Exhibit 10.20
Exhibit A
Confidential Treatment
AMENDED AND RESTATED
AFFILIATION AND LICENSE AGREEMENT
FOR DTH SATELLITE EXHIBITION
OF PROGRAMMING
PLAYBOY TV, TWO ADULT MOVIE CHANNELS AND PLAYBOY TV EN ESPANOL
DIRECTV, INC.
and
PLAYBOY ENTERTAINMENT GROUP, INC. and
SPICE HOT ENTERTAINMENT, INC.
Confidential Treatment
AMENDED AND RESTATED
AFFILIATION AND LICENSE AGREEMENT
FOR DTH SATELLITE EXHIBITION
OF PROGRAMMING
AMENDED AND RESTATED AGREEMENT made as of September 16, 2006 (the
"Effective Date"), by and between PLAYBOY ENTERTAINMENT GROUP, INC., and SPICE
HOT ENTERTAINMENT, INC., each of which is a Delaware corporation having an
office located at Media Center Drive., Los Angeles, California 90065
(collectively referred to herein as "Programmer"), and DIRECTV, INC., a
California corporation, having an office located at 2230 East Imperial Hwy., El
Segundo, California 90245 ("Affiliate").
WITNESSETH:
WHEREAS, Affiliate has established a direct-to-home ("DTH")
satellite-based television system in North America;
WHEREAS, Affiliate desires to continue to distribute various television
networks owned and operated by Programmer that feature adult films, related
programming and interstitial material (the "Service," as defined in Section 1(b)
below) in the United States as restricted by Section 17 herein (the
"Territory");
WHEREAS, Affiliate and Programmer are parties to the Affiliation Agreement
for DBS Satellite Exhibition of Cable Programming, dated as of May 17, 2002, as
amended, (the "Current Playboy Agreement"); and
WHEREAS, this Agreement supersedes all prior understandings and agreements
relating to the subject matter herein, including without limitation, the Current
Playboy Agreement and any amendments or extensions thereto;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
ADEQUACY OF WHICH ARE HEREBY ACKNOWLEDGED, IT IS MUTUALLY AGREED AS FOLLOWS:
1. Grant of Rights.
(a) Distribution; Certain Definitions.
(i) Programmer hereby grants to Affiliate, and Affiliate
hereby accepts, the non-exclusive right to distribute the Service in the
Territory via the DTH Distribution System (as defined below) to DIRECTV
Subscribers during the Term (as defined in Section 6(a) below), as follows: (i)
with respect to the Playboy TV Service (as defined in Section 1(b) below),
distribution shall include residential subscribers, hotels,
2
Confidential Treatment
motels, private offices, multiple dwelling facilities and oil rigs (provided,
however, that Affiliate shall not have the right to distribute the Service in
any common areas to which the public has free access) on a subscription (a la
carte or package) basis (the "Subscription Offerings") and on a pay-per-view,
pay-per-block and pay-per-night basis (collectively, the "PPV Offerings"), in
blocks of at least sixty (60) minutes each (or such period as the parties shall
agree) for up to twenty four (24) hours; provided, however, that any partial
exhibition of the Service which consists only of motion pictures must be no
shorter than sixty (60) minutes (any block of time, a "PPV Program"); and (ii)
with respect to each of Movie Channel 1, Movie Channel 2 and Playboy TV en
Espanol Services (as each is defined in Section 1(b) below), distribution may
include Subscription Offerings and PPV Offerings to residential subscribers,
hotels, motels, private offices, multiple dwelling facilities and oil rigs
(provided, however, that Affiliate shall not have the right to distribute the
Service in any common areas to which the public has free access). Affiliate
shall determine in its sole discretion whether to sell Subscription Offerings on
an a la carte or package basis. Affiliate shall have the non-exclusive right to
use the name of or logo for "Playboy TV," "Spice Wild" "The Hot Network," and
"Playboy TV en Espanol" as such names or logos may be changed, altered and
amended by Programmer, or the names, titles or logos of the Service or any of
its programs, or the names, voices, photographs, music, likenesses or
biographies of any individual participant or performer in, or contributor to,
any program or any variations thereof, all of which are being licensed
exclusively for use in connection with the distribution, promotion, marketing
and sale of the Service as provided herein. Any further use shall require
Affiliate's notification to Programmer and Programmer's written approval, not to
be unreasonably withheld.
(ii) The term "DTH Distribution System" shall mean the
distribution system for video and other programming services whereby the
programming satellite signal or feed is received from Programmer's delivery
source by a DIRECTV turnaround earth-station facility which compresses and
processes the signal or feed and then uplinks it to a DTH communications
satellite (a "DTH Satellite") for transmission to DIRECTV Subscribers. DTH
Distribution System shall also include any other method of distribution that
Affiliate currently and/or subsequently uses to deliver the Service feed(s) to
DIRECTV Subscribers as part of Affiliate's provision of television services
consisting of multi-channel linear programming (which may be combined with other
services), including, without limitation, MMDS and territorial-based
transmission infrastructures such as Internet protocol (excluding distribution
via the Internet or the World Wide Web; provided that if at any time Programmer
offers the right to distribute the Service via the Internet or World Wide Web to
any other distributor of the Service, Programmer will offer the same rights on
the same terms and conditions to distribute the Service on the Internet or the
World Wide Web to Affiliate)), fiber optic, twisted pairs and coaxial cable,
provided that in connection with such delivery methods, Affiliate complies with
the following: (i) the end users to whom Affiliate distributes the Service are
DIRECTV Subscribers; (ii) the branding and packaging that is received by such
DIRECTV Subscribers is substantially the same as the branding and packaging
received by DIRECTV Subscribers that receive the Service via Affiliate's direct
to home satellites. During the Term (as defined in Section 6(a)), the Service
(as defined below) shall be distributed via a DTH Satellite at the orbital
location which transmits to the greatest
3
Confidential Treatment
number of DIRECTV Subscribers. "DIRECTV Subscribers" shall mean those customers
(both residential and non-residential) authorized by Affiliate to receive a
DIRECTV branded DTH service via the DTH Distribution System to a customer's
Set-Top Box (as defined below), provided that nothing herein shall prohibit the
transfer of Service programming by a DIRECTV Subscriber from such Subscriber's
Set-Top Box to a portable viewing device. "Service Subscribers" shall mean
DIRECTV Subscribers authorized by Affiliate to receive the Subscription
Offerings and/or PPV Offerings. "Internet" shall mean the electronic
communications network that connects computer networks and organizational
computer facilities around the world. "World Wide Web" means the hypertext
transfer protocol-based, distributed information system that facilitates sharing
information and content via the Internet. A "Set-Top Box" means a device that
connects to, or is integrated as part of, a television or other video output
display device ("Display Device") and also connects to the source of Affiliate's
audio/visual signal, the content of which then is displayed on the Display
Device.
(iii) If Programmer grants or has granted to any other
distributor of multi-channel (i.e., broadcast or cable television networks)
video programming that distributes the Service in the Territory the right to
receive and distribute any Service via a "New Distribution Method" (as defined
below), then Programmer will promptly notify Affiliate thereof and make
available to Affiliate the right to receive and distribute such Service(s) via
such New Distribution Method to the extent that, and under the same terms and
conditions such rights were made available to such other distributor directly in
exchange for such rights; provided that if Affiliate cannot reasonably satisfy
such terms and conditions, Programmer shall offer Affiliate comparable terms and
conditions. The phrase "same terms and conditions" shall include the allocation
of costs of distribution of the applicable Service(s) on the New Distribution
Method between Programmer, the other distributor of the Service(s) and any
required third party facilitator needed for the distribution of the Service(s).
"New Distribution Method" shall mean, with respect to any other distributor of
the Service in the Territory, any distribution method, device, distribution
technology or format (for example, distribution to hand-held devices,
distribution via the Internet, or distribution to computers in college dorm
rooms) other than has been granted under this Agreement; provided that, in all
events, the current distribution methods of cable television, telco (i.e., via
traditional fiber lines), direct to home satellite, SMATV and multipoint
distribution service shall not be considered a New Distribution Method.
(iv) Affiliate shall have the right, but not the obligation,
exercisable in its absolute sole discretion, to distribute the programming
service commonly known as "Playboy en Espanol" upon delivery to Programmer of
not less than thirty (30) days prior written notice thereof. References
throughout this Agreement to Playboy en Espanol shall be applicable only upon
Affiliate's launch, if any, of Playboy en Espanol via the DTH Distribution
System.
(v) Affiliate shall be permitted to authorize satellite master
antenna television system ("SMATV") operators (including telephone companies and
similar service providers) that serve multiple dwelling unit buildings or
complexes, commercial or business
4
Confidential Treatment
establishments with multiple television viewing sites or master planned
communities and the like to distribute the Service in the Territory via such
SMATV systems directly to end users within such buildings or establishments for
DTH reception only, provided, however, that: (i) such SMATV operator shall not
have the right to distribute the Service in any common areas to which the public
has free access and (ii) Affiliate shall be responsible for each such SMATV
operator's compliance with all the terms and conditions of this Agreement
including but not limited to, the service charge due for each individual
purchase of the Service, whether on a PPV Offering or Subscription Offering
basis.
(b) The Service. The "Service" shall, individually and collectively,
mean and consist of the national feed (or, if Programmer uses multiple feeds for
the Service for the purpose of serving multiple time zones, such other of such
multiple feeds designated by Affiliate) of the three programming services
described in clauses (i) through (iii) below, and Playboy TV en Espanol and the
VOD Service at such time, if any, that Affiliate elects to launch Playboy TV en
Espanol and/or the VOD Service. Each Service, except the VOD Service, shall be
presented on a 24-hour per day, 7 days a week schedule, as described below and
in the "Descriptions and Limitations of the Service," attached hereto as Exhibit
A. The Service shall be delivered to Affiliate in its entirety, meaning that the
programming (including, without limitation, all other information related
thereto (e.g., data)) on the Service as received by any Service Subscriber at a
given point in time shall be the same as the programming received by all other
subscribers to the Service at such point in time (excluding insertions by
individual video service providers to permit the customization of a feed with
respect to promoting such video service provider not to exceed four minutes per
hour; provided that the insertions do not change the content of a Program, and
only preempt interstitial programming). In the event that Programmer grants
individual service providers the right to insert customized insertions as
provided hereinabove, Programmer shall notify Affiliate and Affiliate shall be
granted the same such rights.
(i) Playboy TV. The programming service commonly known as
"Playboy TV" is currently exhibited on channel 595 ( "Playboy TV"). Playboy TV
shall consist of entertainment programming for adult audiences as more fully
described in the "Description and Limitation of the Services" Section attached
hereto as Exhibit A. Affiliate shall refer to Playboy TV as "Playboy TV," or
other name mutually agreed to by the parties, and may list Playboy TV on the
program guide as "PBTV." Affiliate shall include a marketing description of
Playboy TV in Affiliate's programming guide that is viewed by Subscribers that
is mutually agreed upon by the parties.
(ii) Movie Channel 1. The service known as "Movie Channel 1"
is currently exhibited on channel 597 ( "Movie Channel 1"). Movie Channel 1
shall consist of entertainment programming for adult audiences as more fully
described in the "Description and Limitation of the Services" Section attached
hereto as Exhibit A. Affiliate shall refer to Movie Channel 1 as "The Hot
Network," or other name approved by Affiliate (such approval not to be
unreasonably withheld or delayed, it being agreed that "Club Jenna" is an
approved name), and may list Movie Channel 1 on the program guide as "HOT" or as
otherwise agreed
5
Confidential Treatment
to by the Parties. Affiliate shall include a marketing description of Movie
Channel 1 in the programming guide that is viewed by Subscribers that is
mutually agreed upon by the parties.
(iii) Movie Channel 2. The service known as "Movie Channel 2"
is currently exhibited on channel 598 ( "Movie Channel 2"). Movie Channel 2
shall consist of entertainment programming for adult audiences as more fully
described in the "Description and Limitation of the Services" Section attached
hereto as Exhibit A. Affiliate shall refer to Movie Channel 2 as "Spice Wild" or
other name approved by Affiliate (such approval not to be unreasonably withheld
or delayed, it being agreed that "Spice:Xcess" is an approved name), and may
list Movie Channel 2 on the program guide as "WILD" or as otherwise agreed to by
the Parties. Affiliate shall include a marketing description of Movie Channel 2
in the programming guide that is viewed by Subscribers that is mutually agreed
upon by the parties.
(iv) [This section intentionally left blank.]
(vi) Playboy TV en Espanol. Playboy TV en Espanol shall
consist of native and dubbed Spanish-language entertainment programming for
adult audiences as more fully described in the "Description and Limitation of
the Services" Section attached hereto as Exhibit A. Affiliate shall refer to the
Service as "Playboy en Espanol," or other name mutually agreed to by the
parties, and may list the channel on the program guide as "PBE" Affiliate shall
include a marketing description of Playboy TV en Espanol in the programming
guide that is mutually agreed upon by the parties
(vii) VOD Service. The collection of VOD Packages (as defined
herein) offered to distributors of the Service for use in the distributors'
Video-On-Demand service, wherein each Package is offered in its entirety to a
subscriber's premises by means of the DTH Distribution System for use in an
"On-Demand" environment where the subscriber can start and stop video
programming at any time and the content is delivered to subscribers as part of
the same service that the subscriber receives his or her linear television
service (specifically excluding delivery via the Internet/World Wide Web.) A VOD
Package is defined as those bundles of adult programs consisting of adult
content offered to multi-channel video distributors of television in the
Territory (for example any cable operator, satellite television provider, or
other facilities-based provider such as Verizon, Bell South or AT&T, in
connection with such other provider's multi-channel video distribution business,
but not such other provider's cellular phone, World Wide Web, Internet or
wireless businesses (an "MCVP")) for distribution on a VOD basis to subscribers
with specific distribution requirements including requirements with respect to
the user interface. Notwithstanding the terms of this paragraph, upon
Affiliate's election and written request, Programmer agrees to provide
customized VOD Packages for use by Affiliate in its VOD service offered to
Subscribers to the extent that use of Programmer's VOD Packages as set forth
above is commercially unreasonable given the technology deployed by Affiliate
for so long as Affiliate's use of Programmer's VOD Packages remains commercially
unreasonable.
