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<SEC-DOCUMENT>0001169232-05-005239.txt : 20051108
<SEC-HEADER>0001169232-05-005239.hdr.sgml : 20051108
<ACCEPTANCE-DATETIME>20051108142239
ACCESSION NUMBER: 0001169232-05-005239
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20050930
FILED AS OF DATE: 20051108
DATE AS OF CHANGE: 20051108
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PLAYBOY ENTERPRISES INC
CENTRAL INDEX KEY: 0001072341
STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841]
IRS NUMBER: 364249478
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14790
FILM NUMBER: 051185864
BUSINESS ADDRESS:
STREET 1: 680 NORTH LAKE SHORE DRIVE
CITY: CHICAGO
STATE: IL
ZIP: 60611
BUSINESS PHONE: 3127518000
MAIL ADDRESS:
STREET 1: 680 NORTH LAKE SHORE DR
CITY: CHICAGO
STATE: IL
ZIP: 60611
FORMER COMPANY:
FORMER CONFORMED NAME: NEW PLAYBOY INC
DATE OF NAME CHANGE: 19981020
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d65750_10q.txt
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- --------------
Commission file number 001-14790
Playboy Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4249478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 North Lake Shore Drive, Chicago, IL 60611
(Address of principal executive offices) (Zip Code)
(312) 751-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
At October 31, 2005, there were 4,864,102 shares of Class A common stock,
par value $0.01 per share, and 28,253,294 shares of Class B common stock, par
value $0.01 per share, outstanding.
<PAGE>
PLAYBOY ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and
Comprehensive Income for the Quarters Ended September 30,
2005 and 2004 (Unaudited) 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Nine Months Ended September 30,
2005 and 2004 (Unaudited) 4
Condensed Consolidated Balance Sheets at September 30,
2005 (Unaudited) and December 31, 2004 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2005 and 2004 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits 21
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
for the Quarters Ended September 30 (Unaudited)
(In thousands, except per share amounts)
2005 2004
- -------------------------------------------------------------------------------
Net revenues $ 80,884 $ 80,258
- -------------------------------------------------------------------------------
Costs and expenses
Cost of sales (62,180) (59,314)
Selling and administrative expenses (13,355) (14,239)
- -------------------------------------------------------------------------------
Total costs and expenses (75,535) (73,553)
- -------------------------------------------------------------------------------
Operating income 5,349 6,705
- -------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 661 114
Interest expense (1,425) (2,928)
Amortization of deferred financing fees (135) (275)
Minority interest (384) (364)
Other, net (294) (96)
- -------------------------------------------------------------------------------
Total nonoperating expense (1,577) (3,549)
- -------------------------------------------------------------------------------
Income before income taxes 3,772 3,156
Income tax expense (594) (1,229)
- -------------------------------------------------------------------------------
Net income 3,178 1,927
===============================================================================
Other comprehensive income (loss)
Unrealized gain on marketable securities 107 --
Unrealized loss on derivatives (55) (3)
Foreign currency translation adjustments (91) 99
- -------------------------------------------------------------------------------
Total other comprehensive income (loss) (39) 96
- -------------------------------------------------------------------------------
Comprehensive income $ 3,139 $ 2,023
===============================================================================
Weighted average number of common shares outstanding
Basic 33,102 33,371
===============================================================================
Diluted 33,366 33,384
===============================================================================
Basic and diluted earnings per common share $ 0.10 $ 0.06
===============================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
for the Nine Months Ended September 30 (Unaudited)
(In thousands, except per share amounts)
2005 2004
- -------------------------------------------------------------------------------
Net revenues $ 247,206 $ 239,845
- -------------------------------------------------------------------------------
Costs and expenses
Cost of sales (183,511) (179,742)
Selling and administrative expenses (40,143) (42,785)
- -------------------------------------------------------------------------------
Total costs and expenses (223,654) (222,527)
- -------------------------------------------------------------------------------
Gains on disposal 14 2
- -------------------------------------------------------------------------------
Operating income 23,566 17,320
- -------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 1,443 337
Interest expense (5,485) (10,737)
Amortization of deferred financing fees (501) (1,007)
Minority interest (1,124) (1,066)
Debt extinguishment expenses (19,280) (5,908)
Other, net (1,094) (793)
- -------------------------------------------------------------------------------
Total nonoperating expense (26,041) (19,174)
- -------------------------------------------------------------------------------
Loss before income taxes (2,475) (1,854)
Income tax expense (2,826) (2,622)
- -------------------------------------------------------------------------------
Net loss (5,301) (4,476)
- -------------------------------------------------------------------------------
Other comprehensive income (loss)
Unrealized gain on marketable securities 36 107
Unrealized gain on derivatives 202 34
Foreign currency translation adjustments 101 (209)
- -------------------------------------------------------------------------------
Total other comprehensive income (loss) 339 (68)
- -------------------------------------------------------------------------------
