," the RABBIT
HEAD DESIGN, "SPICE XCESS," "CLUB JENNA," "SHORTEEZ" and "FRESH!", all of which
are being licensed herein for use only in connection with the transmission of
the Services in accordance with the terms and conditions contained in this
Lease.
(k) "Opt-Out Locations" means the geographic areas for which TESC makes the
determination that it should not distribute Adult programming of a certain
editing standard (as such standard is accepted by the Adult programming
industry) and TESC, in its sole discretion, blocks receipt of one or more
Services because of the editing standard or content of the Service, pursuant to
Section 10(b) of this Lease; provided, that TESC must block receipt of any other
programming service of the same editing standard in such geographic area during
the period that any Service is blocked. Any locations to which TESC blocks a
Service shall be an "Opt-Out Location" for purposes of this Lease. *****
(l) "Package Purchase" means the purchase by a Subscriber of, and the
intentional authorization by TESC of the Subscriber to receive, an Adult
Package.
(m) "PCOD" means the receipt by a Subscriber of a video program on a Service on
a VOD basis from a Playboy-selected group of video programs that are transmitted
to Subscribers who have made a Subscription Purchase for that Service. Such
receipt may be at no additional cost (other than the cost of the subscription of
the underlying Service) or may be at an additional charge, as determined by TESC
in its sole discretion. As of the Effective Date, Playboy offers PCOD only for
Playboy TV. If Playboy makes other programming in the Services available on a
PCOD basis, TESC shall have the right to transmit such programming to
Subscribers on a PCOD basis in accordance with the terms of this Lease, and such
delivery shall be covered by the terms of the "Most Favored Nations" section of
this Lease.
(n) "PCOD Selection" means the selection by a Subscriber of a video program on a
Service on a PCOD basis.
TESC Confidential and Proprietary Page 2 of 30
(o) "Pay-Per-View" or "PPV" means the ability of a Subscriber to purchase the
right to view a program or block of programming provided by Playboy as part of a
Service which is packaged and sold uniquely for PPV viewing for a single charge
for each separate viewing. The length of the block of programming shall be
designated by TESC; provided, that, unless agreed to by both parties (i) the
length of the block of Playboy TV shall not exceed (1) calendar day and (ii) the
length of the block of the other Services shall not exceed four (4) hours. If
TESC requests the ability to exceed the length limit described in the previous
sentence for a promotion or other reason, the parties shall both negotiate in
good faith regarding the accommodation of that request.
(p) "PPV Purchase" means the purchase by a Subscriber of, and the intentional
authorization by TESC of the Subscriber to receive, PPV programming.
(q) "Services" means the five (5) 24 x 7 linear programming services, as
delivered by Playboy to TESC, to be transmitted to Subscribers pursuant to this
Lease for PPV Purchases and Subscription Purchases, which Services are: "Playboy
TV," "Spice Xcess," "Club Jenna," "Shorteez" and "Fresh!" all as more full
described in Exhibit A. The term, "Services" includes all components and parts
of any of the Services including, without limitation, all interactive
components, graphics, scrolls or other visual graphics and all portions of the
VBI (or its digital equivalent) and any commercial advertising that may air on
any of the Services, all as part of the 24 x 7 linear services. Any individual
one of the above-listed programming services may be referred to in this Lease as
a "Service."
(r) "Set-Top Box" means those certain conditional access and control hardware
components that connect to, or are integrated as part of, a television or other
video output display device ("Display Device") (including a computer monitor to
the extent that the computer providing a signal to the monitor has a video card
with a television input with the purpose of the computer being used as a
television) and also connect to the Transmission System, the content of which
then is displayed on the Display Device, and which have been commercially
adopted for use with the Transmission System for delivery of television
programming services to viewers at a residential or, if permitted herein,
commercial location.
(s) "Signal(s)" means the programming signal or feed containing programming of
any of the Services including all video, audio, data and other components as
delivered by Playboy to the Facility.
(t) "Subscriber" means any residential or non-residential location or person in
the Territory that is intentionally authorized by TESC to receive any level of
television programming service or package of television programming services via
the Transmission System, either directly or through a Sub-Distributor (as
defined below).
(u) "Subscription Purchase" means the purchase by a Subscriber of, and the
intentional authorization by TESC of the Subscriber to receive, one or more of
the Services from the Transmission System on a monthly subscription basis that
automatically renews for an additional monthly period unless action is taken by
a Subscriber to discontinue the monthly subscription.
(v) "Territory" means the United States, its territories, commonwealths and
possessions, including without limitation the District of Columbia, Puerto Rico
and the United States Virgin Islands.
TESC Confidential and Proprietary Page 3 of 30
(w) "Transmission System" means the transmission system employed by TESC to
transmit audio, video, data and other programming services to Subscribers in the
Territory whereby the programming satellite signal or feed is: (i) received by
the Facility and (if applicable) is digitized, compressed, encrypted, and
otherwise processed; and (ii) transmitted for reception by Subscribers via a
Set-Top Box. For clarity, the parties agree and acknowledge that the term
Transmission System is inclusive of all transmission systems used by TESC or a
permitted Sub-Distributor under this Lease to transmit the Services, including
any audio, data, and video included therein, including, without limitation, by
means of C-band receive facilities such as SMATV systems and all forms of
wireless and wire-line data distribution technology (including, by way of
example but not limitation, BSS or FSS satellite regardless of frequency or
band; copper wire; fiber optic or coaxial cable; all forms of terrestrial
wireless and any other technology either now existing or later developed)
provided that such transmission terminates at a Set-Top Box. The Transmission
System shall not include transmission: 1) to IP addresses via the Internet
(except in connection with TESC transmitting its audio/visual signal to a
Set-Top Box that is IP-enabled, which shall be permitted under this Lease), 2)
via the World-Wide-Web, 3) or to personal mobile and wireless devices (except as
allowed by Section 3(b) (1, 2 and 3 being "Transmission System Exclusions").
(x) "Video-On-Demand" or "VOD" means the ability of a Subscriber to purchase the
right to view a program on an "on demand" basis, such that the Subscriber can
select the program, begin watching the program at any time, and have pause,
rewind and fast forward functionality.
(y) "VOD Purchase" means the purchase by a Subscriber of, and the intentional
authorization by TESC of the Subscriber's Set-Top Box to receive a program, on a
VOD basis.
(z) "World Wide Web" means the hypertext transfer protocol based, distributed
information system that facilitates sharing information and content via the
Internet.
2. TERM:
This Lease shall commence on the Effective Date and terminate three (3) years
after the ***** Commencement Date (as such term is defined in Section 5(a) of
this Lease), unless terminated earlier in accordance with Section 11 below (the
"Term"), but in no event shall the Lease Term extend beyond June 30, 2010 unless
mutually agreed to in writing by both Parties.
3. GRANT OF RIGHTS:
(a) Satellite Capacity Lease. TESC hereby leases to Playboy five (5) video
channels of capacity on one or more Ku-Band and/or Ka-Band satellites which are
directly or indirectly owned, operated, leased or otherwise controlled or
employed in whole or in part by TESC, as such satellite(s) are designated from
time to time by TESC in its sole discretion, for the sole purpose of
transmitting the Services in a digitally-compressed and encrypted format.
(b) Transmission. Playboy hereby grants to TESC and its Affiliates, and TESC and
its Affiliates accept, the non-exclusive right, license and obligation (only as
specifically set forth in this Lease) to transmit the Services (including
without limitation the license to all copyright, trademark and other
intellectual property rights appurtenant to the programming comprising the
Services) throughout the Term in the Territory via the Transmission System for
Subscription Purchases, PPV Purchases, Package Purchases, PCOD Selection and, to
the extent that TESC receives programming from Playboy for transmission on a VOD
basis as set forth below, VOD Purchases, for viewing, exhibition and display by
Subscribers. For clarity, TESC shall have the
TESC Confidential and Proprietary Page 4 of 30
right to transmit the Services via the Transmission System to (i) residential
locations, including all forms of multiple dwelling unit or communal living
facilities (e.g. apartments, condos, town homes, duplexes, dormitories,
retirement homes, mobile home parks, planned unit developments, master planned
communities, gated residential communities, multiple dwelling units, colleges
and universities and housing cooperatives), (ii) guest facilities (e.g. hotels,
motels, RV parks, truck stops, and assisted living facilities) where the guest
facility provides conditional access or can otherwise ensure the viewers are not
minors, (iii) handheld devices that can download content from a digital
recording device (not mobile phones or other similar wireless communications
devices that could receive and decode the Signal directly, and not through a
receiver or decoder), and (iv) vehicles (e.g. cars, airplanes, recreational
vehicles and commercial hauling vehicles). In furtherance of and without
limiting the generality of the foregoing, Playboy agrees and acknowledges that
TESC shall have the right to (A) subject to the requirements of Section 1(b) of
this Lease and the requirements of Section 3(f) below, transmit the Services in
an Adult Package; and (B) authorize and de-authorize IRDs and Set-Top Boxes to
receive the Services as necessary to permit transmission of the Services as
allowed by this Lease.
(c) Transmission to Computers. Playboy shall use good faith efforts to work with
TESC to develop opportunities for TESC to transmit Playboy controlled
programming to the computers of Subscribers by Internet streaming and/or "push"
and "pull" technology. Until such time as the parties reach written agreement on
the scope and terms of such transmission, no such rights shall be deemed granted
hereunder.