(viii) [This section intentionally left blank.]
6
Confidential Treatment
(ix) Programmer represents and warrants that (A) it reviews
all programming contained in the Service for compliance with the restrictions
and limitations set forth in Exhibit A, and (B) the Service shall reflect adult
content subject to the restrictions and limitations set forth in Exhibit A, and
shall not contain or depict any acts otherwise prohibited by Exhibit A.
(x) All right, title and interest in and to the entire
contents of the Service, including, but not limited to, films and recordings
thereof, title or titles, names, trademarks, concepts, stories, plots,
incidents, ideas, formulas, formats, general content and any other literary,
musical, artistic, or other creative material included therein shall, as between
Programmer and Affiliate, remain vested in Programmer.
(xi) Each of the Playboy TV, Movie Channel 1, Movie Channel 2
and Playboy TV en Espanol (if applicable) shall be offered on a simultaneous
basis and distributed by Affiliate to its Subscribers a minimum of 24 hours per
day, seven days per week, on a separate and distinct channel.
(xii) At any time during the Term and in any portion of the
Territory, Affiliate shall be permitted to offer other "branded" or "unbranded"
adult programming competitive to the Service, it being acknowledged and agreed
by the parties that Affiliate's offering of such other adult programming shall
not constitute a breach of this Agreement.
(xiii) Programmer shall not propose or impose upon Affiliate,
nor shall Affiliate be obligated to pay, any surcharge or other cost (other than
the License Fees provided for in Section 2 hereof) for receipt and distribution
of the Service.
(c) Other Distribution Rights and Obligations. In addition, the
parties agree as follows:
(i) Subject to Programmer's obligations hereunder and
Affiliate's rights under Section 17, Affiliate shall distribute the Service as
transmitted by Programmer, in its entirety, in the order and at the time
transmitted by Programmer without any intentional and willful editing, delays,
alterations, interruptions, deletions or additions ("Alterations"), excepting:
(A) Affiliate's commercial or other announcements, only if permitted under
Section 3 hereof, (B) Affiliate's electronic guides (including without
limitation, any mosaic or similar guides), (C) news bulletins and other public
announcements as may be required by emergencies or applicable law; and (D) the
use of digital video recorders at the DIRECTV Subscriber's premises for playback
either on a television display or a mobile device ("DVRs"), videocassette
recorders ("VCRs"), or other similar devices by DIRECTV Subscribers. Programmer
acknowledges that the DTH System requires and applies digital compression and
encryption processes prior to transmission and decryption and decompression
processes upon reception and agrees that such processing does not constitute
7
Confidential Treatment
an Alteration of the Service. Programmer shall fully encrypt the satellite
signal of the Service utilizing encryption technology commonly used in the
satellite distribution industry. Affiliate shall at all times provide Affiliate
with two operational receivers and decoders per Service as necessary to receive
and decode the Service.
(ii) Subject to the terms and conditions of this Agreement,
the terms and conditions upon which Affiliate distributes the Service to Service
Subscribers, including, without limitation, the packaging of the Service and
retail price charged, shall be determined by Affiliate in its sole discretion.
Affiliate shall use reasonable efforts to provide Programmer with sixty (60)
days' prior written notice of any retail price change.
(iii) Subject to the limitations contained in Section 17
below, and Exhibit B, as applicable, with respect to the PPV Offerings,
Affiliate may offer a multiple channel offering, such that for a single payment
a purchasing Subscriber is permitted to view Movie Channel 1 and Movie Channel 2
and/or Playboy TV together with other adult channels as determined by Affiliate
(as restricted by Section 17 herein) (the "Cascade"), all for one fee (the
"Cascade Fee").
Notwithstanding Affiliate's current intention, Affiliate
shall not be obligated to offer the Service using the purchasing mechanism set
forth in this Section 1(c)(iii).
(iv) Programmer shall make the Service available via satellite
signal from a domestic communications satellite commonly used for the delivery
of television programming which must be viewable with existing equipment from
Affiliate's broadcast center in Los Angeles, California (the "Broadcast
Center"). As of the Effective Date, the feeds of the Service are or will be
available on Intelsat Americas 13 ("Programmer's U.S. Satellite"). Programmer
may, from time to time, in its sole discretion, change the satellite being used
for delivery of the Service to Affiliate; provided, however, that any satellite
used by Programmer to transmit the Service shall be a domestic communications
satellite commonly used for the delivery of television programming which must be
viewable with existing equipment from the Broadcast Center without Affiliate
incurring additional costs or requiring Affiliate to enter into any third-party
arrangements (e.g., HITS) for receipt of the signals. In the event Programmer
either (i) changes Programmer's U.S. Satellite to a satellite or other
transmission medium not susceptible to viewing or utilization by Affiliate's
then-existing earth station equipment without affecting the receipt of the
signals of any other programming or other services then received (or committed
to be received) by such Affiliate, (ii) changes the technology used by
Programmer to encrypt the Service to a technology not compatible with
Affiliate's then-existing descrambling equipment, or (iii) compresses, digitizes
or otherwise modifies the signal of the Service in such a manner that it cannot
be received or utilized by Affiliate, then Affiliate shall have the right to
discontinue carriage of the Service, immediately; provided that this right of
discontinuance and deletion shall not apply to Affiliate if Programmer agrees
to: (I) provide Affiliate with the necessary additional equipment required to
receive the Service from the new satellite; and (II) promptly reimburse
Affiliate for the actual out of pocket cost to acquire
8
Confidential Treatment
and install equipment necessary for Affiliate to descramble, receive and/or
utilize the signal of the Service from such new satellite or other transmission
medium, and/or the actual out of pocket cost to acquire and install equipment
necessary for Affiliate to descramble, receive and/or utilize the signal of the
Service. Programmer agrees to use commercially reasonable efforts to provide
Affiliate with at least one hundred twenty (120) days' prior written notice of
any satellite or technology change. Programmer, or its designee, shall maintain
appropriate back-up satellite protection arrangements in accordance with
customary industry standards. Programmer and Affiliate shall use their
respective commercially reasonable efforts to maintain for the Service a high
quality of signal transmission in accordance with their respective technical
standards and procedures.
(v) The parties hereby acknowledge and understand that
the overall terms and conditions of this Agreement, including without
limitation, Sections 2(e), 2(f), 6(c)(v) and 11 and Exhibits "B," "D" and "E"
hereof, are expressly conditioned upon Affiliate's distribution of each of the
Playboy TV, Movie Channel 1 and Movie Channel 2 Services to all residential
DIRECTV Subscribers, excluding DIRECTV Subscribers restricted from receiving the
applicable Services as set forth in Section 17 and sub-paragraph B of Exhibit
"B" and/or those Subscribers who have elected not to have the option of
purchasing adult programming and/or have been excluded from the purchase of
transactional programming.
(d) Rights with Respect to Channel Capacity. Affiliate shall have
the right, in its sole discretion and for Affiliate's sole benefit as between
Programmer and Affiliate, to utilize the channel capacity used to transmit the
Service during any hours which (i) the Service, or any significant portion
thereof, is not being transmitted to Affiliate for any reason; or (ii) the
transmission of the Service, or any significant portion thereof, has been
suspended or terminated by Affiliate pursuant to Section 17. Programmer
acknowledges that it has no ownership rights in, or right to use, any channel or
any amount of capacity on any DTH Satellite.
2. Compensation; Most Favored Nation; Programming Account.
(a) Compensation. As full and complete compensation for Affiliate's
right to distribute the Service, Affiliate shall pay to Programmer the
applicable percentage of Gross Receipts (as defined below) for each month, as
such percentage is calculated as set forth on Exhibit B.
(i) "Gross Receipts" are defined as the sum of all monies
billed to Subscribers by Affiliate during any month (not including amounts owed
by Affiliate due to taxes other than income or franchise taxes) for receiving
any part of the Service; provided, however, that Gross Receipts shall in no
event include (i) any charge specifically made for access to programming other
than for the Service or any general access charge, hardware licensing charge or
other charge made on a "blanket" basis (which shall mean that such charge will
relate to access to all program services available from Affiliate by means of
the
9
Confidential Treatment
DTH Distribution System); or (ii) any charges made for ordering the Service via
telephone as a PPV Offering, which charges are additional to the charges for
ordering the Service without using the telephone. Affiliate shall have the right
to offer Movie Channel 1, Movie Channel 2 and/or Playboy TV as part of the
Cascade, as set forth above, in which case the Service's allocable share of
revenues from such Cascade shall equal Programmer's pro rata share of the
Cascade Fee based on the number of networks in the package. Other than as set
forth above, Affiliate shall notify Programmer prior to packaging the
Subscription Offerings with any other programming services. If, however,
Affiliate packages the Subscription Offerings with other non-adult premium
subscription programming services, then Affiliate shall determine the Service's
allocable share of revenues from such package by application of the following
formula:
S = (A/B) x P
where
S = the Service's allocable share of revenues from such
package
A= the DIRECTV a la carte price then in effect for the
Subscription Offering
B = the sum of the DIRECTV a la carte prices of all
programming services included in such package
(including, without limitation, the Service) then in
effect
P = the price of such package
For the avoidance of doubt, an example of such calculation is as follows:
Affiliate packages the Subscription Offerings with programming service X and
programming service Y and each of the foregoing has an a la carte retail price
of $15, $5 and $10, respectively. The retail price for the entire package is
$36. Programmer's allocable share of the revenues from such package would be $18
(15/30 x 36).
(ii) To the extent that a Subscriber prepays any portion of
monies solely in connection with Affiliate's distribution of the Service, then
the amount prepaid shall be included in Gross Receipts for the month in which
such payment was received; provided that, Affiliate's billing system has the
capability to account for such prepayments. Affiliate shall deduct the amount of
any Credit Transaction (as defined below in Section 2(a)(ii)), as such amount is
reasonably determined by Affiliate, from the Gross Receipts of the month in
which such Credit Transaction occurs.
(iii) "Credit Transaction" shall mean any refund (or other
payment or credit) to a DIRECTV Subscriber in connection with (A) prepayments
for the Service, (B) Programmer's inability to transmit the Service to Affiliate
for distribution via the DTH Distribution System for any reason other than
Affiliate's non-performance of an obligation
10
Confidential Treatment
hereunder, (C) a Force Majeure Event or (D) credits (excluding Discounted
Previews of the Service not authorized by Programmer) allowed by Affiliate in
its commercially reasonable judgment consistent with Affiliate's policies and
procedures applied consistently to Programmer and Affiliate's other sources of
programming services.
(iv) Affiliate shall be responsible for the accounting for all
Gross Receipts and shall account to Programmer with regard to the Gross Receipts
for the Service on a monthly basis, not later than 45 days after the last day of
the month in which the Gross Receipts are accrued by Affiliate. Affiliate shall
provide a separate accounting for the Playboy TV, Movie Channel 1, Movie Channel
2 and Playboy TV en Espanol (if applicable) Services. Each such accounting shall
include:
(A) the aggregate Gross Receipts for such month;
(B) the origin (categorized separately by residential
subscribers (which includes multiple dwelling
facilities, private offices and oil rigs) and
hotels/motels, if any) of all Gross Receipts for
Subscription Offerings for such month;
(C) the number of residential DIRECTV Subscribers as of
approximately the fifteenth calendar day of such
calendar month;
(D) the applicable Programmer Share from Exhibit B;
(E) the dollar amount of Programmer's share of Gross
Receipts for such month;
(F) the number of Service Subscribers as of approximately
the 15th day of such calendar month; and
(G) for each PPV Offering, the number of Service Subscribers
purchasing such PPV Offering on each calendar day of
such month; and
(H) Hotel/Motel License Fee (as defined below in Section
2(c)).
(v) Programmer and Affiliate shall accord confidential
treatment to any information contained in the aforementioned statement in
accordance with Section 15. At Programmer's request and at reasonable times,
upon reasonable advance written notice and during normal business hours at
Affiliate's offices, Affiliate shall permit Programmer's representatives to
review, one time per each year of the Term and one time during the year
immediately after the termination or expiration of this Agreement, those books
and records maintained according to Affiliate's standard accounting practices
which are generally in
11
Confidential Treatment
accordance with GAAP required to verify License Fees and reports made hereunder.
Programmer shall audit each calendar year of the Term, if at all, within one (1)
year following the end of such calendar year, with such review limited to those
records for those months of the prior calendar year which have not been
previously reviewed and those past months of the current calendar year for which
records are available. Programmer shall report promptly (but no later than 30
days following completion) to Affiliate the results of such audit, including any
deficiency in payment of License Fees that Programmer believes were revealed by
such audit, and shall make any claim against Affiliate with respect to the
results of such audit within one (1) year after reporting such results to
Affiliate. From and after Programmer's audit of a particular period of the Term,
such period shall be deemed closed by the parties and, except as may be
demonstrated by such audit, Affiliate shall have no further liability in respect
of License Fees for such period. Programmer may not commence a new audit until
all prior audits have been closed and the results have been presented to
Affiliate. Any such review shall be at Programmer's sole cost and expense;
provided, however, if such review discloses an underpayment greater than ten
percent (10%) of the actual amount due (which amount is not subject to a bona
fide dispute by Affiliate), Affiliate shall reimburse Programmer for its
reasonable out-of-pocket costs and expenses incurred to discover such
underpayment. The information derived from and the process of such review shall
be subject to the confidentiality provisions of Section 15. Notwithstanding
anything herein to the contrary, any audit conducted pursuant to this Section
2(a)(v) shall be conducted by a reputable, industry recognized third party
auditor or another firm approved in advance by Affiliate, which shall have first
entered into a confidentiality agreement with Affiliate.