Comprehensive loss $ (4,962) $ (4,544)
===============================================================================
Net loss $ (5,301) $ (4,476)
Dividend requirements of preferred stock -- (428)
- -------------------------------------------------------------------------------
Net loss applicable to common shareholders $ (5,301) $ (4,904)
===============================================================================
Basic and diluted weighted average number
of common shares outstanding 33,178 30,978
===============================================================================
Basic and diluted loss per common share $ (0.16) $ (0.16)
===============================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Sept. 30, Dec. 31,
2005 2004
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 27,504 $ 26,668
Marketable securities and short-term investments 36,882 24,052
Receivables, net of allowance for doubtful accounts of
$4,029 and $3,897, respectively 39,582 45,084
Receivables from related parties 1,280 1,281
Inventories, net 15,021 12,437
Deferred subscription acquisition costs 11,021 13,104
Other current assets 8,812 8,596
- ------------------------------------------------------------------------------------------------
Total current assets 140,102 131,222
- ------------------------------------------------------------------------------------------------
Property and equipment, net 13,087 11,491
Long-term receivables 2,562 2,755
Programming costs, net 52,482 55,997
Goodwill 121,897 111,893
Trademarks 60,007 57,296
Distribution agreements, net of accumulated amortization
of $2,589 and $1,935, respectively 30,552 31,206
Other noncurrent assets 18,271 18,721
- ------------------------------------------------------------------------------------------------
Total assets $ 438,960 $ 420,581
================================================================================================
Liabilities
Acquisition liabilities $ 11,998 $ 10,184
Accounts payable 22,437 21,796
Accrued salaries, wages and employee benefits 8,622 8,286
Deferred revenues 47,088 51,421
Accrued litigation settlement 1,000 1,000
Other liabilities and accrued expenses 14,947 18,040
- ------------------------------------------------------------------------------------------------
Total current liabilities 106,092 110,727
- ------------------------------------------------------------------------------------------------
Financing obligations 115,000 80,000
Acquisition liabilities 14,793 19,085
Net deferred tax liabilities 16,868 15,023
Accrued litigation settlement -- 1,000
Other noncurrent liabilities 12,974 13,779
- ------------------------------------------------------------------------------------------------
Total liabilities 265,727 239,614
- ------------------------------------------------------------------------------------------------
Minority interest 13,641 12,517
Shareholders' equity
Common stock, $0.01 par value
Class A voting - 7,500,000 shares authorized; 4,864,102 issued 49 49
Class B nonvoting - 75,000,000 shares authorized; 28,630,435
and 28,521,493 issued, respectively 286 285
Capital in excess of par value 223,388 222,285
Accumulated deficit (58,250) (52,949)
Treasury stock, at cost, 381,971 and 0 shares, respectively (5,000) --
Accumulated other comprehensive loss (881) (1,220)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 159,592 168,450
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 438,960 $ 420,581
================================================================================================
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 30 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
2005 2004
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,301) $ (4,476)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation of property and equipment 2,340 2,390
Amortization of intangible assets 1,260 1,711
Amortization of investments in entertainment programming 28,131 31,984
Amortization of deferred financing fees 501 1,007
Debt extinguishment expenses 19,280 5,908
Deferred income taxes 1,203 534
Net change in operating assets and liabilities (341) (435)
Investments in entertainment programming (24,276) (34,211)
Litigation settlement (1,875) (6,500)
Other, net 205 710
- -----------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 21,127 (1,378)
- -----------------------------------------------------------------------------------------
Cash flows from investing activities
Payment for acquisition (8,283) --
Purchases of investments (41,494) (10,000)
Proceeds from sale of investments 28,700 --
Additions to property and equipment (4,010) (2,308)
Proceeds from disposals -- 150
Other, net -- 201
- -----------------------------------------------------------------------------------------
Net cash used for investing activities (25,087) (11,957)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations 115,000 --
Repayment of financing obligations (80,000) (35,000)
Proceeds from public equity offering -- 51,844
Payment of debt extinguishment expenses (15,197) (3,850)
Payment of acquisition liabilities (5,871) (8,691)
Purchase of treasury stock (5,000) --
Payment of deferred financing fees (5,057) --
Payment of preferred stock dividends -- (651)
Proceeds from stock plans 959 407
Other (38) (19)
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 4,796 4,040
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 836 (9,295)
Cash and cash equivalents at beginning of period 26,668 31,332
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,504 $ 22,037
=========================================================================================
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
6
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(A) BASIS OF PREPARATION
The financial information included in these financial statements is
unaudited but, in the opinion of management, reflects all normal recurring and
other adjustments necessary for a fair presentation of the results for the
interim periods. The interim results of operations and cash flows are not
necessarily indicative of those results and cash flows for the entire year.