(d) *****
(e) *****
(f) Adult Packages. The parties acknowledge that TESC currently transmits an
Adult Showcase that has five (5) Adult programming services. If TESC continues
to transmit the Adult Showcase, it shall contain no more than five (5) Adult
services and shall include the following three (3) Services: Club Jenna, Spice
Xcess and Shorteez. If either party desires to change one or more of the
Services included in the Adult Showcase, the parties shall negotiate in good
faith regarding the change; provided, that the parties agree that Playboy TV
shall not be included in the Adult Showcase. TESC may transmit other Adult
Packages from time to time that contain at least the same percentage of Services
as in the Adult Showcase. ***** In addition to TESC's right to package the
Services in Adult Packages as set forth in this subsection, TESC shall have the
right but not the obligation, in its sole discretion, to transmit Playboy TV in
packages of non-Adult premium services. In the case of premium packages,
payments between the parties shall be handled as set forth in Section A of
Exhibit B for a Subscription Purchase of Playboy TV, and shall not be handled as
set forth in Section B of Exhibit B. For the purpose of clarity, the allocation
of Gross Revenue shown in the table in Section A of Exhibit B shall apply and
not the Adult Package allocation set forth in Section B of Exhibit B. Purchases
of Playboy TV in connection with such premium packages shall constitute
Subscription Purchases of Playboy TV for purposes of this Lease.
(g) Transmitted Programming. Notwithstanding anything to the contrary contained
in this Lease, TESC shall have the right to transmit each of the Services to
Subscribers on each of the following bases: (i) as a subscription service
whereby Subscribers can make Subscription Purchases; (ii) on a PPV basis whereby
Subscribers can make PPV Purchases; (iii) as part of an Adult Package
transmitted for PPV Purchases and/or Subscription Purchases; (iv) if made
TESC Confidential and Proprietary Page 5 of 30
available by Playboy, on a video on demand basis whereby Subscribers can make
VOD Purchases; and (v) if made available by Playboy, on a PCOD basis made
available to Subscribers either for no charge or for a fee.
(h) Signals. In addition to and without limiting the generality of the grant of
rights contained above, TESC shall have the right and license to receive the
Services at the Facility and to digitize, compress or otherwise technologically
manipulate the Signals, as received at the Facility, and transmit the
technologically modified Signals via the Transmission System to Subscribers in
the Territory.
(i) Transport. In addition to and without limiting the generality of the grant
of rights contained in this Lease, to the extent not prohibited by law, TESC
shall have the right and the license to transport and arrange for the transport
of the Signal for a Service to third parties who gain rights to the Services
independent of TESC including, without limitation, to cable system operators
(both franchised and non-franchised); provided, that if, within 30 days after
receipt by TESC from Playboy of written notice that any such third party is not
complying with any material requirements, restrictions, or limitations contained
in this Lease, the third-party operator still is not complying with the
applicable term, then TESC shall cease delivery of the Services to the
third-party operator; further provided, that Playboy shall indemnify TESC in
accordance with the "Indemnification" section of this Lease for any such
termination to the extent that such termination is in breach of Playboy's
contract with such third party or otherwise unlawful.
(j) Sub-Distribution. In addition to and without limiting the generality of the
grant of rights contained in this Lease, TESC shall have the right and the
license to sub-distribute, re-sell and/or otherwise retransmit the Services to
Distributors who do not offer the Services over platforms that are Transmission
System Exclusions (collectively, "Sub-Distributors") including, without
limitation, cable system operators and service providers to developments such as
master planned communities, gated residential communities, homeowners'
associations, multiple dwelling units, colleges and universities, and housing
cooperatives (which sub-distribution may include sub-distribution to parties
that may use various technological methodologies to obtain and distribute the
Service including, without limitation, C-band receive facilities such as SMATV
systems and all forms of wireless and wire-line data distribution technology
such as BSS or FSS satellite regardless of frequency or band, copper wire, fiber
optic, or coaxial cable and all forms of terrestrial wireless either now
existing or hereafter developed); provided, that TESC shall not subdistribute,
re-sell, and/or sublicense a Service to a franchised cable television system
that has more than 3,000 contiguous subscribers without the prior written
consent of Playboy. Distribution under this paragraph must be performed by
Sub-Distributors (i) using a method whereby the distribution terminates at a
Set-Top Box, (ii) using a method that does not include the use of technologies
that are Transmission System Exclusions, and (iii) who have technology to
provide conditional access and parental controls protection that is at least
equivalent to that used by TESC. If, within thirty (30) days after receipt by
TESC from Playboy of written notice that a Sub-Distributor is not complying with
an applicable material term of this Lease, the Sub-Distributor still is not
complying with the applicable term, then TESC shall cease delivery of the
Service to the Sub-Distributor; provided, that TESC shall use reasonable efforts
to immediately cease transmission to any Sub-Distributor that TESC has knowledge
is delivering a Service in violation of applicable Law. All revenues received by
TESC from Sub-Distributors attributable to the Services, and any VOD Purchases,
if applicable, shall be included in the calculation of Gross Revenues and all
Subscribers receiving the Services through Subdistributors shall be
TESC Confidential and Proprietary Page 6 of 30
counted for purposes of Section 5(a) of the Lease and Section (C) of Exhibit B.
In addition, TESC shall have the right but not the obligation to receive the
Signals from any Distributor.
(k) Marketing. In addition to and without limiting the generality of the grant
of rights contained above, TESC and the retail distribution network of it or its
Affiliates shall have the right and the license, but, except as expressly
provided in this Agreement, not the obligation, to advertise, promote,
publicize, market and offer the Services in the Territory to Subscribers
pursuant to the terms and conditions contained in this Agreement.
(l) Spillover. Notwithstanding the definition of Territory, Playboy understands
and agrees that the Signals, when transmitted from a satellite, may extend
beyond the geographic boundaries of the Territory and that such "spill-over," in
and of itself, shall not constitute a breach of this Lease; provided that TESC
does not intentionally authorize the receipt of the Services outside the
Territory.
(m) Interactive. TESC and Playboy agree to negotiate in good faith to transmit a
Playboy interactive product. TESC agrees that it shall not treat Playboy less
favorably with respect to an interactive product than it treats other providers
of Adult programming with respect interactive products.
4. THE SERVICES:
(a) The Services. The Services shall consist of the programming set forth in
Exhibit A.
(b) *****
(c) PPV Purchases. Playboy shall schedule the programming contained on the
Services such that it is substantially suitable for PPV Purchases. Specifically,
Playboy shall make reasonable efforts to provide the programming contained in
Playboy TV in four (4) hour blocks and the programming contained in the other
Services in ninety (90) minute blocks.
(d) *****
(e) Second Service. Playboy agrees that it will not use any of the Services to
nest or incubate another programming service within the Service (a "Second
Service"), nor will it "clone" a Service into a Second Service by duplicating
programming from the Service on to any such Second Service and/or by removing
programming from the Service and distributing it on such Second Service, unless
Playboy grants to TESC the right, exercisable in TESC's sole discretion, to
transmit the Second Service on terms no less favorable than those granted to any
Distributor of the Second Service. TESC shall have no obligation to transmit a
Second Service. Nothing in this paragraph will prohibit Playboy from using a
branded block of programming on the Services.
(f) Same Programming Requirement. Taking into account time zone differences,
during the Term each feed of the programming on each of the Services, as
delivered to TESC at a given point in time, shall be the same as that feed of
programming delivered by Playboy to all Distributors in the Territory at such
point in time; except that the Services may contain customized branding
particular to a specific distributor, and that any such customization does not
modify any shows (as opposed to interstitial time between shows) in a material
way. If Playboy does provide any customization, then TESC shall have the
unconditional right to transmit the programming included in the Services
customized in a similar fashion as Playboy is providing to Distributors in the
Territory on the same terms and conditions, and Playboy shall ensure that
TESC Confidential and Proprietary Page 7 of 30
such programming is delivered to TESC in accordance with the delivery terms
contained herein. TESC, at its option, shall transmit any additional feeds of
the Services (including, without limitation, any additional time zone feeds or
any SAP feeds) without any reduction of rent earned by TESC provided for in this
Lease; provided, that in the event that Playboy would incur material costs and
expenses to provide TESC any such additional feeds, Playboy shall notify TESC in
writing thereof, and the parties shall discuss, in good faith, the terms and
conditions governing the provision of such additional feed(s) to TESC.
(g) Closed Captioning. Playboy agrees that during the Term it shall, at its sole
expense, include as part of the Signals closed-captioning and
video-descriptioning to the full extent required by any current or future
federal, state or local law, rule or regulation (collectively, the "Law"), and
to the extent required to ensure that TESC is in compliance with all such Laws,
regardless of whether such law imposes the obligation to include closed
captioning or video descriptioning, as applicable, on Playboy or TESC. Playboy
acknowledges and agrees that neither TESC nor any of its Affiliates, shall have
any liability in connection with Playboy's failure to prepare, insert or include
closed-captioning or video descriptioning, as applicable, in the Services as
required by this subsection. Playboy also agrees to cooperate with TESC on a
commercially reasonable basis to the extent necessary and desirable to establish
compliance with any such Laws, and Playboy shall provide TESC with all documents
reasonably necessary for TESC to demonstrate compliance with such Laws in a
timely manner. Claims arising out of violations of this subsection are subject
to the indemnification provisions set forth in the "Indemnification" section of
this Lease.
(h) Rating Information. During the Term, Playboy shall, at its sole expense,
include as part of the Signals ratings information or other such data in
compliance with the voluntary-participation FCC parental ratings guidelines (the
"Ratings Guidelines") and any applicable Laws that would enable Subscribers to
exercise parental controls over the programming on the Services, and such
ratings information or other data shall be compatible with Set-Top Boxes and
standard industry interactive technology implementing parental controls. Playboy
shall provide complete, accurate program rating data to TESC's designated data
provider as requested, or as otherwise required in this Lease. Playboy
acknowledges and agrees that neither TESC, nor any of its Affiliates, shall have
any liability in connection with Playboy's failure to prepare, insert or include
or program rating information in the Services as required by this subsection.
Playboy also agrees to cooperate with TESC on a commercially reasonable basis to
the extent necessary and desirable to establish compliance with any such
guidelines or Laws, and Playboy shall provide TESC with all documents reasonably
necessary for TESC to demonstrate compliance with such guidelines and Laws in a
timely manner. Claims arising out of violations of this subsection are subject
to the indemnification provisions in accordance with the terms of the
"Indemnification" section of this Lease.