(b) License Fee. As full and complete compensation for the rights
granted Affiliate hereunder, Affiliate shall pay to Programmer, on a monthly
basis, the "License Fees," calculated pursuant to Programmer's Cable Rate Card
in Exhibit B, subject to reduction and offset for any credits, discounts, and
reimbursements set forth in Exhibit B, annexed hereto, and a five percent (5%)
reduction in the amount to be paid to Programmer to take into consideration the
approximated rate that DIRECTV Subscribers default on amounts owed for viewing
of the Service. As used in this Section 2 and elsewhere in this Agreement
(including Exhibit "B") when referring to the payment of License Fees or the
provision of subscriber reports by Affiliate to Programmer, unless expressly
modified by "calendar," the term "month" shall refer to Affiliate's accounting
month, which is the approximately thirty (30) day period commencing on
approximately the middle of each month and ending on approximately the middle of
the next succeeding month. Affiliate acknowledges that it is being extended the
License Fees herein in exchange for offering Playboy TV, Movie Channel 1 and
Movie Channel 2 to all residential DIRECTV Subscribers, excluding DIRECTV
Subscribers restricted from receiving the applicable Services as set forth in
Section 17 and sub-paragraph B of Exhibit "B" and/or those Subscribers who have
elected not to have the option of purchasing adult programming and/or have been
excluded from the purchase of transactional programming.
(c) Hotel/Motel License Fee. The parties understand and agree that
the terms of this Section 2(c), and not Section 2(a), shall govern the case of
monies received from the distribution of the Service to hotels or motels. In no
event shall Affiliate pay any
12
Confidential Treatment
fees or other charges on any Gross Receipts pursuant to both this Section 2(c)
and any other section of this Agreement. Affiliate shall pay to Programmer a
license fee (the "Hotel/Motel License Fee") simultaneously with the accounting
rendered to Programmer as set forth in Section 2(a)(iv). The Hotel/Motel License
Fee shall be equal to the license fee set forth on Exhibit D attached to this
Agreement.
(d) Late or Non-Payments. Any amounts not paid hereunder by the date
payment is due, and which are not paid within ten Business Days after receipt of
a notice from the obligee thereof stating that such amounts have not been paid
and are overdue, shall, at Programmer's option, accrue interest at the rate of
one percent (1%) per month or at the highest lawful rate, whichever shall be the
lesser, from the date notice was given that such amounts were overdue until they
are paid. "Business Day" shall mean a day that is not a Saturday, Sunday or day
on which banks are generally closed for business in the State of California.
(e) Most Favored Nation.
(i) If at any time during the Term, Programmer allows (whether
prospectively or by virtue of assuming any pre-existing agreements or otherwise)
another person engaged in distribution of any of the Services within the
Territory (including, without limitation, by means of the Internet, broadcast,
cable, telco (i.e., via traditional fiber lines), satellite and/or
satellite-based direct broadcast television distribution) (hereinafter, an
"Other Distributor"), to distribute such Service(s) in exchange for
Consideration (as defined below) which, when taken as a whole on a net effective
basis per subscriber to such Service(s), is more favorable to such Other
Distributor than to Affiliate with respect to such Service(s) ("Favored Fees"),
then Programmer shall promptly notify Affiliate in writing of such Favored Fees
and Affiliate shall be immediately entitled, at its sole option, to incorporate
into this Agreement the Favored Fees effective as of the first day following the
date on which Programmer first allows such Other Distributor to distribute the
Service(s) in exchange for the Favored Fees; provided that, in case of the
assumption of any preexisting agreement by Programmer, Affiliate shall be
entitled to incorporate into this Agreement the Favored Fees on a prospective
basis only (i.e., from the date that Programmer assumed such agreement). If
Affiliate chooses to incorporate such Favored Fees, however, it must do so in
their entirety, including all corresponding terms and conditions related to the
Service(s). If such corresponding terms and conditions are impossible or
impractical for Affiliate to perform, the parties hereto will mutually negotiate
in good faith to establish comparable terms and conditions. Nothing in the
preceding sentences shall require Affiliate to incorporate the Favored Fees into
this Agreement.
(ii) Notwithstanding anything herein to the contrary, "Other
Distributor" shall not include Programmer's Affiliated Companies (as defined in
Section 8(a) hereof) engaged in distribution of the Service (or any portion
thereof) via the Internet; provided that, such Affiliated Companies are, as of
the date hereof and throughout the Term continue to be, controlled by and at
least 50% owned by Playboy Enterprises, Inc. (the parent company of Playboy
Entertainment Group, Inc.) or a subsidiary thereof. The parties
13
Confidential Treatment
acknowledge that, as of the date hereof, such Affiliated Companies consist of,
but shall not be limited to, Playboy.com, Spicetv.com, ClubJenna.com and
Adult.com, and Programmer represents and warrants that said companies are
controlled by and at least 50% owned by Playboy Enterprises, Inc. or a
subsidiary thereof. Programmer shall provide Affiliate with advance written
notice in the event that any other Affiliated Company intends to commence
distribution of the Service via the Internet during the Term.
(iii) Intentionally Omitted.
(iv) At Affiliate's election, Programmer shall permit
Affiliate's representatives to review, during the Term (no more than once each
calendar year) and for one (1) year and on a one-time basis only thereafter,
such Programmer records as required for the sole purpose of verifying
Programmer's compliance with the terms of this Section 2(e), at reasonable
times, upon reasonable advance written notice and during normal business hours
at Programmer's offices. Such review shall be at Affiliate's sole cost and
expense; provided, however, if such review discloses an overpayment by Affiliate
greater than ten percent (10%) of the actual amount due (which amount is not
subject to a bona fide dispute by Programmer), Programmer shall reimburse
Affiliate for its reasonable out-of-pocket costs and expenses incurred to
discover such overpayment. The information derived from and the process of such
review shall be subject to the confidentiality provisions of Section 15, and any
third party auditor shall be required to acknowledge in writing its agreement to
such confidentiality provisions. Notwithstanding anything herein to the
contrary, any such audit shall be conducted by a "Big 5" public accounting firm
or another firm approved in advance by Programmer which shall have first entered
into a confidentiality agreement with Programmer (an "Independent Auditor"). If,
as a result of an audit, the Independent Auditor determines that Programmer has
fully complied with its obligations pursuant to this Section 2(e), then the
Independent Auditor shall provide written notice to the parties stating only
that Programmer has complied. If, as a result of the audit, the Independent
Auditor determines that Programmer may not be in compliance, then the
Independent Auditor shall commence good faith discussions with Programmer
related thereto. In the event that after such good faith discussions have
continued for a period of thirty (30) days (or such extended period as may be
mutually agreed to by the parties), the Independent Auditor continues to believe
that Programmer may not have complied with such obligations, then, within thirty
(30) days after such good faith discussions, Programmer shall have the option,
in its sole discretion, to either (x) grant to Affiliate the Favored Fees
disclosed by the audit, or (y) authorize the Independent Auditor to provide to
Affiliate only that limited redacted information acquired during the course of
the audit as is reasonably necessary for Affiliate to pursue its claim of
non-compliance against Programmer (the "Programmer MFN Election"). Under no
circumstances, other than the limited circumstance set forth in foregoing
subsection (y), shall any information acquired during the course of the audit be
disclosed to Affiliate by the Independent Auditor. In any event, Affiliate shall
make any claim against Programmer with respect to the results of such audit
within one (1) year after its receipt of the Programmer MFN Election. From and
after Affiliate's audit of a particular period of the Term, such period shall be
deemed closed by the parties and, except as may be
14
Confidential Treatment
demonstrated by such audit, Programmer shall have no further liability in
respect of Favored Fees for such period.
(v) For purposes of this Section 2(e), the parties agree and
understand the following:
(A) "Consideration" deemed as Favored Fees (or a
component part of a Favored Fee) includes license, royalty or service fee
discounts, revenue shares of splits, volume discounts, penetration discounts or
caps thereon, payment limits, payment deferrals, special marketing arrangements,
launch support, revenue guarantees or any other terms and conditions which to
either the Other Distributor or Programmer can be reasonably measured in dollars
computed on a net effective amount per subscriber basis; provided, however, that
local marketing campaigns (e.g., a Programmer sponsored event at a local venue)
shall not be deemed as Favored Fees (or a component part of a Favored Fee); and
provided further that Programmer will offer Affiliate the right to implement a
substantially similar campaign for substantially the same cost to Programmer as
mutually agreed to by the parties. If applicable, amounts actually paid to any
required Third Party Facilitator needed for the distribution of the Service(s)
will be taken into consideration in the calculation of Consideration paid to the
relevant Other Distributor. Third Party Facilitator means a person that is
providing goods or services to an Other Distributor in conjunction with the
Other Distributor's distribution of one or more of the Services where the goods
or services of the person are required by the Other Distributor in order to
permit the distribution of the Services over the Other Distributor's
distribution platform. As an example, should an Other Distributor offer a
wireless service and utilize a Third Party Facilitator to provide technology for
distribution of the service for a fee, then the Consideration paid to the Other
Distributor shall be reduced by the Third Party Facilitator fee.
(B) Programmer represents and warrants that the
Consideration provided by Affiliate to Programmer, when taken as a whole on a
net effective basis per subscriber to the Service (i.e., each Service
individually and the Services collectively), is no less favorable to Affiliate
than to any Other Distributor as of the date hereof.
(vi) Programmer hereby grants to Affiliate, and Affiliate
hereby accepts from Programmer, the non-exclusive right to distribute the VOD
Services that Programmer makes available for distribution on a Video On Demand
basis (whereby a consumer selects the viewing of a program on an unscheduled
real time basis (as opposed to selection of a viewing time by such consumer from
a pre-determined schedule of viewing times) ("VOD")) at such time that Affiliate
has the capability to distribute programming services via VOD to DIRECTV
Subscribers. Nothing herein shall obligate Affiliate to distribute such
programming via VOD. Any distribution of Service programming by Affiliate via
VOD shall be subject to terms and conditions to be negotiated and mutually
agreed to by the parties, provided that Programmer shall make VOD available to
Affiliate on
15
Confidential Treatment
terms and conditions that are no less favorable to Licensee than any Other
Distributor of VOD, it being understood that if the agreement with such Other
Distributor(s) contains terms and conditions that are not relevant to Affiliate
or Affiliate is not reasonably capable of complying with such terms and
conditions taking into consideration Affiliate's business, including, without
limitation, Affiliate's technology and national platform, then the parties shall
negotiate comparable obligations, terms and conditions in good faith. Affiliate
will not distribute the VOD Services until the terms and conditions for
distribution have been agreed to by the Parties.
(f) Titanium Subscribers. Notwithstanding any other provisions of
this Agreement, Affiliate may offer the Service as part of Affiliate's planned
premium programming package offering subscribers the right to receive all or
substantially all of Affiliate's programming (including premium and pay-per-view
programming) for a single monthly payment, which package is tentatively branded
as the "Titanium Package" (the subscribers to which package shall be referred to
as "Titanium Subscribers"), and Affiliate shall not be obligated to pay any fee
to Programmer for the distribution of such package so long as the total number
of Titanium Subscribers does not exceed five thousand (5,000). In the event that
Affiliate obtains more than five thousand (5,000) Titanium Subscribers,
Affiliate and Programmer will negotiate in good faith a reasonable monthly
license fee to be paid to Programmer by Affiliate for those subscribers in
excess of five thousand (5,000). Affiliate will provide Titanium Subscribers
with the opportunity to opt out of receiving the Service at any time.
(g) Programming Account/Marketing Fund.
(i) The parties hereby acknowledge that pursuant to all
predecessor agreements (including, without limitation, Sections 2(f) and 4(g) of
the Current Playboy Agreement), and notwithstanding any previous accounting of
the amounts in question, all amounts set aside by Affiliate for marketing and
promotion of channels provided to Affiliate by Programmer are being maintained
by Affiliate in a programming account containing the stipulated amount of One
Million One Hundred Thousand Dollars $1,100,000 (the "Programming Account") and
that the following shall constitute full satisfaction of the parties' respective
obligations with respect to such Programming Account: Affiliate may spend the
Programming Account funds on any marketing campaigns or initiatives related to
the Services or Programmer as determined by Affiliate in its sole discretion
after consultation with Programmer; provided, however, that the parties agree
that if any Programming Account funds are not utilized by the end of the Term,
then such amounts will be paid to Programmer.
(ii) Commencing as of November 16, 2006 and continuing
throughout the Term of this Agreement, Programmer shall contribute $75,000 per
quarter to a specific special purpose marketing support account (the "Marketing
Account"). Affiliate shall deduct such payments on a monthly basis in the amount
of $25,000 from the License Fees due to Programmer under this Agreement.