These financial statements should be read in conjunction with the financial
statements and notes to the financial statements contained in our Annual Report
on Form 10-K/A for the fiscal year ended December 31, 2004. Certain amounts
reported for prior periods have been reclassified to conform to the current
year's presentation. At the end of the third quarter, we acquired an online
distribution business to complement our current online business for
consideration of $12.0 million, of which $8.0 million was paid at closing, with
an additional $2.0 million payable on each of the first and second anniversaries
of the closing. Pursuant to the asset purchase agreement, we are obligated to
pay future contingent earnout payments, payable over a five-year period, based
primarily on the financial performance of the acquired lines of business.
(B) RESTRUCTURING EXPENSES
During the nine-month period ended September 30, 2005, we made cash
payments of $0.8 million related to our various restructuring plans.
Approximately $9.8 million of the total restructuring charges was paid by
September 30, 2005, with most of the remaining $1.2 million related to the
consolidation of our facilities to be paid in the fourth quarter of the current
year with some payments continuing through 2007.
In 2004, we recorded a restructuring charge of $0.5 million relating to
the realignment of our entertainment and online businesses. In addition,
primarily due to excess office space, we recorded additional charges of $0.4
million related to the 2002 restructuring plan and reversed $0.2 million related
to the 2001 restructuring plan as a result of changes in plan assumptions.
Our 2002 restructuring initiative to reduce ongoing operating expenses
resulted in a $5.7 million charge, of which $2.9 million related to the
termination of employees and $2.8 million related to the consolidation of our
office spaces in Los Angeles and Chicago. Our 2001 restructuring plan resulted
in a $4.6 million charge, of which $2.6 million related to the termination of
employees and $2.0 million related to excess space in our Chicago and New York
offices.
The following table displays the activity and balances of the restructuring
reserve for the year ended December 31, 2004, and the nine months ended
September 30, 2005 (in thousands):
<TABLE>
<CAPTION>
Consolidation
Workforce of Facilities and
Reduction Operations Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 2003 $ 630 $ 2,563 $ 3,193
Additional reserve recorded 466 -- 466
Adjustment to previous estimate -- 278 278
Cash payments (917) (1,014) (1,931)
- --------------------------------------------------------------------------------------
Balance at December 31, 2004 179 1,827 2,006
Cash payments (179) (588) (767)
- --------------------------------------------------------------------------------------
Balance at September 30, 2005 $ -- $ 1,239 $ 1,239
======================================================================================
</TABLE>
7
<PAGE>
(C) EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share, or EPS (in thousands, except per share amounts):
(Unaudited)
Quarters Ended
September 30,
----------------------
2005 2004
- --------------------------------------------------------------------------------
Numerator:
For basic and diluted EPS - net income $ 3,178 $ 1,927
================================================================================
Denominator:
For basic EPS - weighted-average shares 33,102 33,371
Effect of dilutive potential common shares:
Employee stock options and other 264 13
- --------------------------------------------------------------------------------
Dilutive potential common shares 264 13
- --------------------------------------------------------------------------------
For diluted EPS - weighted-average shares 33,366 33,384
================================================================================
Basic and diluted earnings per common share $ 0.10 $ 0.06
================================================================================
The reconciliations of basic and diluted EPS for the nine-month periods
ending September 30, 2005 and 2004, were excluded as both periods resulted in a
net loss position; therefore, potential common shares would have been
antidilutive.