(i) Other Laws. In the event that any programming on a Service is regulated by
any Law other than those specified above that is applicable to TESC or its
Affiliates, then Playboy shall comply with the Law, ensure that the Services
comply with the Law and provide TESC with all documents reasonably necessary for
TESC to demonstrate compliance with the Law in a timely manner.
(j) No Streaming. Playboy agrees that it and its Affiliates will not, and that
it and its Affiliates will not authorize or permit (either through a grant of
rights or through acquiescence) any third party to, exhibit, distribute or
"stream," including, without limitation on a time delayed,
TESC Confidential and Proprietary Page 8 of 30
basis, a simulcast of any of the Services over the public Internet during the
six (6) month period commencing on the ***** Commencement Date.
(k) Deviation. If for any reason, TESC, in good faith, determines that a Service
includes programming prohibited in this Section 4 (a "Deviation"), TESC shall
provide Playboy with written notice stating the basis for such Deviation. If
such Deviation has not been cured within ninety (90) days from the date TESC
provided such notice, TESC shall have the right, without limiting any rights or
remedies, at its sole option to discontinue transmission of such Service. *****
(l) Preemption. In the event that TESC reasonably determines that an individual
program provided by Playboy as part of a Service has a reasonable likelihood of
materially damaging TESC or any of its Affiliates as a result of governmental
actions or lawsuits brought by third parties, then TESC shall notify Playboy of
the potential issue in writing as soon as practicable. Should Playboy not remove
the program in question from the Service, then TESC has the right to pre-empt
the offending program, and to prevent its transmission to Subscribers.
(m) Certificate of Compliance. Within thirty (30) days after the last day of
each Contract Year or upon written request by TESC at any time during the Term,
Playboy shall deliver to TESC written certification (i) of its compliance or
non-compliance (as the case may be) with this "The Services" section of the
Lease signed by an officer of Playboy. The certification shall also include a
description of the means and mechanisms Playboy used to determine whether it has
complied or failed to comply with the "The Services" section of this Lease.
(n) Remedies. Playboy acknowledges that compliance with the provisions of this
Section 4 is material to this Lease, and that any remedial measure specified
herein is bargained for, not as a penalty but rather as a reasonable allocation
of damages which would otherwise be difficult to ascertain. Any remedy specified
herein shall be in addition to and not in limitation of any other rights or
legal or equitable remedies TESC may otherwise have.
5. DELIVERY AND TRANSMISSION OF THE SERVICES:
(a) TESC's Transmission Obligation. As of the Effective Date, TESC already
transmits Playboy TV. Subject to Playboy's compliance with the signal delivery
obligations contained in this Lease, each of Playboy's obligations contained in
this Section 5, TESC's right to designate Opt-Out Locations ***** and the other
provisions of this Lease, TESC shall commence transmitting the Spice Xcess, Club
Jenna, Shorteez and Fresh! Services (collectively, the "New Services") and make
the New Services available to private residential Subscribers for Subscription
Purchase and PPV Purchase no later than October 11, 2006 (the "Planned Initial
Transmission Date"). ***** For clarity, Playboy agrees and understands that (i)
TESC shall have no obligation to transmit the New Services on or before the
Planned Initial Transmission Date unless TESC has been provided the testing
period set forth in Section 5(b)(i) below and TESC's engineers feel that each of
the New Services is ready to be transmitted, (ii) TESC shall have no obligation
to transmit any of the New Services ***** Notwithstanding anything to the
contrary set forth herein, Playboy acknowledges and agrees that TESC has no
obligation to transmit the Services in any manner which is now, or at any time
hereafter may be, prohibited under applicable local, state or federal laws and
regulations, including without limitation statutes, laws,
TESC Confidential and Proprietary Page 9 of 30
rules, regulations and orders enforced, administered, promulgated or pronounced
by the Federal Communications Commission or any successor agency thereto, as
amended from time to time.
(b) Delivery by Playboy.
(i) Delivery of Signals. Playboy shall, at its own cost and expense,
transmit to TESC for receipt by the Facility, the Signals with a high degree of
video and audio quality, which in any event shall be in accordance with TESC's
reasonable technical requirements and in compliance with industry standards of
the Adult content industry. Further, Playboy shall, at its own cost and expense,
(A) transmit the Signals to the Facility using a domestic communications
satellite commonly used for the transmission of pay television programming which
is receivable at all times during the Term by the Facility without additional
expense to TESC; (B) fully encode and scramble the Signals using technology,
standards, practices and procedures which are generally accepted throughout the
pay television industry; and (C) have in place appropriate back-up transponder
space on a second domestic communications satellite. TESC acknowledges that
Playboy is providing the Signals for Playboy TV and Spice Ultimate to TESC as of
the Effective Date. No later than September 20, 2006, Playboy shall deliver to
TESC both the Signals of, and primary and secondary integrated receiver decoders
("IRDs") capable of decoding, the Signals for the New Services. Playboy agrees
and acknowledges that TESC's transmission and of the New Services are expressly
contingent upon Playboy providing the IRDs and TESC having the period between
September 20, 2006 and October 11, 2006 to test the Signals of the New Services
and upon Playboy's compliance with all of the requirements contained in this
Section 5(b). The Signals shall be deemed delivered to TESC when received in a
form technically acceptable to TESC. Except as otherwise expressly provided in
this "Delivery by Playboy" subsection or any other part of the Lease, all costs
and expenses incurred with respect to reception of the Services from the
satellite by the Facility and its transmission shall be borne by TESC.
(ii) Change in Delivery Method. Playboy may, from time to time, change the
satellite being used for transmission of one or more of the Signals; provided,
that any satellite used by Playboy to transmit a Signal shall be a domestic
communications satellite commonly used for the transmission of pay television
programming that is receivable at all times by the Facility. In the event of any
such proposed change, Playboy shall provide TESC with at least ninety (90) days'
prior written notice of the proposed effective date of such proposed change;
provided, that if such a change is the result of a Force Majeure, Playboy agrees
to provide TESC with written notice as soon as reasonably practicable. If, as a
result of any change as set forth herein, TESC will incur out-of-pocket expenses
for additional satellite receiving or other equipment needed to receive or
transmit a Service, Playboy agrees within ten (10) days of receiving such notice
from TESC of such expenses either to provide the necessary equipment (at
Playboy's sole discretion) or to contribute a pro rata portion of such
additional equipment expense, which shall be determined by multiplying the total
amount of such expense by a fraction, the numerator of which shall be one (1)
for each affected Service and the denominator of which shall be the number of
cable program services to be received and transmitted by TESC from such new
satellite as of thirty (30) days after the effective date of such change.
(iii) Encryption Change. If Playboy proposes to change the method by which
the Signal of a Service is encoded, scrambled or digitized to a method different
from that by which it is encoded, scrambled or digitized as of the date on which
the Service is first transmitted by TESC (or, in the case of Playboy TV, as of
the Effective Date), Playboy will give TESC at least ninety
TESC Confidential and Proprietary Page 10 of 30
(90) days' prior written notice of the effective date of such proposed change.
If, as a result of such change, TESC will incur out-of-pocket expenses for
additional decryption, decoding or digitization equipment, Playboy agrees within
ten (10) days of receiving such notice from TESC of such expenses either to
provide the necessary equipment (at Playboy's sole discretion) or to reimburse
TESC for such expenses; provided, that Playboy's reimbursement of such expenses
shall be pro rated in the manner set forth in Section 5(b)(ii) above in the
event that such additional decryption, decoding, or digitization equipment is
shared among the Services and other cable program services.
(c) Programming Schedule. Network uses commercially reasonable efforts to
provide to TV Guide Data Solutions, Inc. (a subsidiary of Gemstar-TV Guide
International, Inc.) and TV Data (a subsidiary of Tribune Media Services, Inc.)
the metadata information necessary to allow these entities to provide an
accurate description of programming to be included in the Services (not
including the PCOD and VOD offerings.) Guide information for the PCOD and VOD
offerings will be provided in the metadata file that is provided with the PCOD
and VOD programming. Nothing in this paragraph will prevent Playboy from
changing the programming contained on the Services; provided, that Playboy will
use commercially reasonable efforts to update guide information on a timely
basis. Playboy shall: (i) ensure that the time blocks available for sale are
correctly mapped to the length of any given movie or feature, and (ii) provide
complete, accurate and timely program schedules and program rating data to
TESC's designated data provider (currently Tribune Media Systems), as that data
provider may be changed from time to time, at least eight (8) weeks in advance
of the air date including without limitation, for the New Services, the date on
which such Services are first transmitted by TESC. Playboy will use commercially
reasonable efforts to accommodate a request by TESC to alter the start time of
any program as requested from time to time in advance and in writing by TESC or
its Affiliates. In the event that it is not commercially reasonable for Playboy
to accommodate such a request, the parties will work together in good faith to
resolve the issue that caused TESC to request the start time alteration.
(d) Transmission by TESC. Playboy acknowledges that TESC may digitize, compress
and encode the Signals and that, on occasion, the Transmission System may be
down for maintenance. Neither such digitizing, compression and encoding, or such
maintenance downtime shall be deemed a prohibited interruption or alteration of
the Services. TESC may provide Subscribers with, and provide the Services using,
VCR or PVR-like functionality.
(e) Reservation of Rights to Bandwidth. TESC agrees to transmit the principal
video and accompanying audio portions of the signal (the "Primary Signal"). TESC
reserves all rights in and to, and reserves all rights to use, all parts of each
Signal, other than the Primary Signal, including without limitation any portions
of the bandwidth that may be created or made useable as a result of the
digitization or compression of the Signal and including without limitation,
audio sub-carriers and all lines of the vertical blanking interval ("VBI")
(and/or its digital equivalent) from the Facility through to Subscribers.