Affiliate may spend the Marketing Account funds on any marketing campaigns or
initiatives related to the Services or Programmer as determined by Affiliate in
its sole discretion after consultation with Programmer; provided
16
Confidential Treatment
that Affiliate agrees to perform at least one marketing initiative per year of
the Term, designed to drive DIRECTV Subscribers to the "Playboy TV" Service. In
addition, in exchange for agreeing to the reduced Marketing Account above (as
compared to the Current Playboy Agreement), Programmer agrees to host four (4)
(two (2) per year of the Term) first class parties for Affiliate's employees,
guests and/or clients at the Playboy Mansion in Los Angeles (evenings and/or
weekends upon Affiliate's request as provided in the immediately following
sentence) and two (2) (one (1) per year of the Term) first class parties for
Affiliate's employees, guests and/or clients at the Palms Casino in Las Vegas,
Nevada, each with full food and beverage (alcoholic and non-alcoholic) service,
entertainment (as requested by Affiliate), hotel rooms (for Palms parties) and
all related services (including, without limitation, convenient parking and/or
shuttle service for all guests) to be supplied by Programmer at fair market
rates charged to all other parties (with no mark-ups, administrative charges,
etc.) at a total cost not to exceed $250,000 per party, which cost shall be
funded from the Programming Account (until that account is exhausted, and
thereafter out of the Marketing Account) and paid directly by Affiliate;
provided that Programmer shall provide an invoice that will reflect the per
person cost of each party and any costs that are not determined on a per person
basis, such cost to be no greater than the fair market rate charged to all other
parties for similar parties. Affiliate agrees (i) to provide Programmer with at
least sixty (60) days advance written notice of any request for any party, (ii)
that for the purpose of scheduling any party, the term weekend shall mean
Friday, Saturday and Sunday, and (iii) with respect to the Playboy Mansion in
Los Angeles, no more than one (1) party per year during the Term shall occur on
a weekend. Notwithstanding the foregoing, Programmer agrees that it shall make
reasonable good faith efforts to accommodate any party request made with less
than sixty (60) days advance notice and/or any request to stage Affiliate's
allocated number of parties other than as stated above (e.g., a request for
three (3) Mansion parties during a given year or a request for two (2) weekend
parties at the Mansion during a given year); provided that there are sufficient
funds in the Programming Account and/or the Marketing Account to cover the cost
of the proposed party; and provided further that Affiliate may, in its sole
discretion, elect to pay the balance of any costs in the event that funds
remaining in the Programming Account and/or the Marketing Account are
insufficient to cover the total cost of any proposed party. In the event that
Affiliate does not use any of the money contributed under this sub-section by
the end of the Term of this Agreement, Affiliate will pay to Programmer the
un-used portion of the funds.
(iii) Affiliate shall provide a quarterly accounting of
amounts spent pursuant to the above Sections 2(g)(i) and (ii).
3. Commercial Announcements and Other Advertising.
(a) Commercial Announcements. Programmer hereby represents and
warrants that it does not make available to any Other Distributor of any Service
commercial announcements of any nature in the schedule of such Service(s). If at
any time during the Term, Programmer provides to any Other Distributor the right
to make commercial announcements within any Service, then Programmer shall offer
such right to Affiliate on terms and conditions no less favorable than those
offered to such Other Distributor of the
17
Confidential Treatment
Service(s). In any event, the rights with respect to commercial or promotional
announcements provided by Programmer to Affiliate shall be no less favorable, in
terms of the nature, use, scheduling, availability, length of the announcements
and so forth (including, without limitation, the right to cover Programmer's
commercial or promotional announcements), than those provided to any Other
Distributor.
(b) Advertising. If Programmer offers any Other Distributor the
opportunity to advertise, or includes any Other Distributor in any
advertisement(s), whether or not in connection with the Service, in any
publication, recording, service, visual work or audiovisual work, whether or not
Programmer controls it, then Programmer shall provide Affiliate with the
opportunity to elect to be included in such advertisement, if such advertisement
is in connection with advertising the Service, or an opportunity to elect to be
included in a similar advertisement, if such advertisement is not in connection
with advertising the Service, on at least as favorable terms as such Other
Distributor. Programmer shall not include Affiliate, or advertise Affiliate, by
any means without Affiliate's prior written consent, which may be given or
withheld by Affiliate in its sole discretion.
4. Marketing and Promotion of the Service.
(a) Affiliate shall market and promote the Service in a similar
manner as Affiliate markets and promotes other similar premium programming
services; provided, however, that Affiliate may market and promote any other
such premium programming service differently and/or more frequently, if such
service provider provides Affiliate with material consideration or compensation
therefore. In connection therewith, Programmer shall provide Affiliate, upon
Affiliate's request, with promotional and marketing advice. Affiliate shall make
all marketing and promotion decisions in its sole discretion, but the parties
understand and agree that Affiliate currently expects to use a range of
promotional media (including, without limitation, print advertising and
cross-channel promotional spots on the DTH Distribution System) to market and
promote the Service. Affiliate shall publicize the schedule of the Service in
the Territory in a manner similar to that which it employs, and based on the
same factors, it considers, in publicizing the schedule of other similar premium
programming services distributed via the DTH Distribution System, including,
without limitation, the publication of the Service programming schedule in the
television listings and program guides which Affiliate, as applicable,
distributes.
(b) Subject to Sections 6 and 17, Affiliate shall not at any time
during the Term (i) cease marketing or promoting the Service or (ii) withdraw
distribution of the Service in any area of the Territory after the introduction
thereof in such area; provided that, Affiliate may cease marketing and promoting
the Service if Affiliate, in its absolute sole determination, reasonably
believes that marketing or promoting the Service may be politically harmful to
Affiliate or its Affiliated Companies or adversely affect the corporate image
that Affiliate or its Affiliated Companies desires to maintain at such time,
provided however, that should Affiliate cease marketing and/or promoting the
Service for the aforementioned reason, Affiliate may not market and/or promote
any other adult services comparable to the Service provided by Programmer
hereunder for so long as Affiliate ceases
18
Confidential Treatment
marketing and/or promoting the Service.
(c) Affiliate may expend such amounts as it deems necessary or
desirable, in its sole discretion, during any 12-month period (with each
12-month period starting on the Effective Date as defined in Section 6(a) or the
anniversary thereof) (a "12-Month Period") for marketing, advertising and
promoting of distribution of Playboy TV via the DTH Distribution System. Subject
to the terms and conditions of this Agreement, Affiliate shall consult with
programmer in good faith, but shall make any decisions relating to such
marketing, advertising, promotion and expenditures in its sole discretion,
including, without limitation, the selection of promotional media (such as print
advertising, direct mail pieces, cross-channel promotional spots on the DTH
Distribution System, etc.) and the scheduling of such marketing, advertising and
promotional activities.
(d) [This section intentionally left blank.]
(e) From time to time, Programmer may offer Affiliate an opportunity
to exhibit the Service discounted to DIRECTV Subscribers ("Discounted
Previews"). Discounted Previews shall be made only with Programmer's prior
written authorization and shall be offered to Affiliate on a frequency and basis
no less favorable than those offered to any Other Distributor of the Service (or
any portion thereof). The retail price for Discounted Previews shall be no less
than ninety-nine cents ($.99) per programming block and shall be paid to
Programmer in a similar manner as provided in Section 2.
(f) Program Guide. During the Term, Programmer shall provide the
daily programming schedule for the Service to Tribune Media Service (or such
other service designated by Affiliate) in order that Affiliate may access the
program schedule for purposes of the on-screen program guide.
5. Representations. Warranties and Covenants.
(a) By Affiliate. Affiliate warrants, represents and covenants to
Programmer that:
(i) to its best knowledge after diligent review and receipt of
advice of legal counsel with experience in such matters, it is in compliance
with and will comply with all material "Laws" (as defined below) with respect to
its rights and obligations under this Agreement, including without limitation,
all relevant provisions of the Cable Television Consumer Protection and
Competition Act of 1992 which are applicable to Affiliate, the Communications
Act of 1934, the Communications Decency Act of 1996 (as any or all may be
amended and any successor, replacement or similar Laws or statutes), and any and
all regulations issued pursuant to any of the foregoing. As used in this
Agreement, "Laws" mean and include relevant federal, state, municipal or local
statutes, laws, rules, regulations, ordinances, codes, directives and orders,
including administrative rules or policies and court orders;
19
Confidential Treatment
(ii) it has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder;
(iii) it shall distribute the Service in the Territory in
accordance with and subject to the terms and conditions set forth in this
Agreement;
(iv) it shall not, without Programmer's prior written
approval, use the name of or logo for "Playboy TV," "Spice Wild," "The Hot
Network," "The Hot Zone," "Fresh!," "Club Jenna', "Spice:Xcess" or "Playboy TV
en Espanol," or the names, titles or logos of the Service (or any successors
thereto) or any of its programs, or the names, voices, photographs, likenesses
or biographies of any individual participant or performer in, or contributor to,
any program or any variations thereof, for any purpose other than in material
intended to advise Service Subscribers or potential Service Subscribers of the
availability and scheduling of the Service or as a channel identifier. Affiliate
shall not publish or disseminate any material that violates restrictions imposed
by Programmer or Programmer's suppliers and disclosed upon reasonable advance
written notice to Affiliate by Programmer. The restrictions set forth in this
Section 5(a) (iv) shall apply only to the extent they are applied by Programmer
uniformly with respect to all of its distributors of the Service, and shall not
apply if Affiliate has received a valid written authorization from a third party
for any of the uses described in this Section 5(a)(iv);
(v) it has obtained, and shall maintain in full force during
the Term hereof, such federal, state and local authorizations as are material
and necessary to operate the business it is conducting in connection with its
rights and obligations under this Agreement;
(vi) it has no knowledge of any misrepresentation, breach of
warranty or covenant made by Programmer hereunder;
(vii) the individual executing this Agreement on its behalf
has the authority to do so.
(b) By Programmer. Programmer warrants, represents and covenants to
Affiliate that:
(i) to its best knowledge after diligent review and receipt of
advice of legal counsel with experience in such matters, it is in compliance
with and will throughout the Term continue to comply with all material Laws
applicable to, or with respect to, the Service and the provision of the Service
to Affiliate, and Programmer's rights and obligations under this Agreement with
respect to the Service and Programmer's obligations hereunder, including without
limitation, FCC rules and regulations governing the Service, if any, all
relevant provisions of the Cable Television Consumer Protection and Competition
Act of 1992, and the Communications Act of 1934, the effective portions of the
Communications Decency Act of 1996 (as any or all may be amended and any
successor, replacement or
20
Confidential Treatment
similar Laws) and any regulations promulgated under any applicable law or any of
the foregoing;
(ii) it has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder;
(iii) it shall provide the Service for the Territory, at its
sole cost and expense (together with any necessary equipment, including without
limitation, backup or reserve equipment), in accordance with and subject to the
terms and conditions set forth in this Agreement, including, without limitation,
that it shall (A) arrange and pay for the transmission of the Service from
Programmer's U.S. Satellite to the Broadcast Center, (B) encode and scramble the
Service at its sole expense, (C) cause its uplink authorization center to
authorize and enable Affiliate's descramblers to receive and descramble the
Service, and (D) provide to Affiliate two (2) receivers and two (2) decoders per
channel to receive and unscramble the Service at each of the two (2) Broadcast
Center;
(iv) it shall promptly provide Affiliate with any and all
promotional materials of the Service which it generally provides to any other
distributor of the Service, at Programmer's sole cost and expense; and if
Affiliate shall request additional such materials, then Programmer shall
promptly provide such materials to Affiliate and Affiliate shall reimburse
Programmer for the reasonable actual costs thereof;
(v) it has obtained, and shall maintain in full force during
the Term hereof, such federal, state and local authorizations as are necessary
to comply with Laws or which are material and necessary to operate the business
it is conducting in connection with its rights and obligations under this
Agreement;
(vi) it has obtained or will obtain at its sole expense all
rights necessary for Affiliate to use and enjoy its rights in connection with
its distribution of the Service, including, without limitation, obtaining all
necessary trademarks, copyrights, licenses and any and all other proprietary,
intellectual, property and other use rights necessary in connection with, or for
Affiliate's distribution of the Service, and at all times during the Term
"PLAYBOY TV," "SPICE WILD," "THE HOT NETWORK," "FRESH!," "CLUB JENNA",
"SPICE:XCESS" or "PLAYBOY TV EN ESPANOL" or the names, titles or logos of the
Service (or any successors thereto) or any of their programs, or the names,
voices, photographs, music, likenesses or biographies of any individual
participant or performer in, or contributor to, any program or any variations
thereof) and to perform its obligations hereunder and grant the rights granted
pursuant to Section 1;
(vii) there are no (and it covenants that it shall not enter
into directly or indirectly, allow or otherwise permit any) affiliation,
distribution or any other agreements, whether written or oral, granting to
distributors and/or any other third party, person or entity any form or type of
exclusive or other rights that would limit or restrict in any way Affiliate's
rights to distribute the Service in the Territory;
21
Confidential Treatment
(viii) it shall not, without Affiliate's prior written
approval, use the name of or logo for "DIRECTV," or any variations thereof, for
any purpose, without Affiliate's prior written consent;
(ix) there is no actual and, to Programmer's knowledge, there
is no pending investigation (including, without limitation, a grand jury
investigation) involving the Service (or any content included in the Service) or
any pending proceeding against Programmer (or any of its principals or
Affiliated Companies) for the violation of any federal, state or local law or
regulation, as applicable, concerning illegal, indecent or obscene material or
the transmission thereof (the "Obscenity Laws");
(x) it will notify Affiliate as soon as reasonably practical,
but in no event more than two Business Days, after receiving notification of, or
becoming aware of, any pending investigation by any governmental authority, or
any pending criminal proceeding against Programmer (or any of its principals or
Affiliated Companies (as defined in Section 8(a)), which investigation or
proceeding concerns distribution of the Service or programming in the Service,
including without limitation, investigations any/or proceedings concerning
potential violations of Obscenity Laws. For purposes of this Section 5(b)(x),
Programmer shall be deemed to be aware of any such investigation or proceeding
if any of the directors, officers, agents, representatives or employees of
managerial functions of Programmer or an Affiliated Company has received any
communication about or otherwise becomes aware of any such investigation or
proceeding;
(xi) to the best of Programmer's knowledge after diligent
review and advice of counsel with experience in such matters, the programming
Service and all programming provided as part thereof that Programmer provides
Affiliate hereunder complies with Obscenity Laws and is not violative of
Obscenity Laws in any jurisdiction in the Territory;
(xii) it solely and exclusively possesses, and will at all
times during the Term so possess, any and all rights necessary to grant
Affiliate the right to distribute the Service and all programming provided as
part thereof, as a whole or in parts, as Subscription Offering(s) and PPV
Offering(s), as the case may be, in the Territory (it being understood and
agreed that Programmer has granted and may grant similar rights to other third
parties);
(xiii) nothing contained in the Service or in any other
material supplied by Programmer to Affiliate violates, infringes, or conflicts
with any rights of any person or entity (including, without limitation,
copyright, trademark, music performance and all other proprietary and/or
intellectual rights);
(xiv) there are no outstanding (or, to the best of
Programmer's knowledge, threatened) judgments or pending claims, liens, charges,
restrictions, or encumbrances on or related to the Service or any programming
provided as part thereof that may materially interfere with the rights of
Affiliate under this Agreement;
22
Confidential Treatment
(xv) Programmer is the sole entity that has entered into and
shall enter into agreements and obligations with other distributors with respect
to the Service and to any and all programming provided as part of the Service;
(xvi) except to the extent expressly permitted hereunder,
during the Term, the Service shall not include any direct sales, advertising or
infomercials;
(xvii) the individual executing this Agreement on its behalf
has the authority to do so;
(xviii) to its best knowledge after diligent review and
receipt of advice of legal counsel with experience in such matters, it is in
compliance with and will throughout the Term continue to comply with 18 USC 2257
or 28 CFR 75 or any successor legislation or code. Programmer 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 Affiliate 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"). Programmer warrants and represents that
it is in possession of such documents and records, and maintains them in
accordance with Section 2257. Programmer agrees to appoint a "record custodian"
as required under Section 2257, and will keep Affiliate apprised of the physical
address where all required records are compiled and maintained pursuant to
Section 2257, along with the name of the records custodian. Programmer 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, Programmer will be identified
as a "primary producer" in any and all disclosure statements associated with the
Services pursuant to Section 2257. Programmer further agrees to cooperate with
Affiliate in connection with any inspections or government inquiries initiated
pursuant to Section 2257. Affiliate shall have the right to inspect such
documents and records at any time during regular business hours at Programmer's
location for maintaining the records with five (5) business days' prior written
notice from Affiliate.