The following table represents the approximate number of shares related to
options to purchase our Class B common stock, or Class B stock, that were
outstanding, which were not included in the computation of diluted EPS, as the
inclusion of these shares would have been antidilutive (in thousands):
Quarters Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2005 2004 2005 2004
- --------------------------------------------------------------------------------
Stock options 1,866 3,262 2,576 2,636
- --------------------------------------------------------------------------------
Total 1,866 3,262 2,576 2,636
================================================================================
In addition, in accordance with Emerging Issues Task Force Issue 04-8,
"The Effect of Contingently Convertible Debt on Diluted Earnings per Share", the
shares used in the calculation of diluted EPS also exclude the potential shares
of Class B stock contingently issuable under our 3.00% convertible senior
secured notes because the shares are antidilutive. See Footnote (I), Debt
Refinancing, for additional information.
(D) INVENTORIES, NET
Inventories, net of reserves, which are stated at the lower of cost (specific
cost and average cost) or fair value, consisted of the following (in thousands):
(Unaudited)
Sept. 30, Dec. 31,
2005 2004
- -------------------------------------------------------------------------------
Paper $ 4,818 $ 2,573
Editorial and other prepublication costs 7,254 7,814
Merchandise finished goods 2,949 2,050
- -------------------------------------------------------------------------------
Total inventories, net $ 15,021 $ 12,437
===============================================================================
(E) INCOME TAXES
Our income tax provision consists of foreign income tax related to our
international networks and withholding tax on licensing income for which we do
not receive a current U.S. income tax benefit because of our net operating loss
position. The tax provision also includes deferred federal and state income
taxes related to the amortization of goodwill and other indefinite-lived
intangibles, which cannot be offset against deferred tax assets due to the
indefinite reversal period of the deferred tax liabilities. During the third
quarter, we recorded a $0.5 million adjustment to our tax provision due to a
refund related to our European television operations.
8
<PAGE>
(F) CONTINGENCIES
In order to create opportunities to promote our websites to a broader
audience and enhance our current product offerings, at the end of the current
year quarter we acquired an online distribution business with an extensive
affiliate network. Pursuant to the asset purchase agreement, we are obligated to
pay future contingent earnout payments, payable over a five-year period, based
primarily on the financial performance of the acquired lines of business. As
contingencies have not been met as of September 30, 2005, these amounts are not
recorded. If future payments are made based on contingencies being met, amounts
will be recorded as a combination of additional purchase price and compensation
expense.
In the fourth quarter of 2003, we recorded $8.5 million related to the
settlement of the Logix litigation, which related to events prior to our 1999
acquisition of Spice Entertainment Companies, Inc., or Spice. We made a payment
of $6.5 million in February 2004 and a payment of $1.0 million in January 2005
and will make the remaining payment of $1.0 million in 2006.
In 2002, a $4.4 million verdict was entered against us by a state trial
court in Texas in a lawsuit with a former publishing licensee. We terminated the
license in 1998 due to the licensee's failure to pay royalties and other amounts
due to us under the license agreement. We have posted a bond in the amount of
$8.5 million, which represents the amount of the judgment, costs and estimated
pre- and post-judgment interest. We, on advice of legal counsel, believe that it
is not probable that a material judgment against us will be sustained and have
not recorded a liability for this case in accordance with Statement 5,
Accounting for Contingencies. We are currently pursuing an appeal.
(G) STOCK-BASED COMPENSATION
We account for stock options as prescribed by Accounting Principles Board
Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, and disclose
pro forma information as provided by Statement 123, as amended by Statement 148,
Accounting for Stock Based Compensation. In December 2004, the Financial
Accounting Standards Board (the "FASB") issued Statement 123 (revised 2004),
Share-Based Payment ("Statement 123(R)"), which supersedes APB No. 25 and amends
Statement No. 95, Statement of Cash Flows. The implementation of Statement
123(R) has since been delayed and will be effective for the first fiscal year
beginning after June 15, 2005. We are required to adopt Statement 123(R) on
January 1, 2006, and will utilize the modified prospective method. We are
currently conducting an analysis of the impact on our financial statements.