Nothing contained in this Lease shall restrict TESC from using any and all of
the bandwidth of a Signal from the Facility through to Subscribers by any means
or for any purpose so long as the use does not materially degrade or interfere
with the quality of the Primary Signal. Notwithstanding the foregoing, TESC
shall transmit to Subscribers who order the Services: (i) all data or
information that the FCC or any applicable Law requires TESC to transmit in an
industry-standard format reasonably specified by TESC; (ii) up to one (1) second
language audio for the programming then being transmitted; and (iii)
TESC Confidential and Proprietary Page 11 of 30
program content advisory materials for the programming then being transmitted
("Required Materials"). If and when TESC institutes a digital rights management
program, TESC and Playboy will negotiate in good faith regarding the institution
of the program. Notwithstanding anything to the contrary contained in this
Lease, TESC shall have the right, but not the obligation, to transmit any
material, information, data, images, sounds or features contained or embedded in
or around any portion of the feed provided to TESC for the Signals that is not
part of the Primary Signal or part of the Required Materials; provided, that
such use does not materially degrade or interfere with the quality of the
Primary Signal.
(f) Embedding. Playboy shall not embed any information, data, images, sounds or
features into or around any portion of the Signal for a Service (collectively,
"Embedded Information") that is not related to the Service. Playboy agrees that
it shall not include any Embedded Information that cannot be removed and/or
blocked by the Transmission System using equipment then-existing and available
at the Facility. Playboy hereby consents to such removal and blocking, and
agrees to provide to TESC assistance and information reasonably requested by
TESC with respect to the removal and/or blocking, as long as the removal and/or
blocking will not remove, block, interfere with or impede in any way the Primary
Signal or the Required Materials. If TESC removes Embedded Information, TESC
shall have the right to send equivalent information through some other part of
its broadcast system than the Signal. If the equipment required for removal or
blocking is commonly used in the cable television industry by DBS providers,
TESC shall be responsible for obtaining the equipment. Notwithstanding the
foregoing, Playboy agrees that, other than Required Materials, it shall not
include any Embedded Information that would impede, interfere with or degrade
the function of any hardware, software, firmware or any other equipment or
device used by TESC or its Affiliates or degrade the Primary Signal. Playboy
represents that, other than the Required Materials, it is not currently engaged
in embedding any Embedded Information, and Playboy agrees that is shall provide
TESC with ninety (90) days' advance written notice (or such shorter time as is
practicable under the circumstances) of its intention to embed any Embedded
Information prior to commencement of such embedding, which notice shall describe
with specificity the information Playboy intends to embed and the technical
placement of the information within a Signal. Provided that Playboy provides
TESC with notice as required by this Section, and provided that such materials
can be stripped by TESC as set forth in this Section, TESC consents to the
embedding by Playboy of DRM material in the Signals. Further, Playboy agrees
that after commencement of the embedding, it shall provide TESC with at least
one hundred twenty (120) days' advance written notice (or, if shorter, the
maximum length of time that is practicable under the circumstances) of its
intention to change any of the Embedded Information and/or the technical
placement of the Embedded Information within a Signal. Notwithstanding the
forgoing, the signal distribution capacity contained within the bandwidth of
each Signal between Playboy's transmission point and the Facility or other first
downlink facilities shall belong exclusively to Playboy. Notwithstanding
anything to the contrary contained in this Section, Playboy agrees that it shall
embed in the Signal of each of Services program rating data (for standard
definition, such data shall be delivered in accordance with CEA 608-C; for high
definition, Playboy shall provide CEA 608-C compatibility data within CEA-708-B
structures as described in CEA 708-B).
(g) Interruption or Alteration of Services. Except as otherwise provided herein,
the Services shall be transmitted to Subscribers by TESC as they are delivered
by Playboy to TESC, without interruption or alteration. Playboy acknowledges
that TESC or its Affiliates may digitize, compress and encode the Signals and
that, on occasion, the Transmission System may be down
TESC Confidential and Proprietary Page 12 of 30
for maintenance (for the minimum amount of time necessary). Neither such
digitizing, compression and encoding, or such maintenance downtime shall be
deemed a prohibited interruption or alteration of a Service. Subject to the
remainder of this Section 5(g), TESC shall not, and shall not authorize other
persons to, copy, tape, or otherwise reproduce any part of a Service for
commercial use without Playboy's prior written authorization. Neither TESC nor
any person transmitting the Service in accordance herewith shall be responsible
or liable for home recording of all or any part of a Service by Subscribers.
This Section 5(g) will not be deemed to restrict or prohibit Subscribers from
using VCR or PVR-like functionality with respect to the Service (e.g.,
time-shifting, pausing, fast forwarding or rewinding the programming that airs
on the Service), which is expressly permitted. TESC shall contractually require
that Sub-Distributors agree to comply with this Section.
(h) Security. TESC shall employ commercially reasonable security systems to
prevent theft, pirating and unauthorized exhibition of the Services. TESC shall
further employ commercially reasonable parental control technology to protect
against minors obtaining access to the Services. TESC shall contractually
require that Sub-Distributors agree to comply with this Section.
(i) DRM. If TESC implements a digital rights management system ("DRM"), TESC
shall negotiate in good faith with Playboy to allow Playboy to participate in
the DRM with respect to the Services. TESC shall contractually require that
Sub-Distributors agree to comply with this Section.
(j) Public Distribution. TESC shall not knowingly permit, and shall take
appropriate and commercially reasonable precautions to prevent any use of the
Services transmitted by TESC by any party which is not a Subscriber who has made
a Subscription Purchase, PPV Purchase or VOD Purchase, and will further use
reasonable efforts to prevent any public distribution of the Services by
Subscribers to the extent that TESC becomes aware of such distribution. TESC
shall contractually require that Sub-Distributors agree to comply with this
Section.
6. RENT:
(a) Rent. TESC shall collect payments from Subscribers in connection with
Subscription Purchases, PPV Purchases, Package Purchases and, if applicable VOD
Purchases and PCOD Selections and shall retain the amounts of Gross Revenues set
forth in Exhibit B as Rent.
(b) Gross Revenues. For purposes of this Lease, "Gross Revenues" means the
aggregate amount received by TESC, its Affiliates or Sub-Distributors from
Subscribers in connection with PPV Purchases, Subscription Purchases, VOD
Purchases, PCOD Selections and Package Purchases of programming on all of the
Services (as allowed in Section 3 of this Lease), including any amounts received
as payment for fractional months of Subscription Purchases, but shall not
include any amounts collected in connection with taxes, assessments, or other
fees imposed by any governmental or quasi-governmental authority. Additionally,
and without limiting the generality of the foregoing, the parties agree that
Gross Revenues shall not include any additional charges imposed by TESC or its
Affiliates on Subscribers for orders placed, or payments made, by telephone and
ANI ("Automatic Number Identification") or such other means provided by TESC or
its Affiliates in connection with Subscriber ordering of, or payment for, the
Services for which TESC may from time to time impose a separate charge;
provided, that any such charge is no greater than the ordering or payment charge
for services similar to the Services and that the charge is substantially
similar to the cost associated with the ordering system's use. The parties agree
that TESC may, in its sole discretion, credit the account of any
TESC Confidential and Proprietary Page 13 of 30
Subscriber in connection with a cancellation, postponement or delay by the
Subscriber, a technical difficulty which impedes or impairs the Subscriber's
reception, or any other problem which adversely affects the quality of the
Subscriber's receipt of a Service (each a "Refund") and that the amount of any
such Refund shall be deducted for purposes of calculating Gross Revenues. *****
Under no circumstances will any revenues attributable to the following be
regarded as Gross Revenues: (i) revenues from TESC's and/or any of its
Affiliates' test sites; provided, that each such test is available for viewing
only by requesting age-verified adults and does not violate any and complies
with all Laws; and ***** and (iii) equipment fees or charges, monthly fees or
related amounts paid by Subscribers that are not directly attributable to the
viewing of a specific Service (except that monthly subscription fees payable for
viewing an Adult Package shall be included as set forth in this Lease). TESC
agrees that it shall, during the Term, provide to one location of Playboy's
choosing a free feed of the Services and the other Adult programming services
transmitted by TESC.
(c) Payment by TESC. TESC shall remit to Playboy all amounts of Gross Revenue
that it is not entitled to retain as Rent or otherwise under this Lease no later
than sixty (60) days after the end of each calendar month during which the
Reporting Period (as defined in Exhibit B) during which TESC receives such
amounts ends. TESC shall remit such funds by check made payable to Playboy sent
by ordinary mail, overnight courier, or electronic transfer to the address set
forth for payments below the signature block of this Lease (or such other
address as Playboy may direct in writing). Any amounts not paid by TESC when due
shall accrue interest at the rate of one and one-half percent per month or at
the highest lawful rate, whichever shall be the lesser, compounded monthly from
the date such amounts were due until they are paid.