6. Term; Effective Date; Termination.
(a) Term; Effective Date. Subject to certain rights of
termination set forth in this Agreement; and notwithstanding the terms of the
May 24, 2004, letter agreement executed by each of the parties, the initial term
of the Agreement shall be for the period commencing on the Effective Date and
ending on November 15, 2008 (the "Term").
(b) Termination for Breach or Bankruptcy. This Agreement may be
terminated by either party (the "Affected Party"), in its discretion, at any
time after any of the following occurrences with respect to the other party (the
"Other Party"):
23
Confidential Treatment
(i) the breach of any representation, warranty or covenant of
the Other Party or failure by the Other Party, its successors or assigns to
perform any material obligation hereunder which is not cured within thirty (30)
days after receipt of written notice thereof from the Affected Party or as to
which reasonable steps to cure have not been commenced within such period (or
are not thereafter diligently pursued and completed within an additional thirty
(30) days); or
(ii) the filing of a petition in bankruptcy or for
reorganization by or against the Other Party under any bankruptcy act; the
assignment by the Other Party for the benefit of its creditors, or the
appointment of a receiver, trustee, liquidator or custodian for all or a
substantial part of the Other Party's property, and the order of appointment is
not vacated within thirty (30) days; or the assignment or encumbrance by the
Other Party of this Agreement contrary to the terms hereof; or
(c) Termination by Affiliate. Affiliate may terminate this
Agreement:
(i) subject to Section 1(b)(viii), immediately upon prior
written notice, if the Service, or any programming provided as part thereof
(including, without limitation, advertising, if any), fails to comply in any
material way with Exhibit A hereto and the definition of "Service" in Section
1(b) hereof, as reasonably determined by Affiliate, if Programmer is unable to
cure such material failure within fifteen (15) days upon notice (specifying such
failure) thereof ;
(ii) if Affiliate discontinues operation of the DTH System,
immediately upon such discontinuance;
(iii) according to the provisions of Section 6(d) or Section
17 hereof;
(iv) immediately following written notice to Programmer of
Programmer's failure to comply with any material Laws, if Programmer is unable
to cure or eliminate the failure to comply with such material Laws in any
material respect within fifteen (15) days upon notice (specifying such failure)
thereof; or
(v) on ninety (90) days' prior written notice in the event
Programmer, or all or substantially all of its stock or assets, is/are acquired
(directly or indirectly) by a third party who is an "Industry Acquirer" (as
defined below), whether by way of a purchase of assets, purchase of a majority
of the outstanding stock of Programmer, merger, consolidation or otherwise,
after which such acquiring party has the right or ability by virtue of such
acquisition to control (directly or indirectly) Programmer and/or those assets
(including without limitation, to direct the creation and operation of the
Service) used in the performance of Programmer's obligations hereunder (each a
"Change in Control"), unless Affiliate provides written consent, in its absolute
sole discretion, to such Change in Control. If such a Change in Control is
consummated without Affiliate's prior written consent, then Affiliate shall have
the right, in its absolute sole discretion, to terminate this Agreement in its
24
Confidential Treatment
entirety. As used herein, "Industry Acquirer" shall mean, whether directly or
indirectly, a third party or an Affiliated Company (as defined in Section 8(a)
hereof) of such third party: (x) engaged in the "adult" industry in any manner
whatsoever (by way of example and not in limitation of the foregoing, Hustler,
Penthouse, etc.); (y) directly engaged in the distribution of regularly
scheduled programming networks or services (e.g., a collection of programs) via
television (broadcast, cable or satellite); or (z) competitors of Affiliate
engaged in multichannel television (i.e., satellite, cable or telco)
distribution (e.g., Echostar, cable companies) or is a broadcast television
station or owns broadcast television station(s); provided that, with respect to
the businesses described in clauses (y) and (z) (a "Programmer/Distributor"),
Affiliate's termination right shall not be exercisable unless the acquirer (or
Affiliated Company) has an ownership interest in a Programmer/Distributor
(directly or indirectly) that is equal to or greater than 30% of such
Programmer/Distributor's outstanding stock or if the acquirer (or Affiliated
Company) has the ability (directly or indirectly) to control (by reason of
voting stock ownership, contract or otherwise) such Programmer/Distributor.
Notwithstanding the foregoing, a Change in Control wherein the acquiring entity
is a third party that is not an Industry Acquirer (or an Affiliated Company
thereof), shall not require Affiliate's consent so long as such acquirer assumes
in writing all of Programmer's obligations and liabilities under this Agreement,
such acquirer agrees in writing to maintain the quality of the Service
consistent with the standards utilized by Programmer as in effect immediately
prior to the effective date of such Change in Control, and such acquirer has a
net worth which is at least equal to the greater of (x) Programmer's net worth
immediately prior to the effective date of such Change in Control or (y) $50
million; and provided further, that a Change in Control resulting directly from
the initial public offering of Programmer shall be excluded from the provisions
of this Section 6(c)(v), so long as the controlling stockholder(s) of Programmer
and substantially all of the members of management of the Programmer remain the
same following the initial public offering and for the duration of the Term.
(d) Force Majeure. Notwithstanding any other provision in this
Agreement, neither Programmer nor Affiliate shall have any liability to the
other or any other person or entity with respect to any failure of Programmer or
Affiliate, as the case may be, to transmit or distribute the Service or perform
its obligations hereunder if such failure is due to any failure or degradation
in performance of Programmer's U.S. Satellite or Affiliate's DTH Satellite(s) or
transponders on any such satellites (as applicable) or of the DTH System (in
which case, Affiliate shall be excused from its distribution obligations under
this Agreement), or of any failure of scrambling/descrambling equipment or any
other equipment owned or maintained by others (including, without limitation,
Affiliate's automated billing and authorization systems), any failure at the
origination and uplinking center used by Programmer or Affiliate, any labor
dispute, fire, flood, riot, legal enactment, government regulation, Act of God,
or any cause beyond the reasonable control of Programmer or Affiliate, as the
case may be (a "Force Majeure"), and such non-performance shall be excused for
the period of time such failure(s) causes such non-performance (and shall result
in a per-day pro rata reduction in any Revenue Assurances for any failure or
non-performance that affects at least ten percent (10%) of Affiliate's
subscribers for a period of seven (7) days or longer)); provided, however, that
if Affiliate determines in its sole
25
Confidential Treatment
discretion that it is commercially or technically unfeasible to cure a Force
Majeure with respect to the DTH System or one or more DTH Satellites and so
notifies Programmer, then either party may terminate this Agreement effective
upon written notice to the other party. The parties acknowledge and agree that
although the Service may at any given time be uplinked to only one of several
DTH Satellites, failure or degradation in any of such DTH Satellites may require
Affiliate to reduce the number of programming services (in particular the number
of PPV and/or adult services) available for allocation among all of the DTH
Satellites, with such reduction including, without limitation, curtailment or
termination of the distribution of the Service by Affiliate, at Affiliate's sole
discretion. Accordingly, Programmer further acknowledges and agrees that the
provisions set forth in the first sentence of this Section 6(d) shall apply and
shall exculpate Affiliate and excuse the performance of Affiliate hereunder in
the event of such a failure or degradation of any of the DTH Satellites or the
transponders on any such satellite, regardless of whether the satellite to which
the Service is uplinked at the time of such failure or degradation is itself the
subject of such failure or degradation. In the event Affiliate determines in its
sole discretion that it is unable to cure, or it is commercially impracticable
to cure, such Force Majeure during the remaining Term of this Agreement, then
Affiliate may terminate this Agreement immediately upon notice to Programmer.
(e) Survival. Termination of this Agreement pursuant to this Section
6 shall not relieve either party of any of its liabilities or obligations under
this Agreement, including without limitation those set forth below in Section 8,
which shall have accrued on or prior to the date of such termination.
(f) License Fee Reduction. In addition to its remedies set forth in
this Agreement, Affiliate may receive credit against the License Fees in the
proportion that the hours of programming each day materially deviates from the
programming required in Section 1(b), as determined by Affiliate in its sole
discretion, bears to the total hours the Service is transmitted each day, such
credit to be applied against the License Fees, but only for the applicable
number of days such deviation occurs in any month. Affiliate shall notify
Programmer in writing in advance of any such reduction it intends to make, and
Programmer shall have fifteen (15) days from the date of such notice to cure
such programming deviation prior to Affiliate effecting any such reductions if
the deviation is not cured during the fifteen (15) day period.
(g) Rights to Limit Distribution. Programmer shall have the rights
to limit distribution of Movie Channel 1 and Movie Channel 2 as set forth in
Exhibit B hereof.
7. Separate Entities. No officer, employee, agent, servant or independent
contractor of either party hereto or their respective subsidiaries or affiliates
shall at any time be deemed to be an employee, servant or agent of the other
party for any purpose whatsoever, and the parties shall use commercially
reasonable efforts to prevent any such misrepresentation. Nothing in this
Agreement shall be deemed to create any joint-venture, partnership or
principal-agent relationship between Programmer and Affiliate, and neither
26
Confidential Treatment
shall hold itself out in its advertising or in any other manner which would
indicate any such relationship with the other.
8. Indemnification; Limitation of Liability.
(a) By Programmer. Programmer shall indemnify, defend and hold
harmless each of Affiliate, its Affiliated Companies (as defined below) and the
directors, officers, employees, and agents of Affiliate and its Affiliated
Companies (collectively, the "Affiliate Indemnitees") from, against and with
respect to any and all claims, criminal and civil liabilities, costs and
expenses (including reasonable attorneys' and experts' fees) ("Claims") incurred
to third parties (including without limitation, any Governmental Authorities) in
connection with any claim against any of the Affiliate Indemnitees arising out
of (i) Programmer's breach of its representations, warranties and covenants set
forth in this Agreement, (ii) the Service or material or programming supplied by
Programmer pursuant to this Agreement, (iii) the distribution or cablecast of
any programming of the Service which violates or requires payment for use or
performance of any copyright, right of privacy or literary, music performance or
dramatic right, (iv) Programmer's advertising and marketing of the Service, (v)
any acts or omissions by audio text suppliers (including, without limitation,
the content of any of the audio text service) and all employees and contractors
thereof, (vi) any other materials, including advertising or promotional copy,
supplied or permitted by Programmer, and/or (vii) any claim for payment by a
third party as a result of Affiliate's distribution of the Service. As used in
this Agreement, "Affiliated Company(ies)" shall mean, with respect to any person
or entity, any other person or entity directly or indirectly controlling,
controlled by or under common control (i.e., the power to direct affairs by
reason of ownership of voting stock, by contract or otherwise) with such person
or entity and any member, director, officer or employee of such person or
entity.
(b) By Affiliate. Affiliate shall indemnify, defend and hold
harmless each of Programmer, Programmer's Affiliated Companies and the
directors, officers, employees and agents of Programmer and Programmer's
Affiliated Companies (collectively, the "Programmer Indemnitees") from, against
and with respect to any and all claims, liabilities, costs and expenses
(including reasonable attorneys' and experts' fees) incurred to third parties
arising out of (i) Affiliate's breach of its representations, warranties and
covenants set forth in this Agreement, (ii) Affiliate's distribution of the
Service by means of the DTH Distribution System (except with respect to claims
relating to the content of the Service, including advertising or promotional
copy supplied or permitted by Programmer), (iii) Affiliate's advertising and
marketing of the Service and the DTH System, and (iii) any other materials used
by Affiliate, including advertising or promotional copy, not supplied or
permitted by Programmer.