Pro forma net income (loss) and net income (loss) per common share,
presented below (in thousands, except per share amounts), were determined as if
we had accounted for our stock options under the fair value method of Statement
123. The fair value of these options was estimated at the date of grant using an
option pricing model. Such models require the input of highly subjective
assumptions, including the expected volatility of the stock price. For pro forma
disclosures, the options' estimated fair value was amortized over their vesting
period. No stock-based employee compensation expense is recognized because all
options granted under those plans had an exercise price equal to or in excess of
the market value of the underlying common stock at the grant date. If we
accounted for our employee stock options under Statement 123, compensation
expense related to stock options would have been $0.7 million for each of the
quarters ended September 30, 2005 and 2004, and $2.2 million and $2.1 million
for the nine months ended September 30, 2005 and 2004, respectively.
Quarters Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
- -------------------------------------------------------------------------
Net income (loss)
As reported $ 3,178 $ 1,927 $(5,301) $(4,476)
Pro forma 2,441 1,238 (7,460) (6,567)
Basic and Diluted EPS
As reported $ 0.10 $ 0.06 $ (0.16) $ (0.16)
Pro forma 0.07 0.04 (0.22) (0.23)
- -------------------------------------------------------------------------
Our restricted stock unit expense was $0.5 million and $0.1 million for
the quarters ended September 30, 2005 and 2004, respectively, and $1.2 million
and $0.4 million for the nine months ended September 30, 2005 and 2004,
respectively, as it is probable that the performance criteria will be met.
9
<PAGE>
(H) SEGMENT INFORMATION
The following table represents financial information by reportable segment (in
thousands):
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues
Entertainment $ 47,765 $ 46,153 $ 147,123 $ 136,017
Publishing 27,224 29,521 79,758 88,291
Licensing 5,895 4,584 20,325 15,537
- ----------------------------------------------------------------------------------------------------
Total $ 80,884 $ 80,258 $ 247,206 $ 239,845
====================================================================================================
Income (loss) before income taxes
Entertainment $ 7,289 $ 7,802 $ 29,099 $ 18,456
Publishing (704) 1,275 (3,444) 5,239
Licensing 3,165 2,614 10,648 7,564
Corporate Administration and Promotion (4,401) (4,986) (12,751) (13,941)
Gain on disposal -- -- 14 2
Investment income 661 114 1,443 337
Interest expense (1,425) (2,928) (5,485) (10,737)
Amortization of deferred financing fees (135) (275) (501) (1,007)
Minority interest (384) (364) (1,124) (1,066)
Debt extinguishment expenses -- -- (19,280) (5,908)
Other, net (294) (96) (1,094) (793)
- ----------------------------------------------------------------------------------------------------
Total $ 3,772 $ 3,156 $ (2,475) $ (1,854)
====================================================================================================
</TABLE>
Prior period segment information has been restated as a result of the
realignment of our Entertainment and Online businesses into a combined
Entertainment segment, as announced during the fourth quarter of 2004.
(Unaudited)
Sept. 30, Dec. 31,
2005 2004
- --------------------------------------------------------------------------------
Identifiable assets
Entertainment $ 274,535 $ 266,736
Publishing 39,124 45,724
Licensing 6,553 5,344
Corporate Administration and Promotion (1) 118,748 102,777
- --------------------------------------------------------------------------------
Total (1) $ 438,960 $ 420,581
================================================================================
(1) The increase in identifiable assets since December 31, 2004, was primarily
due to our debt refinancing in March 2005. See Footnote (I), Debt
Refinancing.
(I) DEBT REFINANCING
On March 15, 2005, we issued and sold in a private placement $100.0
million aggregate principal amount of our 3.00% convertible senior subordinated
notes due 2025, or the convertible notes. On March 28, 2005, we issued and sold
in a private placement an additional $15.0 million aggregate principal amount of
the convertible notes due to the initial purchasers' exercise of the
over-allotment option. The net proceeds of approximately $110.3 million from the
issuance and sale of the convertible notes, after deducting the initial
purchasers' discount and estimated offering expenses payable by us, were used,
together with available cash, (i) to complete a tender offer and consent
solicitation for, and to purchase and retire, all $80.0 million outstanding
principal amount of the 11.00% senior secured notes of our subsidiary PEI
Holdings, Inc., or Holdings, for a total of approximately $95.2 million,
including the bond tender premium and consent fee of $14.9 million and other
expenses of $0.3 million, (ii) to purchase 381,971 shares of our Class B stock
for an aggregate purchase price of $5.0 million concurrently with the sale of
the convertible notes and (iii) for working capital and general corporate
purposes.