7. REPORTS; AUDITS:
(a) Reports. No later than sixty (60) days after the end of each calendar month
during which a Reporting Period ends during the Term, TESC shall deliver to
Playboy a report setting forth for the Reporting Period: (i) ***** (ii) Gross
Revenues for Playboy TV; (iii) Gross Revenues from Subscription Purchases for
each applicable Service; (iv) Gross Revenues from PPV Purchases for each
applicable Service; (v) Gross Revenues from VOD Purchases for each applicable
Service; (vi) Gross Revenues from PCOD Selections for each applicable Service;
(vii) Gross Revenues from Package Purchases; (viii) the amount of Rent payable
by Playboy; *****(xii) the amount of any monies remitted to Playboy as Playboy's
share of Gross Revenues *****
(b) Playboy's Audit Rights. TESC agrees to keep and maintain materially accurate
books and records of PPV Purchases, Subscription Purchases, Package Purchases,
PCOD Selections, VOD Purchases, Gross Revenues, Rent, ***** During the Term and
for one (1) year thereafter, Playboy shall have the right, upon at least sixty
(60) days prior written notice, and at Playboy's expense, to conduct an audit of
TESC's or its Affiliates' books and records that are reasonably necessary to
verify the accuracy of the such amounts and any reports by TESC; provided, that
the audited books and records shall be limited to records relating directly to
Playboy, Adult Packages containing one or more Services (except that in no event
shall TESC be required to disclose personally identifiable subscriber
information) or the Services. The audit shall be conducted by an independent
nationally-recognized certified public accounting firm approved by TESC, and the
audit firm shall execute a non-disclosure agreement acceptable to TESC, in its
reasonable discretion. Any audit shall be conducted during TESC's regular
business hours (such hours to be determined in TESC's sole discretion) at TESC's
office where the records are regularly maintained. Playboy's right to perform an
audit shall be limited to once in any
TESC Confidential and Proprietary Page 14 of 30
consecutive twelve (12)-month period, and Playboy shall not be entitled to audit
for any particular time period more than once unless, in each instance, specific
follow-up audits are required because of a bona fide dispute. Any audit shall be
limited to the books and records of the preceding and current year only. Playboy
shall provide the results of any audit to TESC within four (4) months of
conducting the audit and any such information shall be deemed the confidential
information of TESC pursuant to the "Confidentiality" Section of this Lease. All
TESC reports, books and records, and the results of any audit, shall be deemed
Confidential Information for purposes of the "Confidentiality" section of this
Lease. Playboy shall submit any claims of non-compliance as a result of an audit
to TESC in writing within three (3) months after the auditors leave TESC's
offices, or else Playboy shall have waived its right to such claim. Any claim as
a result of an audit shall be limited to the current year and the immediate
preceding year. ***** Notwithstanding anything to the contrary contained in this
subsection, under no circumstances shall Playboy be provided with any
information that reveals the identity of any third party or actual contract
language to the extent such revelation would violate the confidentiality or
other express provisions of any of TESC's or its Affiliates' agreements with
third parties.
8. MARKETING AND USE OF MARKS:
(a) Marks. Subject to the terms and conditions of this Lease, Playboy hereby
licenses to TESC and its Affiliates, and TESC and its Affiliates shall have the
limited right to use, the Marks to promote the Services and the Transmission
System. Additionally, TESC shall have the right to provide the Marks to any
Affiliate's third party retail distribution network as well as any other third
parties who are selling the Services by or through TESC or its Affiliates
(including by way of example but not limitation, Sub-Distributors). TESC
acknowledges that the Marks, any other of Playboy's names, trade names, service
marks, trademarks and/or logos (including, without limitation, the names, titles
or logos of certain programs that appear in the Services and any subsequently
selected names or marks for the Services) are the exclusive property of Playboy
and its suppliers and that neither TESC nor its Affiliates have or will acquire
any proprietary or other rights in the Marks other than the right to use as set
forth in this Lease. TESC further acknowledges the great value of the goodwill
associated with the Marks and the public renown and recognition of the same, and
that the Marks have a distinctiveness and a secondary meaning that is firmly
associated in the minds of the trade and general public with Playboy, and that
any goodwill in the Marks which may be created through the use of the Marks by
TESC or an Affiliate shall inure to the sole benefit of Playboy. Upon execution
of the Lease, Playboy shall provide to TESC usage guidelines with respect to the
use of the Marks. Except as provided in this Lease, TESC and its Affiliates
shall at no time adopt or use, without Playboy's prior written consent, any
variation of the Marks in contravention of the usage guidelines, or any word or
mark likely to be similar to or confused with a Mark; provided, that once
Playboy has approved a use of a Mark, TESC and its Affiliates shall have the
right to continue use of the Mark in the same or substantially similar way
unless Playboy sends TESC written notice that such usage is no longer permitted.
TESC shall not modify or manipulate a Mark without the prior consent of Playboy.
TESC shall submit to Playboy for approval any of TESC's or its Affiliates'
promotional materials mentioning or using the Marks, other than those mentioning
or using the Marks in conformance with the usage guidelines and other than
materials provided by Playboy, if any, which approval shall not be unreasonably
withheld, conditioned or delayed; provided such materials are otherwise in
compliance with this subsection. Uses of the Marks in routine promotional
materials such as program guides, program listings and bill stuffers, or in a
TESC Confidential and Proprietary Page 15 of 30
manner previously approved by Playboy, shall be deemed approved for all
subsequent uses unless Playboy specifically notifies TESC to the contrary. Where
approval by Playboy is required, TESC and its Affiliates shall submit any
initial use of the Marks to Playboy for Playboy's prior written approval at
least ten (10) business days prior to their intended distribution. Any such
approval must be granted or withheld within ten (10) business days of Playboy's
receipt of materials for approval, provided that a lack of response from Playboy
shall not be deemed approval. Playboy's disapproval for the purposes of this
Section may be given telephonically. Any promotional materials provided by
Playboy to TESC shall be deemed automatically approved, but only for the purpose
and specific context provided. TESC will not disseminate any material that does
not comply with the requirements of this subsection (a).
(b) Playboy Marketing Assistance. Playboy shall provide to TESC and its
Affiliates, upon TESC's or its Affiliates' request, marketing and promotional
advice for purposes of marketing the Services. Further, Playboy will make
available to TESC and its Affiliates, upon the same terms provided to any
Distributor, promotional, marketing and sales and other Service-related
materials related to the Services which it produces or provides to Distributors,
and will make available to TESC and its Affiliates, at prices not exceeding
Playboy's actual cost, reasonable quantities of Playboy's then-available
promotional, marketing and sales materials related to the Services.
(c) TESC Marketing Assistance. TESC or its Affiliates agree to market and
promote the Services in a comparable manner to how they promote other Adult
programming except for marketing or promotional campaigns funded by another
Adult programmer; provided TESC or its Affiliates also offer Playboy the
opportunity to fund similar promotional campaigns.
(d) *****
(e) TESC Identifying Information. In no event will Playboy or any of its
Affiliates directly or indirectly use any TESC Identifying Information in
connection with the marketing or promotion of the Services without TESC's prior
written approval, which approval may be withheld by TESC its sole discretion.
For purposes of this Lease, "TESC Identifying Information" shall mean any logos,
trademarks, service marks, trade names or other information in any form now or
hereafter used by TESC and/or any of its Affiliates to identify itself or
themselves or any of its or their products and/or services. Playboy shall
provide to TESC, at least thirty (30) days prior to first use, an example of any
advertising or promotional materials to be used by Playboy and/or any of its
Affiliates that directly or indirectly uses any TESC Identifying Information in
connection with the marketing and promotion of the Services, which use has not,
within the past twelve months, been approved by TESC in exactly the form
intended for use. TESC may reject any such materials for any reason or no reason
in its sole and absolute discretion, and Playboy shall not use such rejected
materials. In the event that TESC does not grant written approval of marketing
materials within five (5) business days after receiving them from Playboy, the
marketing materials submitted shall be deemed rejected and Playboy and its
Affiliates shall be prohibited from using such materials. Notwithstanding the
foregoing, Playboy may market and promote the Services as being available on a
"high-powered DBS service" (or words of substantially the same import). Playboy
acknowledges and agrees that the TESC Identifying Information is the exclusive
property of TESC and its Affiliates and that Playboy has not and will not
acquire any proprietary rights therein by reason of this Lease or otherwise.
Except as provided herein, Playboy shall at no time adopt or use, without TESC's
prior written consent, any variation of TESC Identifying Information, or any
work or mark likely to be similar
TESC Confidential and Proprietary Page 16 of 30
to or confused therewith. Any and all goodwill arising from Playboy's use of the
TESC's Identifying Information shall inure solely to the benefit of TESC.
(f) Equitable Relief. Each party agrees that a breach of sections 8(a) or 8(e)
will result in the substantial likelihood of irreparable harm and injury to the
harmed party for which monetary damages alone would be an inadequate remedy, and
which damages are difficult to accurately measure. Accordingly, each party
agrees that the damaged party shall have the right, in addition to any other
remedies available to it, to obtain immediate injunctive relief as well as other
allowable equitable relief for any breach or potential breach of such
subsections. The right to equitable relief will be in addition to any other
right or remedy available under this Lease, at law or in equity.
(g) Marketing by Playboy. Subject to subsection 8(e) above, Playboy will use
commercially reasonable efforts to market and promote the Services to
Subscribers throughout the Territory. Playboy may not undertake marketing tests,
surveys and/or other research using the Subscribers without TESC's prior written
consent; *****
(h) Marketing Restrictions. Neither TESC nor Playboy shall market or promote, or
attempt to market or promote, purchase of the Services by persons or entities
which they know or have reason to know: (i) are under the age of eighteen (18)
or such other applicable age of majority; (ii) may not legally purchase the
Services or to whom the Services may not legally be sold; or (iii) intend to
resell the Services or provide the Services to third parties on a free-to-guest
basis. Notwithstanding anything to the contrary contained in this Lease, TESC
shall have absolutely no obligation to (1) authorize, and hereby expressly
retains the right to deauthorize any Set-Top Box which TESC determines in its
sole judgment is: (a) located in or is going to be located in any Op-Out
Location; (b) being used or is going to be used to view the Services in any
Opt-Out Location; or (c) within the control of any person who may not legally
purchase a Service or to whom a Service may not legally be sold, or (2)
authorize a Set-Top Box to receive a Service unless the prospective Subscriber
provides TESC with a street mailing address (i.e., not a post office box).
(i) Electronic Program Guide. The Services shall be listed on the electronic
program guide ("EPG") and on applicable web pages in a manner similar to and no
less prominently than other similar Adult oriented television programming
subscription and/or pay per view services transmitted by TESC on the
Transmission System. TESC will explore the feasibility of obtaining preferential
listings of the Services among Adult services. Notwithstanding the foregoing,
TESC reserves the right to (i) enable Subscribers and/or customer service
representatives to remove any of the Services from the Subscribers' EPGs, and
(ii) alter, substitute, delete or otherwise modify the display of individual
program titles on the EPG, as TESC determines in its sole reasonable discretion.