(c) Procedure for Indemnification Claims. The respective
indemnification obligations of each of the parties pursuant to Sections 8(a) and
8(b), above, shall be conditioned upon strict compliance with the following
procedures for indemnification claims based upon or arising out of any claim,
action or proceeding by any person not a party to this Agreement. If at any time
a claim shall be made, or an action or proceeding shall be
27
Confidential Treatment
commenced, against a party to this Agreement (the "Aggrieved Party") which could
result in liability of the other party (the "Indemnifying Party") under its
indemnification obligations under this Agreement, the Aggrieved Party shall give
to the Indemnifying Party notice of that claim, action or proceeding within five
(5) Business Days following receipt of service of any claim, action or
proceeding by the Party (except that failure to give that notice shall not
excuse the Indemnifying Party except to the extent that it is materially
prejudiced by that failure). The notice shall state the basis for the claim,
action or proceeding and the amounts claimed, (to the extent that amount is
determined at the time when the notice is given) and shall permit the
Indemnifying Party to assume the defense of any such claim, action or proceeding
(including any action or proceeding resulting from any such claim) with counsel
which is reasonably acceptable to the Aggrieved Party. Failure by the
Indemnifying Party to notify the Aggrieved Party of its election to defend the
claim, action or proceeding within a reasonable time, but in no event more than
fifteen (15) days after the notice shall have been given to the Indemnifying
Party, shall be deemed a waiver by the Indemnifying Party of its right to defend
the claim, action or proceeding; provided, however, that the Indemnifying Party
shall not be deemed to have waived the right to contest and defend against any
claim of the Aggrieved Party for indemnification under this Agreement based upon
or arising out of that claim, action or proceeding.
(i) Right of Set-Off. Notwithstanding the foregoing and
without limiting Affiliate's other rights and remedies, pending the resolution
of any claim in respect of which Affiliate is entitled to be indemnified,
Affiliate may, in the event Programmer has not assumed the defense of all claims
on behalf of Affiliate and any Affiliate Indemnitees as set forth above, and
following written notice to Programmer, withhold License Fees which would
otherwise be payable to Programmer under this Agreement in an amount consistent
with Affiliate Indemnitees' anticipated reasonable and actual out of pocket
legal fees and costs associated with Affiliate's receipt of service of any such
claim. Without limiting Affiliate's other rights and remedies, Affiliate may
offset and retain from such withheld monies (i) the amount of legal fees and
costs the Affiliate Indemnitees expend in connection with such claims during the
pendency thereof, and (ii) the actual amount(s) to settle such claims and/or to
pay any judgments in connection therewith (subject to the last sentence of this
Section 8(c)(i)). Affiliate shall provide Programmer with a written accounting
sufficiently detailed to allow Programmer to ascertain such expenditures. If no
action or other proceeding for recovery on such a claim has been commenced
within twelve (12) months after its assertion, Affiliate shall not in connection
with that particular claim under this paragraph continue to withhold such monies
(that were not so offset) and shall remit to Programmer all such withheld monies
otherwise due Programmer unless Affiliate believes, in its reasonable judgment,
that such a proceeding is likely to be instituted notwithstanding the passage of
that time. Under no circumstances shall Programmer have the right to settle or
dispose of any claim under this paragraph without Affiliate's prior written
consent.
(d) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT:
28
Confidential Treatment
(1) IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY INCIDENTAL
OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY FAILURE
TO PERFORM OR THE BREACH OF ANY OBLIGATION UNDER THIS AGREEMENT FOR ANY CAUSE
WHATSOEVER INCLUDING NEGLIGENCE. EACH OF THE PARTIES HAVE READ AND UNDERSTANDS
AND EXPRESSLY WAIVES AND RELEASES ANY AND ALL RIGHTS AND BENEFITS WHICH THE
RESPECTIVE PARTIES MAY HAVE HAD UNDER SECTION 1542 OF THE CIVIL CODE OF THE
STATE OF CALIFORNIA (THE "CIVIL CODE"), AND ANY SIMILAR PRINCIPLES OF LAW OR
EQUITY, TO THE FULL EXTENT THAT THEY MAY HAVE SUCH RIGHTS AND BENEFITS
PERTAINING TO SUCH DAMAGES THE PARTIES ARE HEREBY WAIVING. SECTION 1542 OF THE
CIVIL CODE PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IS KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
(2) ANY AND ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE,
ARE EXPRESSLY EXCLUDED AND DISCLAIMED BY AFFILIATE.
(3) IN NO EVENT SHALL ANY PROJECTIONS, FORECASTS, ESTIMATIONS
OF SALES AND/OR MARKET SHARE OR EXPECTED PROFITS, OR OTHER ESTIMATIONS OR
PROJECTIONS BY AFFILIATE OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
AFFILIATES, REGARDING OR RELATED TO AFFILIATE'S DTH BUSINESS BE BINDING AS
COMMITMENTS OR, IN ANY WAY, PROMISES BY AFFILIATE.
9. Notices. Except as set forth below, all notices hereunder shall be in
writing and delivered by hand or sent by certified mail, return receipt
requested, fax, an overnight delivery service to the receiving party at its
address set forth above or as otherwise designated by written notice. Notice to
Programmer shall be provided as follows:
If by mail, facsimile Playboy Entertainment Group, Inc.
or overnight or 2706 Media Center Drive.
personal delivery: Los Angeles, California 90065
Attention: Senior Vice President,
Business and Legal Affairs
Fax: (323) 276-4502
Playboy Entertainment Group, Inc.
29
Confidential Treatment
2706 Media Center Drive.
Los Angeles, California 90065
Attention: Executive Vice President,
Sales and Affiliate Relations
Fax: (323) 276-4505
With a courtesy copy to: Playboy Enterprises, Inc.
680 N. Lake Shore Drive
Chicago, Illinois 60611
Attn: General Counsel
Fax: (312) 266-2042
Notice to Affiliate shall be provided as follows:
If by mail DIRECTV, Inc.
or facsimile: P.O. Box 92424
Los Angeles, California 90009
Attention: Executive Vice President, Programming
Fax: (310) 535-5416
cc: General Counsel
Fax: (310) 964-4991
cc: Legal & Business Affairs
Fax: (310) 964-4880
If by overnight or DIRECTV, Inc.
personal delivery: 2230 East Imperial Highway
El Segundo, California 90245
Attention: Executive Vice President, Programming
cc: General Counsel
cc: Legal & Business Affairs
Notice given by mail shall be considered to have been given five (5) days
after the date of mailing, postage prepaid certified or registered mail. Notice
given by facsimile machine shall be considered to have been given on the date
receipt thereof is electronically acknowledged. Notice given by an overnight
delivery service shall be considered to have been given on the next business
day.
10. Waiver. The failure of any party to insist upon strict performance of
any provision of this Agreement shall not be construed as a waiver of any
subsequent breach of the same or similar nature. Subject to Section 8(d) above,
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.
11. Binding Agreement; Assignment. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns, except that it
may not be assigned
30
Confidential Treatment
by transfer, by operation of law or otherwise, without the prior written consent
of the non-transferring party, which shall not be unreasonably withheld;
provided, however, that (i) Affiliate may assign its rights and obligations
under this Agreement, in whole or in part (including without limitation,
Affiliate's right to distribute the Service) (A) to a successor entity to
Affiliate's DTH business; (B) to a third party as part of preparing to go or
going public; or (C) to a third party, provided Affiliate remains primarily
liable for the performance of such third party's obligations hereunder and (ii)
Programmer may assign its rights and obligations under this Agreement, in whole
or in part, (A) to a successor entity to Programmer's business; provided,
however, that such assignment shall be subject to the limitations relating to
Change in Control set forth in Section 6(c)(v) hereof); or (B) to a third party
as part of preparing to go or going public, so long as the controlling
stockholder(s) of Programmer and substantially all of the members of management
of the Programmer remain the same following the initial public offering and for
the duration of the Term.
12. Laws of California; Consent to California Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
California applicable to contracts made and fully performed therein, except to
the extent that the parties' respective rights and obligations are subject to
mandatory local, State and Federal laws or regulations. All actions relating to
this Agreement shall be brought, and the parties hereto consent to exclusive
jurisdiction (in personam and in rem) and venue for all actions relating to this
Agreement, in the courts located in Los Angeles County, California; provided,
however, that any judgments or court orders obtained may be enforced in any
other jurisdiction. Programmer represents that CT Corporation System is its
authorized agent for service of process in Los Angeles, California.
13. Entire Agreement and Section Headings. This Agreement sets forth the
entire agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements, or understandings
relating to the subject matter hereof (whether written, oral or implied),
including, without limitation, the Current Playboy Agreement and any amendments
thereto. This Agreement shall not be modified other than in a writing, signed by
each of the parties hereto. The section headings hereof are for the convenience
of the parties only and shall not be given any legal effect or otherwise affect
the interpretation of this Agreement.
14. Severability. The parties agree that each provision of this Agreement
shall be construed as separable and divisible from every other provision and
that the enforceability of any one provision shall not limit the enforceability,
in whole or in part, of any other provision hereof. In the event that a court of
competent jurisdiction determines that a restriction contained in this Agreement
shall be unenforceable because of the extent of time or geography, such
restriction shall be deemed amended to conform to such extent of time and/or
geography as such court shall deem reasonable.
31
Confidential Treatment
15. Confidentiality.
(a) Generally. The parties agree that they and their employees have
maintained and will maintain, in confidence, the terms and provisions of this
Agreement, as well as all data, summaries, reports, proprietary information,
trade secrets and information of all kinds, whether oral or written, acquired or
devised or developed in any manner from the other party's personnel or files or
any proprietary or subscriber information provided by one party to the other
party (the "Confidential Information"), and that they have not and will not
reveal the same to any persons not employed by the other party except: (i) (A)
at the written direction of such party; (B) to the extent necessary to comply
with the law or the valid order of a court of competent jurisdiction, in which
event the disclosing party shall so notify the other party as promptly as
practicable (and, if possible, prior to making any disclosure) and shall seek
confidential treatment of such information, or in connection with any
arbitration proceeding; (C) as part of its normal reporting or review procedure
to its parent company, its financial advisors, auditors and its attorneys, and
such parent company, financial advisors, auditors and attorneys agree to be
bound by the provisions of this Section 15; (D) to independent contractors hired
by either party in the ordinary course of business, bona fide potential
investors, insurers and financing entities; provided, however, that such persons
described above agree to be bound by the provisions of this Section 15; or (E)
in order to enforce any of its rights pursuant to this Agreement; however, that
such person described above agrees to be bound by the provisions of this Section
15; or (ii)(A) at the time of disclosure to the recipient the Confidential
Information is in the public domain; or (B) after disclosure to the recipient
the Confidential Information becomes part of the public domain by written
publication through no fault of the recipient. During the Term, neither party
shall issue an independent press release, or discuss with a member of the press,
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party.
(b) Programmer's Further Obligations. Notwithstanding Section 15(a),
Programmer specifically acknowledges and agrees that any lists of Affiliate's
customers or users, and all information related to such customers and users, is
confidential and proprietary information of Affiliate and cannot be disclosed by
Programmer or used by Programmer for any purpose or use whatsoever, other than
for its review at Affiliate's offices as part of Programmer's audit rights
hereunder to determine if Programmer has been paid the License Fees due to it by
Affiliate. Also notwithstanding Section 15(a), Programmer further acknowledges
and agrees that under no circumstances will it in any way: disclose information
(whether personally identifiable or not) to any third party regarding
Affiliate's customers or users or engage in any direct mailing or telephone
solicitation which Affiliate's customers or users do not previously and
expressly approve (whether orally or in writing) or previously and expressly
request (whether orally or in writing), or which Affiliate does not previously
and expressly approve in writing in Affiliate's sole discretion.
16. Injunctive Relief. Notwithstanding anything in this Agreement to the
contrary, Programmer and Affiliate each shall have the right to obtain
injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement.
32
Confidential Treatment
17. Cessation of Program Distribution. If Affiliate in good faith
reasonably believes that Affiliate's provision of any of the programming on the
Service either violates any material Law or could be found by a court or
administrative agency to violate any material Law (a "Law Violation" or
"Potential Law Violation") or reasonably believes in good faith at any time that
any of the programming on the Service is adversely affecting the corporate image
that Affiliate desires to maintain at such time (an "Image Problem") then,
notwithstanding anything to the contrary in this Agreement, (a) immediately
following written notice to Programmer in the case of a Law Violation or
Potential Law Violation, or (b) no sooner than thirty (30) days following
written notice to Programmer in the case of an Image Problem and only after
consultation with Programmer and providing Programmer the opportunity to propose
a plan to resolve the Image Problem (if Affiliate elects to terminate this
Agreement as provided in this Section 17):; Affiliate may terminate this
Agreement, or Affiliate may cease distributing the offending programming or the
Service (in any portion of the Territory, or the entire Territory, as Affiliate
shall determine in its sole discretion based on the genesis of the Law
Violation; Potential Law Violation or Image Problem) until Affiliate determines
in Affiliate's sole discretion that there will be no Image Problem because the
Service programming at that subsequent time is consistent with the corporate
image that Affiliate then desires to maintain or Affiliate reasonably determines
that a Law Violation or Potential Law Violation will not again occur. If
Affiliate, pursuant to this Section 17 and due to an Image Problem, desires to
cease distributing the Service, Affiliate shall provide Programmer with notice
thereof setting forth in reasonable detail the nature of Affiliate's concerns
and provide Programmer with the opportunity to propose changes in the Service to
address Affiliate's concerns. Consistent with the foregoing, the parties
understand and acknowledge that (i) due to the explicit nature of the
programming on the Channel 596 Service and the Channel 597 Service (i.e., more
explicit than the "Hot Version"), as of the date hereof, Affiliate blacks out
such channels in the following states: Alabama, Mississippi, Oklahoma, Utah,
North Carolina, Tennessee, and in Hamilton County, Ohio, because such
programming may constitute a Law Violation therein; and (ii) Affiliate expressly
reserves the right at any time during the Term to further blackout any such
programming constituting a Law Violation.