The convertible notes bear interest at a rate of 3.00% per annum on the
principal amount of the notes, payable semi-annually in arrears on March 15 and
September 15 of each year, beginning on September 15, 2005. In addition, under
certain circumstances beginning in 2012, if the trading price of the convertible
notes exceeds a specified threshold during a prescribed measurement period prior
to any semi-annual interest period, contingent interest will become payable on
the convertible notes for that semi-annual interest period at an annual rate of
0.25% per annum.
10
<PAGE>
The convertible notes are convertible into cash and, if applicable, shares
of our Class B stock based on an initial conversion rate, subject to adjustment,
of 58.7648 shares per $1,000 principal amount of the convertible notes (which
represents an initial conversion price of approximately $17.02 per share) only
under the following circumstances: (1) during any fiscal quarter after the
fiscal quarter ending March 31, 2005, if the closing sale price of our Class B
stock for each of 20 or more consecutive trading days in a period of 30
consecutive trading days ending on the last trading day of the immediately
preceding fiscal quarter exceeds 130% of the conversion price in effect on that
trading day; (2) during the five business day period after any five consecutive
trading day period in which the average trading price per $1,000 principal
amount of convertible notes over that five consecutive trading day period was
equal to or less than 95% of the average conversion value of the convertible
notes during that period; (3) upon the occurrence of specified corporate
transactions, as set forth in the indenture governing the convertible notes; or
(4) if we have called the convertible notes for redemption. Upon conversion of a
convertible note, a holder will receive cash in an amount equal to the lesser of
the aggregate conversion value of the note being converted and the aggregate
principal amount of the note being converted. If the aggregate conversion value
of the convertible note being converted is greater than the cash amount received
by the holder, the holder will also receive an amount in whole shares of Class B
stock equal to the aggregate conversion value less the cash amount received by
the holder. A holder will receive cash in lieu of any fractional shares of Class
B stock.
The convertible notes mature on March 15, 2025. On or after March 15,
2010, if the closing price of our Class B stock exceeds a specified threshold,
we may redeem any of the convertible notes at a redemption price in cash equal
to 100% of the principal amount of the notes, plus any accrued and unpaid
interest up to, but excluding, the redemption date. On or after March 15, 2012,
we may at any time redeem any of the convertible notes at the same redemption
price. On each of March 15, 2012, March 15, 2015 and March 15, 2020, or upon the
occurrence of a fundamental change, as specified in the indenture governing the
convertible notes, holders may require us to purchase all or a portion of their
convertible notes at a purchase price in cash equal to 100% of the principal
amount of the notes, plus any accrued and unpaid interest up to, but excluding,
the purchase date.
The convertible notes are unsecured senior subordinated obligations of the
issuer, Playboy Enterprises, Inc., or Playboy, and rank junior to all of the
issuer's senior debt, including its guarantee of Holdings' borrowings under our
credit facility; equally with all of the issuer's future senior subordinated
debt; and senior to all of the issuer's future subordinated debt. In addition,
the assets of the issuer's subsidiaries are subject to the prior claims of all
creditors, including trade creditors, of those subsidiaries.
(J) SUBSEQUENT EVENT
On November 3, 2005, Playboy purchased the outstanding shares of
Playboy.com Series A Preferred Stock held by Hugh M. Hefner, our Editor-in-Chief
and Chief Creative Officer, for $6.9 million. The repurchase amount was equal to
the original issue price plus 8% per annum compounded annually from the issuance
date through October 31, 2005. As a result of the repurchase, Playboy now owns
approximately 97% of the outstanding equity of Playboy.com and is in discussions
with the one remaining preferred shareholder that owns Series A Preferred Stock
with an aggregate original purchase price of $5,147,778 about a repurchase of
its shares.