(j) Additional Services. If, during the Term, Playboy offers a new Adult
programming service in addition to the Services and Playboy en Espanol (an
"Additional Service") to any Distributor, Playboy shall offer the Additional
Service to TESC on the same terms and conditions as which it was offered to the
Distributor in compliance with the "Most Favored Nations" section of this Lease.
Alternatively, with the consent of Playboy, TESC may replace a Service with the
Additional Service, and the terms and conditions of this Lease shall apply to
the Additional Service as if the Additional Service were one of the New
Services.
9. REPRESENTATIONS AND WARRANTIES:
TESC Confidential and Proprietary Page 17 of 30
(a) Mutual Warranties. Each party represents and warrants to the other that: (i)
it is duly organized, validly existing and in good standing under the laws of
the state or country under which it is organized; (ii) it has the power and
authority to enter into this Lease and to perform fully its obligations
hereunder; (iii) the individual executing this Lease on its behalf has the
authority to do so; and (iv) the obligations created by this Lease, insofar as
they purport to be binding on it, constitute legal, valid and binding
obligations enforceable in accordance with their terms.
(b) Playboy Warranties. Playboy represents, warrants and covenants to TESC that:
(i) it presently has and will continue to have, at all times during the
Term, all rights necessary to grant TESC the rights contracted for by TESC
under this Lease free and clear of all liens, restrictions, charges,
claims and encumbrances.
(ii) it has obtained and will maintain throughout the Term all licenses,
permits, exemptions, authorizations and consents necessary to fully
perform this Lease.
(iii) it and the Services presently are, and will remain at all times
during the Term, in full compliance with the Law, including without
limitation all Laws enforced, administered, promulgated or pronounced in
the United States and in the country or countries in which the content for
the Services originated.
(iv) To the extent necessary to ensure proper copyright clearance, Playboy
has applied for a "through-to-the-viewer" music performance license from
each music performance society, including, without limitation ASCAP, BMI
and SESAC who hold licenses or represent license holders of any musical
content included in any of the Services. Playboy shall use best efforts to
obtain a "through-to-the-viewer" music performance license from those
organizations to the extent they make such license available to Playboy on
commercially reasonable terms. TESC has been informed and understands that
Playboy may not pursue a "through-to-the-viewer" music performance license
from SESAC, in such event Playboy agrees to indemnify, defend and hold
TESC and all other TESC Indemnitees harmless, in accordance with the
"Indemnification" section below. If any music performance society, such as
ASCAP, BMI or SESAC refuses to make available to Playboy a
"through-to-the-viewer" music performance license, or offers such license
on commercially unreasonable terms, Playboy shall not be required to
initiate litigation to compel the music performing rights society(ies) to
grant a "through-to-the-viewer" music performance license. If, due to
court order or other governmental decree from a body of competent
jurisdiction, or as a result of one or more of ASCAP's or BMI's failure to
offer one on a commercially reasonable basis, such "through-to-the-viewer"
license is not available to Playboy, Playboy shall continue to maintain a
license "through to the headend" provided such license is available from
ASCAP and/or BMI on commercially reasonable terms. If and when Playboy
obtains a "through-to-the-viewer" music performance license, Playboy shall
maintain such license throughout the Term of the Lease, unless such
license is no longer available due to a court order or other governmental
decree from a body of competent jurisdiction, in which case the terms of
this Section shall apply. Notwithstanding the foregoing, under no
circumstances shall TESC be responsible for any fees related to music
performing licenses and Playboy hereby represents and warrants that
Playboy will indemnify, defend, and forever hold harmless TESC from and
against any claims in connection with the Services, and
TESC Confidential and Proprietary Page 18 of 30
Playboy's VOD services, if applicable, by music performance rights
societies and others as provided in the "Indemnification" section below.
(v) to the best knowledge of Playboy, no third party has or has claimed
any rights which would be inconsistent with the rights granted to TESC in
this Lease;
(vi) it is under no contractual or other legal obligation that shall in
any way interfere with its full, prompt and complete performance under
this Lease.
(vii) Without limiting the generality of Sections 4(i), 9(b)(iii) or 10(a)
of this Lease, no programming on a Service shall knowingly violate 18 USC
2257 or 28 CFR 75 or any successor legislation or code. Playboy has
prepared, maintained and executed, and at all times during the Term and
for a period of seven (7) years thereafter shall, prepare, maintain and
execute any documents or records, and provide TESC with copies of any
documents or records which are required by Title 18, U.S.C. ss. 2257, as
amended, and/or the associated regulations found at 28 C.F.R. 75.1 et.
seq., as amended, and/or any successor statute or regulation ("Section
2257"). Playboy warrants and represents that it is in possession of such
documents and records, and maintains them in accordance with Section 2257.
Playboy agrees to appoint a "record custodian" as required under Section
2257, and will keep TESC apprised of the physical address where all
required records are compiled and maintained pursuant to Section 2257,
along with the full legal name of the records custodian. Playboy will
display a conspicuous disclosure statement on all depictions of `actual
sexually explicit conduct' contained in the Services as required by
Section 2257, which statement identifies the records custodian for the
content and describes the physical location where the records relating to
the content may be inspected as required under applicable law. If required
by law, Playboy will be identified as a "primary producer" in any and all
disclosure statements associated with the Services pursuant to Section
2257. Playboy further agrees to cooperate with TESC in connection with any
inspections or government inquiries initiated pursuant to Section 2257.
TESC shall have the right to inspect such documents and records at any
time during regular business hours at Playboy's location for maintaining
the records with five (5) business days' prior written notice from TESC;
provided, that if TESC desires access to the records in question in
connection with an inquiry of any kind from a governmental agency, then
only one (1) business days' prior written notice from TESC will be
required. No programming on a Service containing "actual sexually explicit
activities" as defined by Section 2257 shall contain material created
prior to July 3, 1995 unless Playboy has documentation that all performers
in such activities were, at the time the material was created, over the
age of eighteen (18) years.
(viii) it has procured and shall maintain during the Term, at its sole
expense, broadcasters errors and omissions insurance covering the Services
and all elements thereof, from a nationally recognized insurance carrier
having at least a "Best's" rating of A- or better, and in accordance with
industry standards, of no less than $5 million per occurrence and a
maximum self-insured retention of $5,000,000 or such other retention as
agreed to by TESC in its sole and absolute discretion; and further that
(A) such insurance shall remain in full force and effect throughout the
Term; (B) TESC and its Affiliates, and its and their directors, officers,
employees, agents and shareholders, shall be named as additional insureds
on the insurance policy; (C) Playboy shall provide TESC with documentation
to such effect upon the execution hereof; (D) within ten (10) business
days after the
TESC Confidential and Proprietary Page 19 of 30
expiration of such policy, Playboy shall provide TESC with
appropriate proof of issuance of a policy continuing in force and
effect the insurance covered by the insurance so expiring; and (E)
Playboy or its insurer shall provide TESC with at least thirty (30)
days prior written notice of any changes in such policy if they
pertain to the specifics of this Lease. Playboy's indemnity
obligations set forth herein shall not be negated or reduced by
virtue of Playboy's insurance carrier's denial of insurance coverage
for the occurrence or event which is the subject matter of the claim
or refusal to defend TESC and/or any of its Affiliates. Compliance
by Playboy with the requirements of this section as to carrying
insurance and furnishing proof thereof to TESC shall not relieve
Playboy of its indemnity liability set forth herein or its liability
to TESC specified in any other provision of this Lease.
(c) TESC's Warranties. TESC represents, warrants and covenants to Playboy that,
to the best of its knowledge, TESC presently is, and will remain at all times
during the Term, in material compliance with all material Laws that impact
TESC's ability to comply with the terms of this Lease.
10. INDEMNIFICATION:
(a) Playboy's Indemnification. Playboy shall indemnify, defend and hold harmless
TESC, its Affiliates, and each of their present and future contractors,
subcontractors, authorized distributors, authorized Sub-Distributors (in
compliance with the terms of this Lease), directors, members, officers,
employees and agents, and each of their respective assigns, heirs successors and
legal representatives (collectively, the "TESC Indemnitees") from, against and
with respect to any and all third-party claims, losses, damages, lawsuits,
judgments, actions, penalties, liabilities, costs and expenses (including
reasonable court costs and outside attorneys' fees) (collectively, "Claims")
incurred in connection with any civil, criminal, administrative and other claims
against any of the TESC Indemnities arising out of or relating to: (i) the
breach or alleged breach or default by Playboy of any provision contained in the
Lease; (ii) the content of the Services (including, without limitation,
advertising), including, without limitation, any claims alleging that the
transmission of any content is defamatory, libelous, slanderous, obscene, or
violates or infringes any copyright, trademark, right of privacy or literary,
dramatic or music performance right or any other right of any person or entity;
(iii) the sale or marketing of any products or services by, through or on the
Services (unless the relevant materials are provided by TESC); (iv) Playboy's or
the Services' failure to comply with all Laws or any other failure on Playboy's
part that causes TESC or its Affiliates to violate any Law or court or
administrative decree; (v) Playboy's failure to have acquired at the pertinent
time when all or part of the Services are made available to Affiliate, good
title to, and/or each and every property right or other right necessary for it
to satisfy the obligations imposed on it pursuant to this Lease; (vi) Playboy's
advertising and marketing of the Services; (vii) materials relating to the
Services, including without limitation advertising or promotional copy, supplied
or permitted by Playboy; and/or (viii) the delivery by TESC or a Subdistributor
of any of the Services to any geographic area, except as limited herein below,
which indemnification obligation contained in (viii) above shall cover any claim
based on a violation of any Law, whether civil or criminal law whether brought
by a governmental authority or a private party.