18. Survival of Representations and Warranties. All representations and
warranties contained herein or made by the parties, and each of them, in
connection herewith shall survive any independent investigation made by either
party.
19. Counterparts. This Agreement 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. The parties also agree that
this Agreement shall be binding
33
Confidential Treatment
upon the faxing by each party of a signed signature page thereof to the other
party. If such a faxing occurs, the parties agree that they will each also
immediately post, by Federal Express, a fully executed original counterpart of
the Agreement to the other party.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
DIRECTV, INC.
By: Tony Berlin
------------------------------------
Toby Berlin
Vice President, Programming Acquisitions
PLAYBOY ENTERTAINMENT GROUP, INC.
By: Robert Meyers
--------------------------------------
SPICE HOT ENTERTAINMENT, INC.
By: Robert Meyers
---------------------------------------
34
Confidential Treatment
EXHIBIT A
DESCRIPTIONS AND LIMITATIONS OF THE SERVICE
From and after the Effective Date and at all times during the Term, the Service
(including Playboy TV En Espanol, if applicable) shall be provided by Programmer
to Affiliate on a full-time turnaround basis (i.e., 24 hours per day, seven days
a week)
The programming content of the Service shall comply with the following
limitations and restrictions:
(i) With respect to the services making up the Service, the programming
contained therein shall (subject to specific channel descriptions set forth in
this Agreement):
(A) Consist of uninterrupted movies and shows of the adult genre (subject
to the description and limitations set forth in Exhibit A), together with
interstitials, public service announcements, behind the scenes spots and spots
promoting upcoming programming on the Service; provided that any such spots,
permitted commercial announcements and/or interstitial programming shall be
first class broadcast quality for the adult television industry and shall not
promote a competitive multi-channel video distribution service or denigrate
direct satellite distribution. The Service shall not contain any advertising
except that during the "breaks" between movies and/or shows (and with respect to
the VOD Services, before and/or after the program), the Service may contain
spots promoting Programmer's audiotext (i.e., "900" number) offerings (the
"Audiotext Spots") as follows: (x) if the break is less than or equal to ten
(10) minutes in length, Audiotext Spots not exceeding two (2) minutes in the
aggregate during such break; and (y) if the break is greater than ten (10)
minutes in length, Audiotext Spots not exceeding three (3) minutes in the
aggregate during such break; provided that, in either case, Programmer shall not
interrupt any movies or shows to air the Audiotext Spots. The quality of all
interstitial, promos, station I.D.s, public service announcements, or other
permitted insertions shall be of a production quality equal to, if not greater
than, those airing on each of the Services as of the date of this Agreement.
Notwithstanding the foregoing, Programmer shall have the right to include third
party advertising on each of the Services up to a total of four minutes in each
90-minute block of programming; provided that, if Programmer elects to include
such advertising, Affiliate shall have the right to cover two minutes of such
four minute total (or a proportionate amount (i.e., half of the total inventory)
if Programmer inserts less than four advertising minutes) via the insertion of
its own commercial or other announcements (including, without limitation,
promotions for any or all adult programming services distributed by DIRECTV). In
the event Programmer elects to include advertising in a Service, Programmer
shall properly "tone switch", using industry recognized equipment, via inaudible
signals, all Avails to enable Affiliate to insert its commercial announcements.
Notwithstanding the foregoing, under no circumstances shall the Service be
permitted to include, directly or indirectly, advertisements promoting any
competitor of Affiliate (e.g., any satellite television provider; cable
operator; telco provider such as Verizon, Bell South or AT&T in connection with
such other provider's
35
Confidential Treatment
multi-channel video distribution business; or any other distributor of video
content, including via cellular phone, World Wide Web, Internet and/or wireless
technology); provided that the content of the Service may contain references to
Programmer's owned or operated websites, and other incidental references to
where a viewer can receive additional information or content with respect to an
individual appearing in the program or a topic covered in the program; and
provided further than any such incidental reference shall not be provided in
exchange for consideration.
(B) Only contain programming that is of a production quality at least
comparable to, if not better than, the production quality of each applicable
programming service contained in the Service as of August 15, 2006.
(C) Not include any violence, any activity that equates sexuality with
violent behavior, any scenes of non-consenting sexual activity, incest, sadism,
sadomasochism or forced bondage, as presented in the programming and promotional
materials of the Service during the Term.
(D) Not include any scenes of bestiality, any scenes of sexual activity
with children (including "play-acting"), or any acts depicting male
homosexuality, unless approved by Affiliate in advance.
(E) Include differentiated programming among the various programming
services making up the Service so that each programming service is a distinct
and independent service and are not a monthly multiplex or timeshifted version
of any other service.
(F) Shall adhere to the industry's standards and practices (the
"Industry's Standards and Practices") for adult programming distributed via
television services, and shall comply with the below described standards and
practices (the "Standards and Practices") that shall control if they conflict
with the Industry's Standards and Practices. Any act or portrayal that is
prohibited to be presented on the Service as provided below or which the
Industry's Standards and Practices prohibit to be presented in audiovisual
material, is hereinafter referred to as a "Prohibited Act."
(ii) All programming services may:
(A) Include nudity and sexual situations as a matter of course; however,
there shall be no depiction of any sexual acts prohibited by this Exhibit A.
(B) Include explicit and graphic language; provided however that the
Service and promotional materials of the Service shall not include during the
Term descriptive dialogue that is more sexist, racist, violent, threatening or
patently offensive than such language that has been presented on the Service as
of August 15, 2006.
36
Confidential Treatment
(iii) The Movie Channel 1 and Movie Channel 2 Service shall individually and
collectively be referred to as the "Movie Service(s)." The Movie Services shall
comply with the following:
(A) Movies on the Movie Services shall be scheduled to start every 90
minutes, and on a staggered basis, with attention given to creating appealing
double feature, three-hour blocks.
(B) The movies broadcast on the Movie Services shall generally range from
70 to 85 minutes in length.
(C) Programmer shall not simultaneously broadcast duplicate programming on
the services consisting of the Movie Service at any time, nor shall it, without
prior written approval from Affiliate, broadcast a movie on any Movie Service in
a month in which the same movie has aired on another Movies Service or in the
month prior to or subsequent to said month.
(iii) Subject to specific channel descriptions set forth in this Agreement,
Programmer may determine the content of its programming services in its sole
discretion, including the substitution or withdrawal of scheduled programs, and
of commercial, promotional or other announcements, consistent with the terms and
conditions of this Agreement.
(v) Programming Service Specific Restrictions.
(A) Playboy TV. Playboy TV shall be edited to the "Cable Version."
Notwithstanding the foregoing, Playboy TV also may include the following
content, but in no event shall such content be more explicit than the "Hot Cable
Version": (a) one (1) Director's Cut movie per day, seven days per week.
Programmer may premiere at least two (2) Director's Cut titles per week and each
title shall be approximately ninety (90) minutes in length (provided that the
premiere of the Director's Cut movies shall be repeated to accommodate the
Pacific-time zone and that Director's Cut features shall be of a production
quality and content, at least comparable to, if not better than, the Director's
Cut movies that are currently provided by Playboy to Affiliate); and (b) three
(3) original alternative Programmer produced and/or licensed television programs
(each an "Original Program"); with no more than five (5) of these programs being
scheduled in any twenty four (24) hour period. Programmer represents and
warrants that the foregoing describes the amount of "Hot Cable Version" content
included on Playboy TV as of the date hereof (i.e., two (2) Director's Cut title
exhibitions and five (5) Original Program exhibitions during each twenty four
(24) hour period). Programmer shall be required to obtain Affiliate's consent
prior to including on Playboy TV any programming more explicit than the "Cable
Version" other than as set forth in subclauses (a) and (b) above.
Notwithstanding the foregoing, Programmer may include in Playboy TV regularly
scheduled programming (i.e., excluding interstitials) edited in the Cable
Version but which contains content (such as a brief segment, excerpt or clips)
in the Hot Cable Version not to exceed 2 minutes in any half hour period of
time. Programmer shall not air on Playboy TV more than sixty (60) minutes of
Phone Sex Programming (as
37
Confidential Treatment
defined below) within any contiguous six-hour scheduling period. "Phone Sex
Programming" means any program intended to sexually arouse viewers through
one-on-one interaction between on-air talent and an individual viewer utilizing
telecommunication technologies (e.g., telephone, web cam, wireless device, etc.)
and masturbation by the on-air talent; provided that such Phone Sex Programming
shall be no more explicit than the "Cable Version".
(B) Movie Channel 1. Movie Channel 1 shall be in the "Hotter Version," as
set forth in the Programming Standards on Exhibit A. Movie Channel 1 showcases
adult stars, AVN award winning or nominated features, and top-quality Adult
movies. Movie Channel 1 includes a sufficient number of unique movies,
premieres, and/or program events within any broadcast month such that, in
Programmer's judgment, the programming maximizes Subscriber purchases of
programming on the channel. Programmer may include alternative (non-movie)
program events such as live and/or interactive programs that further enhance
Movie Channel 1 for up to three (3) hours per day. Movie Channel 1 shall consist
of a minimum of fifty (50) unique movies and/or program events within any
broadcast month. No movie or program event shall be repeated on Movie Channel 1
for a period of three (3) months after its initial month run on Movie Channel 1.
Programmer will use reasonable efforts to program Movie Channel 1 with movies or
program events that offer the greatest appeal when conformed to the "Hotter
Version" standard, differentiating them from the movies offered on Movie Channel
2. From time to time Programmer may schedule special program events (i.e.
"themed stunts") to enhance Movie Channel 1 that forgo the above, provided prior
approval is granted from Affiliate.
(C) Movie Channel 2. Movie Channel 2 shall be in the "Hotter Version," as
set forth in the Programming Standards on Exhibit A. Movie Channel 2 showcases
`caught on tape' themed content, MILFS, fetish lifestyle, ethnic, and `alt'
programming. Programmer may include alternative (non-movie) program events such
as live and/or interactive programs that further enhance Movie Channel 2 for up
to three (3) hours per day. Movie Channel 2 shall consist of a minimum of fifty
(50) unique movies and/or program events within any broadcast month. No movie or
program event shall be repeated on Movie Channel 2 for a period of three (3)
months after its initial month run on Movie Channel 2. Programmer will use
reasonable efforts to program Movie Channel 2 with movies or program events that
offer the greatest appeal when conformed to the "Hotter Version" standard,
differentiating them from the movies offered on Movie Channel 1. From time to
time Programmer may schedule special program events (i.e. "themed stunts") to
enhance Movie Channel 2 that forgo the above, provided prior approval is granted
from Affiliate.
(D) Playboy TV en Espanol Service. The Playboy TV en Espanol Service shall
be a Spanish language (dubbed and/or subtitled) 24-hour programming service in
the "Hot Version," as set forth in the Programming Schedule on Exhibit A. Its
programming is configured in a daily eight (8) hour block with three (3) repeats
or runs, consisting primarily of Playboy-branded adult movies, series, specials
and a variety of programs. The programming service consists of approximately
thirty (30) different movies, series and/or programs per month, of which 15 are
premier movies. Premiers are exhibited 4 times during
38
Confidential Treatment
the month as follows: the premier during Fridays, Saturdays and Sundays, and 3
repeats on weekdays". Affiliate acknowledges that Programmer does not program
the Playboy TV en Espanol service. As such, Programmer shall give Affiliate
prompt notice of any changes to the above description of which Programmer is
informed, and in the event of a material deviation from the description above,
Affiliate shall have the right to discontinue the Playboy TV en Espanol service
with ten (10) days written notice, but such deviation shall not constitute a
material breach under the agreement entitling Affiliate to other remedies.
(E) The live and/or interactive programs described in sub-paragraphs B and
C above will be hosted by live talent, with the programming switching between
mini-shows and previews, and in no event shall include "phone sex" or similar
call-in shows (excluding only the program currently known as "Night Calls"). The
hostess might take us to the 'Peep Show' to watch some hot action, or to 'The
Audition Room' for new talent guaranteed to please. Viewers can call in or
interact online to vote, comment, or help decide which feed to switch to next. A
description of each of these offerings is as follows:
TITLE DESCRIPTION
Peep Show Set in a sexy peep show booth with velvet lined walls &
surveillance cameras. Singles or horny couples are all caught on
tape and we'll always be watching through our live feed...even
when they think we aren't.
The Audition
Room These auditions are down and dirty, and the viewer can vote or
call in to rate the hottest and newest talent.
Movie
Previews Preview the nastiest and most anticipated movies, and watch your
favorite clips in this quick hit format.
Behind The
Scenes Get a VIP pass onto the sets of Adult's biggest shoots. We go
behind the scenes to watch what really goes on when the cameras
are off, and we speak to the biggest sex stars.