The shares of Playboy.com Series A Preferred Stock were issued on August
13, 2001 at an issue price of $7.1097 per share. From and after August 10, 2006,
the holders of the Series A Preferred Stock could require Playboy.com to redeem
any and all of their shares of Playboy.com Series A Preferred Stock at a
redemption price equal to the original issue price plus 8% per annum compounded
annually through the redemption date. At August 10, 2006,the redemption price
for Mr. Hefner's shares would have been $7.4 million.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table represents our results of operations (in millions, except
per share amounts):
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004(1) 2005 2004(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues
Entertainment
Domestic TV networks $ 25.4 $ 24.5 $ 75.5 $ 71.4
International 12.2 11.3 37.5 32.2
Online subscriptions 5.4 5.3 16.9 15.4
E-commerce 3.6 3.4 13.9 12.0
Other 1.1 1.6 3.3 5.0
- --------------------------------------------------------------------------------------------------------------------
Total Entertainment 47.7 46.1 147.1 136.0
- --------------------------------------------------------------------------------------------------------------------
Publishing
Playboy magazine 22.5 24.6 67.5 74.8
Other domestic publishing 3.2 3.4 7.4 8.9
International publishing 1.6 1.5 4.9 4.6
- --------------------------------------------------------------------------------------------------------------------
Total Publishing 27.3 29.5 79.8 88.3
- --------------------------------------------------------------------------------------------------------------------
Licensing
International licensing 4.2 3.1 13.3 8.9
Domestic licensing 0.8 0.8 2.4 2.3
Entertainment licensing 0.5 0.5 1.5 1.5
Marketing events 0.2 0.2 2.8 2.7
Other 0.2 -- 0.3 0.1
- --------------------------------------------------------------------------------------------------------------------
Total Licensing 5.9 4.6 20.3 15.5
- --------------------------------------------------------------------------------------------------------------------
Total net revenues $ 80.9 $ 80.2 $247.2 $239.8
====================================================================================================================
Net income (loss)
Entertainment
Before programming amortization and online content expenses $ 17.0 $ 18.9 $ 58.8 $ 52.2
Programming amortization and online content expenses (9.7) (11.0) (29.7) (33.8)
- --------------------------------------------------------------------------------------------------------------------
Total Entertainment 7.3 7.9 29.1 18.4
- --------------------------------------------------------------------------------------------------------------------
Publishing (0.7) 1.2 (3.4) 5.2
- --------------------------------------------------------------------------------------------------------------------
Licensing 3.1 2.6 10.6 7.6
- --------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion (4.3) (5.0) (12.7) (13.9)
- --------------------------------------------------------------------------------------------------------------------
Operating income 5.4 6.7 23.6 17.3
- --------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income 0.6 0.1 1.4 0.3
Interest expense (1.4) (2.9) (5.5) (10.7)
Amortization of deferred financing fees (0.1) (0.3) (0.5) (1.0)
Minority interest (0.4) (0.4) (1.1) (1.1)
Debt extinguishment expenses -- -- (19.3) (5.9)
Other, net (0.4) (0.1) (1.1) (0.8)
- --------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1.7) (3.6) (26.1) (19.2)
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 3.7 3.1 (2.5) (1.9)
Income tax expense (0.5) (1.2) (2.8) (2.6)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3.2 $ 1.9 $ (5.3) $ (4.5)
====================================================================================================================
Basic and diluted EPS $ 0.10 $ 0.06 $(0.16) $(0.16)
====================================================================================================================
</TABLE>
(1) Prior period information has been restated, as a result of the realignment
of our Entertainment and Online businesses, into a combined Entertainment
segment, as announced during the fourth quarter of 2004.
12
<PAGE>
Our revenues increased $0.7 million, or 1%, and $7.4 million, or 3%, for
the quarter and nine-month period, respectively. Both periods were impacted by
expected lower revenues from our Publishing Group, more than offset by higher
Entertainment and Licensing Group revenues.
Our operating income decreased $1.3 million, or 20%, and increased $6.3
million, or 36%, for the quarter and nine-month period, respectively. The
quarter decreased due to lower results from our Publishing and Entertainment
Groups, partially offset by strong results from our Licensing Group. Operating
income increased for the nine-month period due to improved operating results
from our Entertainment and Licensing Groups, partially offset by lower results
from our Publishing Group.
Net income of $3.2 million for the quarter was $1.3 million higher than
the prior year quarter, reflecting a decrease in interest expense related to our
first quarter debt refinancing. Net loss for the current nine-month period of
$5.3 million includes $19.3 million of debt extinguishment expenses compared to
$5.9 million in the prior year period.