(b) *****
TESC Confidential and Proprietary Page 20 of 30
(c) TESC's Indemnification. TESC shall indemnify, defend and hold harmless each
of Playboy, its Affiliates, and each of their present and future directors,
officers, employees and agents, (collectively, the "Playboy Indemnitees") from,
against and with respect to any and all Claims incurred in connection with any
claim against the Playboy Indemnitees arising out of (i) the breach or default
by TESC of any provision contained in the Lease; (ii) any advertising materials
created by TESC and inserted in a Service by TESC (unless the relevant materials
are created and inserted at the direction of Playboy); (iii) third party claims
arising from the failure of TESC's equipment; and/or (iv) claims arising from an
assertion that technology deployed by TESC is deployed in violation of any
United States patent.
(d) Claim. The indemnified party shall give the indemnifying party prompt notice
of any claim or litigation to which the foregoing indemnities apply; provided,
that the indemnifying party's obligations shall not be affected by any delay or
failure in providing such notice unless the indemnifying party reasonably
demonstrates that the defense or settlement of the claim was materially
prejudiced thereby. The indemnifying party shall have the right to control the
litigation, compromise, settlement or other resolution of such claim or
litigation (other than the entry of a guilty plea or similar plea by or on
behalf of the indemnified party in a criminal or quasi-criminal action);
provided, that the indemnifying party may not dispose of or otherwise settle a
claim adverse to an indemnified party without first obtaining the indemnified
party's consent thereto, which consent shall not be unreasonably withheld,
conditioned or delayed. The indemnified party will cooperate fully, at the
indemnifying party's expense, with the reasonable requests of the indemnifying
party in the indemnifying party's defense of such claim or litigation and shall
have the right, but not the obligation, to join in and be represented by its own
counsel, at its own expense. Further, the indemnified party agrees it shall not
issue any statements regarding the facts or issues regarding the claim,
including with regard to any indemnification received hereunder, unless
compelled to do so by a court of law or government authority.
11. EARLY TERMINATION RIGHTS:
In addition to all other rights to termination specifically set forth in this
Lease or available at law or in equity, either party shall have the right to
terminate this Lease if the other party has (i) breached any of its material
obligations under this Lease (unless the breach is cured within the thirty
(30)-day period following receipt of notice of the breach; provided, that if a
shorter or longer cure period is provided elsewhere in this Lease for a
particular breach, then such shorter or longer cure period shall apply and, in
the case where immediate termination is provided for elsewhere in this Lease,
immediate termination shall apply. Each party agrees and acknowledges that there
are certain breaches which are incapable of being cured and are therefore not
subject to the thirty (30) day cure period); (ii) filed a petition in
bankruptcy, is unable to pay current bills when due, or has sought relief under
any law related to its financial condition or its ability to meet its payment
obligations; or (iii) had any involuntary petition in bankruptcy filed against
it, or any relief under any such law has been sought by any of its creditors,
unless the involuntary petition is dismissed, or the relief is denied, within
sixty (60) days after it has been filed or sought. In addition, TESC shall have
the right to terminate this Lease immediately and without liability (except for
amounts payable to Playboy through the effective date of termination) upon
notice to Playboy if any person or entity who, as of the Effective Date, did not
possess, directly or indirectly, the power to direct or cause the direction of
management or policies of Playboy or of Playboy Enterprises, Inc., whether by
virtue of the ownership of voting stock, by contract or otherwise, later comes
into possession of such power. Either party shall have the right to
TESC Confidential and Proprietary Page 21 of 30
terminate this Lease in accordance with Section 15(f) of this Lease in the event
of a Force Majeure. In addition, TESC shall have the right to terminate this
Lease immediately and without liability (except for amounts payable to Playboy
through the effective date of termination) upon notice to Playboy: (i) if the
delivery of any of the Services by Playboy to TESC is discontinued or
interrupted for a continuous period of fifteen (15) days, (ii) if Playboy, or
any executive officer or director of Playboy, is convicted in a court of
competent jurisdiction of any criminal offense related to Adult content, (iii)
if Playboy fails to comply with any Law related to Adult content, including,
without limitation, the provisions of 18 U.S.C. 2257, (iv) if TESC reasonably
believes that Playboy has falsified, or Playboy is criminally charged or
indicted for falsifying, any documents, records or reports required by this
Lease or any Law related to Adult content, (v) if TESC reasonably believes that
there is evidence of, or Playboy is criminally charged or indicted for, fraud,
misrepresentation or illegal action in connection with this Lease, ***** and/or
(vii) upon any assignment by Playboy of all or any part of the Lease. In
addition to and not in limitation of the foregoing, in the event that TESC
determines in good faith, in its sole discretion, that the activities
contemplated under this Lease or any other circumstances, including without
limitation an increase in obscenity prosecutions or citizen protests against
adult-oriented products or services, may: (A) adversely impact the business,
reputation, or goodwill of TESC and/or any of its Affiliates; or (B) result in
the institution of civil, criminal, administrative or other proceedings against
TESC and/or any of its Affiliates, or any of their officers, directors or
employees, TESC will have the right to terminate this Lease after evaluating and
implementing commercially reasonable methods to address TESC's commercially
reasonable concerns; provided, that TESC may only take action under this
sentence in the event that it treats all providers of similar content in the
same manner. If by reason of regulatory or legislative action or interpretation,
TESC's provision of any Service programming violates any law, rule, regulation
or order as determined by a judgment on the merits in a court of competent
jurisdiction (a "Judgment"), then TESC may take such actions as it deems
necessary in its sole judgment to protect the business, reputation, and goodwill
of TESC and/or any of its Affiliates and to prevent the institution of any such
proceedings against TESC and/or any of its Affiliates, including without
limitation termination of the Lease and suspension and/or restriction of the
transmission of all or any of the Service in the Territory or any portion of the
Territory or to certain Subscribers within the Territory, but only in so far as
it relates to the Service or portion of the Service that is the subject of the
Judgment. For clarity, TESC's right to terminate this Lease shall apply with
respect to the Services on a channel per channel basis (i.e. TESC shall have the
right to terminate the Services with respect to a particular channel or set of
channels based upon Playboy's breach of this Lease as it relates to such channel
or channels without terminating this Lease in whole). *****
12. *****
13. NOTICES:
All notices, reports and consents in connection with this Lease shall be in
writing and shall be sent postage prepaid by certified mail, return receipt
requested; by hand delivery; or by Federal Express or similar overnight delivery
service, to the other party at the following address (unless either party at any
time designates another address for itself by notifying the other party by
certified mail, in which case the new address shall be used).
TESC Confidential and Proprietary Page 22 of 30
To Playboy: Playboy Entertainment Group, Inc.
2706 Media Center Dr.
Los Angeles, CA 90065
Attention: Jim Griffiths, President
cc: Senior VP Business & Legal Affairs
To TESC: Transponder Encryption Services Corporation
90 Inverness Circle East
Englewood, Colorado 80112
Attention: Mark Jackson, President
cc: Office of the General Counsel
Notice, report or consent given by hand delivery shall be deemed given on
delivery. Notice, report or consent given by certified mail, return receipt
requested shall be deemed given the date set forth on the receipt. Notice,
report or consent given by Federal Express or similar overnight delivery service
shall be deemed given on the next business day following delivery of the notice,
report or consent to such service with instructions for overnight delivery.
TESC Confidential and Proprietary Page 23 of 30
14. CONFIDENTIALITY:
(a) Confidential Information. Neither TESC nor Playboy shall disclose (orally,
in writing, by press release or by public disclosure of any kind or otherwise)
to any third party (other than their respective officers, directors and
employees, in their capacity as such, and on a need-to-know basis, and each
parties' respective auditors, consultants, financial advisors, lenders,
attorneys and existing and potential third-party financial investors in Playboy,
a Service or TESC, subject to a confidentiality agreement between the relevant
party and such third-party financial investors) any Confidential Information
except: (i) to comply with the Law; (ii) to the extent necessary to comply with
the valid order of an administrative agency or a court of competent
jurisdiction, in which case redacted to the greatest extent possible, in which
event the party making such disclosure shall so notify the other as promptly as
practicable (and, if possible, prior to making such disclosure) and shall seek
confidential treatment of such information; (iii) in order to enforce its rights
pursuant to this Lease; or (iv) if mutually agreed to in writing in advance by
TESC and Playboy. For purposes of this Lease, "Confidential Information" shall
mean all non-public information disclosed by one party to the other in
connection with this Lease, a Service or transmission of a Service including
without limitation technical information, technical or marketing tests, product
plans, and information with respect to the terms and provisions of this Lease,
including its existence. Playboy acknowledges and agrees that any and all
Subscribers shall be deemed customers of TESC or its Affiliates and that any and
all information relating to Subscribers including without limitation the names,
addresses, and any other personally identifying information of any Subscriber
("Subscriber Information") shall be Confidential Information. TESC shall have
absolutely no obligation whatsoever to (and nothing in this Lease shall require
TESC to) disclose Subscriber Information to Playboy or anybody acting on
Playboy's behalf. If agreed to in writing by both parties in advance, within
thirty (30) days after the execution of this Lease, Playboy and TESC may issue,
either separately or jointly, a press release or public announcement concerning
this Lease; provided, that the content of the press release or public
announcement shall be mutually agreed upon, in writing, by Playboy and TESC
prior to such release.
(b) Equitable Relief. Each party agrees that a breach of this section will
result in the substantial likelihood of irreparable harm and injury to the other
party for which monetary damages alone would be an inadequate remedy, and which
damages are difficult to accurately measure. Accordingly, each party agrees that
the other party shall have the right, in addition to any other remedies
available to it, to obtain immediate injunctive relief as well as other
allowable equitable relief for any breach or potential breach of this section.
The right to equitable relief will be in addition to any other right or remedy
available under this Lease, at law or in equity.