39
Confidential Treatment
EXHIBIT A (continued)
PROGRAMMING STANDARDS
- ------------------------------------------------------------------------------------------------
CABLE HOT HOTTER VIDEO
VERSION CABLE VERSION STORE
VERSION VERSION
- ------------------------------------------------------------------------------------------------
Condoms * * * *
- ------------------------------------------------------------------------------------------------
Explicit language * * * *
- ------------------------------------------------------------------------------------------------
Female masturbation/external * * * *
- ------------------------------------------------------------------------------------------------
Girl/girl sex * * * *
- ------------------------------------------------------------------------------------------------
Medium shot penis/flaccid * * * *
- ------------------------------------------------------------------------------------------------
Medium shot vagina * * * *
- ------------------------------------------------------------------------------------------------
Oral sex/cunnilingus * * * *
- ------------------------------------------------------------------------------------------------
Wide shot penis/flaccid * * * *
- ------------------------------------------------------------------------------------------------
Wide shot vagina * * * *
- ------------------------------------------------------------------------------------------------
Close-up penis/erect * * *
- ------------------------------------------------------------------------------------------------
Close-up penis/flaccid * * *
- ------------------------------------------------------------------------------------------------
Close-up vagina * * *
- ------------------------------------------------------------------------------------------------
Female masturbation with * * *
penetration (fingers, objects)
- ------------------------------------------------------------------------------------------------
Male masturbation (no ejaculation) * * *
- ------------------------------------------------------------------------------------------------
Medium shot penis/erect * * *
- ------------------------------------------------------------------------------------------------
Oral sex/fellatio * * *
- ------------------------------------------------------------------------------------------------
Vaginal penetration/objects * * *
- ------------------------------------------------------------------------------------------------
Vaginal penetration/penis * * *
- ------------------------------------------------------------------------------------------------
Vaginal penetration/tongue * * *
- ------------------------------------------------------------------------------------------------
Wide shot penis/erect * * *
- ------------------------------------------------------------------------------------------------
Ejaculation * *
- ------------------------------------------------------------------------------------------------
Anal penetration/objects *
- ------------------------------------------------------------------------------------------------
Anal penetration /penis *
- ------------------------------------------------------------------------------------------------
Anal penetration/tongue *
- ------------------------------------------------------------------------------------------------
An * indicates that the described activity appears in the particular version.
40
Confidential Treatment
EXHIBIT B
PROGRAMMER'S CABLE RATE CARD FOR NON-HOTEL/MOTEL DISTRIBUTION
Affiliate's Share of Programmer's Share of
Gross Receipts Gross Receipts
Playboy TV 75% 25%
Movie Channel 1 91% 9%
Movie Channel 2 91% 9%
A. Cascade Payments: In each month that Affiliate offers a Cascade including the
Services, or any combination of such Services, together with other third party
adult programming services, Affiliate shall determine the corresponding License
Fee payable to Programmer by use of the following formula(s):
S = (A/B) x P x .09 where:
S = All License Fees payable to the Programmer in connection with the
inclusion of the Movie Services, or either of them, in the Cascade
A= the total number of Programmer's Movie Services in the Cascade
B = the total number of all programming services offered in the Cascade
P = Cascade Gross Receipts
.09 = Programmer's share of allocable Gross Receipts for the Movie
Service(s) (i.e., 9%)
and/or
S = (1/B) x P x .25 where:
S = All License Fees payable to the Programmer in connection with the
inclusion of the Channel 595 Service (currently known as "Playboy
TV") in the Cascade
1 = Playboy TV
B = the total number of all programming services offered in the Cascade
P = Cascade Gross Receipts
.25 = Programmer's share of allocable Gross Receipts for Playboy TV (i.e.,
25%)
B. Launch Support. As an incentive to launch the new movie channels offered by
Programmer at the editing levels described below, Programmer will ensure certain
levels of revenue to Affiliate in connection with Movie Channel 1 and Movie
Channel 2 as described
41
Confidential Treatment
below (the "Launch Support"). The Launch Support mutually agreed between
Programmer and Affiliate is based on historical revenues for other Programmer
networks carried by Affiliate with a projection of reasonable growth. The amount
of any Launch Support that may be payable by Programmer to Affiliate will not
exceed the revenues paid by Affiliate to Programmer in any applicable year for
the Movie Channel 1 and Movie Channel 2 in such year. All revenue earned by
Programmer in connection with Movie Channel 1 and Movie Channel 2, as well as
any amounts attributable to VOD supplied by Programmer, shall be applied against
the Launch Support. As a condition of receiving the Launch Support for Movie
Channel 1 and Movie Channel 2, Affiliate agrees to distribute the Service in the
following manner (the "Launch Support Requirements"):
(i) Notwithstanding any other terms set forth in the Agreement,
Programmer may program Movie Channel 1 and Movie Channel 2 to the
hottest standards permitted for any service distributed over
Affiliate's DTH Distribution System;
(ii) The Movie Services will be included in the Cascade (or any bundle of
adult PPV services offered by Affiliate) unless one of such Services
is terminated by Affiliate pursuant to Affiliate's rights under this
Exhibit B;
(iii) Affiliate will make Playboy TV, Movie Channel 1 and Movie Channel 2
available for purchase to all residential DIRECTV Subscribers
receiving content from Affiliate's DTH Distribution System (except
with respect to DIRECTV Subscribers who have elected not to have the
option of purchasing adult programming and/or have been excluded
from the purchase of transactional programming and those DIRECTV
Subscribers residing in geographical areas where Affiliate
systematically blacks out programming services in the "Hotter" or
"Video Store" versions) unless one of such Movie Services is
terminated by Affiliate pursuant to Affiliate's rights under this
Exhibit B;
(iv) Affiliate may determine in its reasonable discretion the retail
prices of the Services and/or the Cascade; provided, however, that
any change in such retail prices shall be commercially reasonably
designed to maximize Gross Receipts of the Services and/or the
Cascade;
(v) All adult linear services will be offered on contiguous channels;
(vi) Affiliate will not engage in any sale of assets that would have the
effect of materially reducing the number of DIRECTV Subscribers
during the Term; and
(vii) The Service will be treated no less favorably in marketing,
advertising and promotional activities than any other adult service
offered to DIRECTV Subscribers by Affiliate; provided that Affiliate
shall be deemed to have complied with this requirement if it
implements substantially similar activities on behalf of the Service
as on behalf of such other adult service(s).
1. First Year Launch Support. If Affiliate meets the Launch Support
Requirements during the period from November 16, 2006 through November 15, 2007
(the "First Contract Year"), the Programmer shall provide Affiliate with the
following Launch Support with
42
Confidential Treatment
respect to the Movie Services during such First Contract Year: if, at the end of
the First Contract Year, Affiliate's share of Gross Receipts for the Movie
Services as well as any amounts attributable to VOD supplied by Programmer is
below $5.069 per DIRECTV Subscriber (the number of such DIRECTV Subscribers for
the purpose of Launch Support is deemed to be 14,197,000, which is the number of
Subscribers reported to Programmer as of February 2006), then Programmer will
pay Affiliate within sixty (60) days of the first anniversary of the Effective
Date the amount necessary to bring the per DIRECTV Subscriber amount up to
$5.069 for the First Contract Year (the "First Year Launch Support Payment");
provided that in no event shall the First Year Launch Support Payment be greater
than the License Fees paid to Programmer for the First Contract Year by
Affiliate for distribution of the Movie Services pursuant to Section 2(b) of the
Agreement (the "First Year Launch Support"). Notwithstanding the foregoing, (i)
in the event that during any portion of the First Contract Year Affiliate, in
its sole discretion, makes available to DIRECTV Subscribers one less adult
service (i.e., a linear programming service comprised of all or substantially
all adult content) in the "Cable Version", "Hot Cable Version", "Hotter Version"
and/or "Video Store Version" Programming Standards (an "Adult Service") (i.e.,
one less Adult Service than the number of such services offered as of the
Effective Date), the First Year Launch Support Payment for such periods shall be
increased to $6.339 per DIRECTV Subscriber; (ii) in the event that during any
portion of the First Contract Year Affiliate, in its sole discretion, makes
available to DIRECTV Subscribers one additional Adult Service (beyond the number
of such services offered as of the Effective Date), the First Year Launch
Support Payment for such periods shall be reduced to $4.226 per DIRECTV
Subscriber; and (iii) in the event that during any portion of the First Contract
Year Affiliate, in its sole discretion, makes available to DIRECTV Subscribers
two additional Adult Services (beyond the number of such services offered as of
the Effective Date), the First Year Launch Support Payment for such periods
shall be reduced to $3.526 per DIRECTV Subscriber (any such amount being an
"Adjusted First Year Launch Support Payment"). Subject to the foregoing, if the
First Year Launch Support Payment obligation and an Adjusted First Year Launch
Support Payment obligation are in effect during separate periods of the First
Contract Year, the yearly Launch Support shall be proportionately pro-rated for
all periods during which each respective Launch Support level applies. For the
avoidance of doubt, a change in conditions resulting in the application of an
Adjusted First Year Launch Support Payment shall not be deemed a violation of
the Launch Support Requirements. The parties acknowledge and agree that the
total number of Adult Services offered by Affiliate as of the Effective date is
six (6) (inclusive of Movie Channel 1, Movie Channel 2 and Playboy TV).
2. Second Year Launch Support. If Affiliate meets the Launch Support
Requirements during the period from November 16, 2007 through the end of the
Term (the "Second Contract Year") and the Agreement is not terminated by either
party, the Programmer shall provide Affiliate with the following Launch Support
with respect to the Movie Services for the second year of the Term: if, at the
end of the second year of the Term, Affiliate's share of Gross Receipts for the
Movie Services as well as any amounts attributable to VOD supplied by Programmer
is below $5.63 per DIRECTV Subscriber (the number of such DIRECTV Subscribers
for the purpose of established Launch Support is deemed to be 14,197,000, which
is the number of Subscribers reported to Programmer as of
43
Confidential Treatment
February 2006), then Programmer will pay Affiliate within sixty (60) days of the
second anniversary of the Effective Date the amount necessary to bring the per
DIRECTV Subscriber amount up to $5.63 for the second year of the Term (the
"Second Year Launch Support Payment"); provided that in no event shall the
Second Year Launch Support Payment be greater than the License Fees paid to
Programmer for the second year of the Term by Affiliate for distribution of the
Movie Services pursuant to Section 2(b) of the Agreement (the "Second Year
Launch Support"). Notwithstanding the foregoing, (i) in the event that during
any portion of the Second Contract Year Affiliate, in its sole discretion, makes
available to DIRECTV Subscribers one less Adult Service (i.e., one less Adult
Service than the number of such services offered as of the Effective Date), the
Second Year Launch Support Payment for such periods shall be increased to $7.044
per DIRECTV Subscriber; (ii) in the event that during any portion of the Second
Contract Year Affiliate, in its sole discretion, makes available to DIRECTV
Subscribers one additional Adult Service (beyond the number of such services
offered as of the Effective Date), the Second Year Launch Support Payment for
such periods shall be reduced to $4.93 per DIRECTV Subscriber; and (iii) in the
event that during any portion of the Second Contract Year Affiliate, in its sole
discretion, makes available to DIRECTV Subscribers two additional Adult Services
(beyond the number of such services offered as of the Effective Date), the
Second Year Launch Support Payment for such periods shall be reduced to $4.22
per DIRECTV Subscriber (any such amount being an "Adjusted Second Year Launch
Support Payment"). Subject to the foregoing, if the Second Year Launch Support
Payment obligation and an Adjusted Second Year Launch Support Payment obligation
are in effect during separate periods of the Second Contract Year, the yearly
Launch Support shall be proportionately pro-rated for all periods during which
each respective Launch Support level applies. For the avoidance of doubt, a
change in conditions resulting in the application of an Adjusted Second Year
Launch Support Payment shall not be deemed a violation of the Launch Support
Requirements.
Subject to the foregoing, in the event that the Launch Support Requirements are
met for only a portion of the First or Second Contract Year, Programmer's
respective Launch Support obligations for either such period shall apply on a
pro rata basis to those portions of such years during which the Launch Support
Requirements have been met.
The Launch Support Requirements are only applicable to the First Year Launch
Support and the Second Year Launch Support, and a failure of Affiliate to meet
such requirements shall only invalidate the revenue assurance for the year in
which such failure takes place, and shall not otherwise be treated as a breach
of the Agreement. In the event that Affiliate's actual share of Gross Receipts
in connection with the Services for the First Contract Year is less than the
First Year Launch Support amount by greater than $500,000, either party will
have the right to terminate this Agreement with respect to the Movie Services
upon thirty (30) days written notice to the other party. In addition, in the
event that Affiliate's share of revenues from a la carte PPV Offerings of the
Movie Services (or either of such Services) during any two month period of the
Term after November 16, 2006 is ten percent (10%) less than the applicable
Launch Support as prorated on an annual basis, either party shall have the right
to terminate this Agreement with respect to the underperforming Movie Service
(or, alternatively, both Movie Services if both are underperforming) upon prior
notice (thirty (30)
44
Confidential Treatment
days written notice to Programmer in the event that Affiliate elects to
terminate and ninety (90) days written notice to Affiliate in the event that
Programmer elects to terminate). In the event that either party elects to
terminate pursuant to the above, Programmer agrees to continue providing the
relevant Service until the end of the applicable notice period on the same
rates, terms and conditions as set forth herein to permit Affiliate to
transition to an alternative provider of programming. In the event that either
party exercises the foregoing termination right with respect to one or both of
the Movie Services, Affiliate shall nevertheless be entitled to the above
described Launch Support for such Movie Service(s) and for the remaining Movie
Service (if applicable) on a pro-rata basis.
45
Confidential Treatment
EXHIBIT C
MONTHLY PROGRAM SCHEDULES FOR THE SERVICE
(see attached)
46
Confidential Treatment
EXHIBIT D
PROGRAMMER'S RATE CARD FOR HOTEL/MOTEL DISTRIBUTION
Affiliate's Share of Programmer's Share of
Gross Receipts Gross Receipts
Playboy TV 75% 25%
Movie Channel 1 91% 9%
Movie Channel 2 91% 9%
47
Confidential Treatment
EXHIBIT E
PROGRAMMERS RATE CARD FOR PLAYBOY TV EN ESPANOL (IF APPLICABLE)
Affiliate's Share of Programmer's Share of
Gross Receipts Gross Receipts
Playboy TV en Espanol Service 75% 25%
48