15. MISCELLANEOUS:
(a) Assignment. This Lease shall inure to the benefit of and be binding upon,
the parties hereto and their respective heirs, legal representatives, successors
and assigns. Notwithstanding the foregoing, neither party may assign or
otherwise transfer any of its rights or obligations under this Lease, in any
manner, direct or indirect, contingent or otherwise, in whole or in part,
voluntarily or by operation of law without the prior express written consent of
the other party. Notwithstanding the foregoing, either Party (subject to TESC's
right to terminate the Lease with respect to one or more of the Services as set
forth in Section 11) shall have the right to assign some or all of its rights
and/or obligations under this Lease, without obtaining the consent of the other
party, to (i) an Affiliate and; (ii) a successor entity to its business, whether
by merger or by
TESC Confidential and Proprietary Page 24 of 30
sale of all or substantially all or its assets or stock. In the event of any
valid assignment of this Lease in accordance with the terms of this subsection,
the assigning party shall be relieved of all obligations arising after the
assignment, and the non-assigning party shall look solely to the assignee for
enforcement of such obligations.
(b) Service Combinations. In the event that Playboy acquires control of, any
other programming service (a "Merger"), if TESC or its Affiliate has (at the
time of the Merger) an agreement regarding distribution or transmission of the
other service (a "Current Contract"), TESC shall have the right to continue to
distribute the other programming service under the Current Contract.
(c) Limitation of Liability. NOTWITHSTANDING ANYTHING IN THIS LEASE TO THE
CONTRARY, EXCEPT WITH RESPECT TO THE CONFIDENTIALITY AND INDEMNIFICATION
OBLIGATIONS CONTAINED IN THIS LEASE, IN NO EVENT SHALL EITHER PARTY OR ITS
AFFILIATES BE LIABLE FOR ANY INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL OR
CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY FAILURE TO
PERFORM OR THE BREACH OF ANY OBLIGATION UNDER THIS LEASE FOR ANY REASON
WHATSOEVER, WHETHER BASED ON NEGLIGENCE OR OTHERWISE AND WHETHER FORESEEABLE OR
NOT.
(d) Governing Law. This Lease and all matters or issues collateral thereto shall
be governed by the laws of the State of New York, without regard to the conflict
of law rules thereof. The Federal and state courts located in the State of New
York shall have exclusive jurisdiction to hear and determine any claims,
disputes, actions or suits which may arise under or out of this Lease and each
party hereby waives its right to make any claim to the contrary.
(e) Relationship. The relationship of the parties is that of independent
contractors. Nothing in this Lease shall be construed or implied to create a
relationship of agency, partners, affiliates, joint employers, or joint
venturers. Neither party shall have the power or authority to act for the other
in any manner or to create obligations or debts which would be binding on the
other. Neither party shall be responsible for any obligation of the other or be
responsible for any act or omission of the other or any employee of the other.
Each party shall be responsible for all wages, salaries, taxes and expenses
incurred for or by its employees. Neither party shall be, or hold itself out as,
the agent of the other or as joint venturers under this Lease. No Subscriber
shall be deemed to have any privity of contract or direct contractual or other
relationship with Playboy and no supplier of advertising or programming or
anything else included in the Service by Playboy shall be deemed to have any
privity of contract or direct contractual or other relationship with TESC by
virtue of this Lease. Playboy disclaims any present or future right, interest or
estate in or to the transmission facilities of TESC and its Affiliates, such
disclaimer being to acknowledge that neither TESC nor the facilities of it or
its Affiliates are common carriers.
(f) Force Majeure. Notwithstanding any other provision in this Lease, neither
Playboy nor TESC shall have any liability to the other or any other person or
entity with respect to any failure of Playboy or TESC, as the case may be, to
transmit a Service or perform its obligations under this Lease if the failure is
due to any failure or degradation in performance of TESC's or Playboy's (or
either of their Affiliates') satellite(s) or the or transponders on such
satellite(s) or any failure or degradation of the Transmission System, or of any
scrambling/descrambling
TESC Confidential and Proprietary Page 25 of 30
equipment or any other equipment owned or maintained by others (including,
without limitation, any automated billing and authorization system), any failure
at the origination and uplinking center used by Playboy or TESC (including
without limitation the Facility), any labor dispute, fire, flood, riot, legal
enactment, government regulation, Act of God, or any cause beyond the reasonable
control of Playboy or TESC, as the case may be (a "Force Majeure"), and such
non-performance shall be excused for the period of time such failure(s) causes
non-performance ***** provided, however, that if TESC determines in its sole
discretion that it is commercially or technically unfeasible to cure a Force
Majeure with respect to the Transmission System or a satellite with respect to
all programming services affected by the failure of the Transmission System or
the satellite and so notifies Playboy, then either party may terminate this
Lease effective upon written notice to the other party, *****. The parties
acknowledge and agree that although a Service may at any given time be uplinked
to only one of several satellites, failure or degradation in any of such
satellites may require TESC to reduce the number of programming services
available for allocation among all of the satellites, with such reduction
including, without limitation, curtailment or termination of the transmission of
one or more of the Services by TESC, at TESC's sole discretion *****; provided
that the Service will be treated on a pari passu basis with any other service of
similar content to the Services. Accordingly, Playboy further acknowledges and
agrees that the provisions set forth in the first sentence of this paragraph
shall apply and shall exculpate TESC and its Affiliates and excuse the
performance of TESC hereunder in the event of a failure or degradation of any of
the satellites or the transponders on any such satellites, regardless of whether
the satellite to which a Service is uplinked at the time of such failure or
degradation is itself the subject of such failure or degradation. If a Service
is interrupted or discontinued as a result of a Force Majeure, TESC shall have
the right, immediately, to insert programming of its choice on the channel
identified with the Service until the Service is fully operational again.
(g) Severability. The invalidity under applicable Law of any provision of this
Lease shall not affect the validity of any other provision of this Lease. In the
event that any provision in this Lease is determined to be invalid,
unenforceable or illegal, (A) the provision shall be reformed to the minimum
extent necessary to cause the position to be valid, enforceable and legal while
preserving the intent of the parties as expressed in, and the benefits to the
parties provided by, this Lease or (B) if the provision cannot be so reformed,
the provision shall be severed from this Lease and the remainder of the Lease
shall remain effective and shall be construed in accordance with its terms as if
the invalid, unenforceable or illegal provision were not contained in the Lease.
(h) Survival. Any provision of this Lease which logically would be expected to
survive termination or expiration of the Lease shall survive termination or
expiration. In addition and not in limitation of the foregoing, all
representations, warranties, covenants, indemnifications, confidentiality
obligations, audit rights and limitations of liability shall survive the
termination or expiration of this Lease.
(i) No Inference Against Author. Playboy and TESC each acknowledge that this
Lease was fully negotiated by the parties and, therefore, no provision of this
Lease shall be interpreted against either party because that party or its legal
representative drafted the provision.
(j) Headings; References. The titles and headings of the sections in this Lease
are for convenience only and shall not in any way affect the interpretation of
this Lease. Any reference in this Lease to a "section" or an "exhibit" shall,
unless the context expressly requires otherwise,
TESC Confidential and Proprietary Page 26 of 30
be a reference to "section" in, or an "exhibit" to this Lease. Any reference in
this Lease to the singular form of a word shall automatically include the plural
form of the word, if applicable, and any reference to the plural shall include
the singular, if applicable. Forms of the word "include" mean "including,
without limitation;" and references to "hereunder," "herein," "hereof," and the
like, refer to this Lease.
(k) Waivers; Cumulative Remedies. The failure of either party to insist upon
strict performance of any provision of this Lease shall not be construed as a
waiver of any subsequent breach of the same or similar nature. Any waiver of any
provision of this Lease must be in writing. All rights and remedies reserved to
either party shall be cumulative and shall not be in limitation of any other
right or remedy which such party may have at law or in equity.
(l) Integration. This Lease, together with any documents and exhibits
specifically referred to in this Lease, constitute the entire agreement between
the parties to this Lease. All exhibits referenced in this Lease are hereby
incorporated in the Lease by this reference. This Lease may not be modified
except in a writing executed by both parties. Except as expressly provided by
this Lease, no party shall be bound by any communications between them on the
subject matter of this Lease unless the communication is (i) in writing, (ii)
bears a date contemporaneous with or subsequent to the date of this Lease, and
(iii) is agreed to by both parties. On execution of this Lease, all prior
agreements and understandings between the parties shall be null and void. The
parties specifically acknowledge there are no unwritten side agreements or oral
agreements between the parties which alter, amend, modify or supplement this
Lease.
(m) Counterparts. This Lease may be executed in several counterparts, each of
which shall be deemed an original and all such counterparts together shall
constitute but one and the same instrument.
(n) Right of Offset. TESC shall have the right to offset, against any payments
due or deliverable to Playboy in this Lease, any amounts owed by Playboy or any
of its Affiliates to TESC or any of its Affiliates under this Lease or the
agreement to transmit Playboy en Espanol.
(o) Reservation of Rights. All rights that Playboy may have that are not
specifically granted to TESC by this Lease in and to the Service (including,
without limitation all intellectual property rights in the Service) are
expressly reserved, as between TESC and Playboy, to Playboy.
(p) *****
[Remainder of page intentionally left blank]
TESC Confidential and Proprietary Page 27 of 30
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date
first above written.
TESC: PLAYBOY:
Transponder Encryption Services Corporation Playboy Entertainment Group, Inc.
By: Mark Jackson By: James Griffiths
------------ ------------------------------
Title: President Title: President
--------- ---------------------------
Spice Hot Entertainment, Inc.
By: James Griffiths
------------------------------
Title: President
---------------------------
Payment Address:
Playboy Entertainment Group, Inc.
2740 Paysphere Circle
Chicago, IL 60674-2740
TESC Confidential and Proprietary Page 28 of 30
TRANSPONDER ENCRYPTION SERVICES CORPORATION
SATELLITE CAPACITY LEASE
EXHIBIT A
CHANNEL DESCRIPTIONS
PLAYBOY TV
*****
CLUB JENNA
*****
SPICE XCESS
*****
FRESH!
*****
SHORTEEZ
*****
TESC Confidential and Proprietary Page 29 of 30
TRANSPONDER ENCRYPTION SERVICES CORPORATION
SATELLITE CAPACITY LEASE
EXHIBIT B
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