Several of our businesses can experience variations in quarterly
performance. As a result, our performance in any quarter is not necessarily
reflective of full-year or longer-term trends. Playboy magazine newsstand
revenues vary from issue to issue, with revenues generally higher for holiday
issues and any issues including editorial or pictorial features that generate
additional public interest. Advertising revenues also vary from quarter to
quarter depending on economic conditions, holiday issues and changes in
advertising buying patterns. Online subscription revenues and operating results
are impacted by decreased Internet traffic during the summer months, and
e-commerce revenues and operating results are typically strongest in the fourth
quarter due to the holiday buying season.
ENTERTAINMENT GROUP
The following discussion focuses on the revenue and profit contribution of
each of our Entertainment Group businesses before programming amortization and
online content expenses.
Revenues from our domestic TV networks business increased $0.9 million, or
4%, and $4.1 million, or 6%, for the quarter and nine-month period,
respectively. Direct-to-home, or DTH, revenues increased $1.1 million, or 20%,
and $3.0 million, or 19%, for the quarter and nine-month period, respectively,
due to subscriber growth and an increase in average pay-per-view, or PPV, buys.
Playboy TV cable revenues were relatively flat for the quarter and decreased
$0.5 million for the nine-month period. The quarter results were impacted by a
decrease in PPV buys, but mostly offset by an increase in Playboy TV monthly
subscription revenues. For the nine-month period, PPV buys decreased as certain
cable companies continued to migrate consumers from linear channels to
video-on-demand, or VOD. Also as a result of this transition to VOD, revenues
from our movie networks decreased $1.1 million and $2.4 million for the quarter
and nine-month period, respectively. VOD revenues increased $0.9 million, or
116%, for the quarter and increased $2.6 million, or 102%, for the nine-month
period. Our VOD business experienced this growth due to the continued roll out
of VOD service in additional cable systems as well as a growing number of
consumer buys in existing cable systems. Favorably impacting the nine-month
period was the discontinuation of a distributor's high-definition subscription
service agreement, which resulted in the accelerated recognition of the
remaining $1.4 million of deferred revenue associated with the service
agreement. Profit contribution from domestic TV networks decreased $1.4 million,
or 8%, for the quarter primarily due to a one-time, $1.3 million adjustment for
a contractual obligation related to licensed programming recorded in the current
quarter combined with an increase in cable and satellite marketing expenses due
to reimbursements received in the prior year quarter. Conversely, decreased
marketing and overhead expenses combined with the revenue activity described
above resulted in a $3.2 million increase in profit contribution for the
nine-month period.
International revenues increased $0.9 million, or 9%, and $5.3 million, or
17%, for the quarter and nine-month period, respectively. Revenues for the
quarter and nine-month period increased due to the launch of new networks in the
U.K., as well as in Australia and Germany, in the prior year quarter and
revenues from several third-party licensees. Increased royalties from wireless
agreements also contributed favorably in both periods. Profit contribution from
our international businesses was flat for the quarter and increased $2.6
million, or 21%, for the nine-month period, respectively, due to the higher
revenues mentioned above in both periods, mostly offset by increased marketing
and bad debt expenses during the quarter and partially offset by higher costs
related to the new U.K. channels in the nine-month period.
13
<PAGE>
Online subscription revenues were relatively flat and increased $1.5
million, or 10%, for the quarter and nine-month period, respectively. Profit
contribution decreased $0.5 million or 5%, and increased $0.6 million, or 6%,
for the quarter and nine-month periods, respectively. Our increased technology
investments, new marketing initiatives and the recent acquisition of an online
distribution business are expected to return this business to its historical
growth rate.
E-commerce revenues increased $0.2 million, or 6%, and $1.9 million, or
16%, for the quarter and nine-month period, respectively. A $1.2 million payment
due to the termination of a marketing alliance favorably impacted revenues for
the nine-month period. Increased business-to-business revenues also contributed
favorably in both periods. Profit contribution from e-commerce decreased $0.4
million and $0.6 million for the quarter and nine-month period, respectively,
due to increased product fulfillment and system support costs and bad debt
expense combined with higher anticipated paper costs in the quarter and
nine-month period. Expenses associated with the production of a test catalog
also impacted the nine-month period.
Profit contribution from other businesses was flat for the quarter and
decreased $0.2 million for the nine-month period.
The group's administrative expenses decreased for both the quarter and
nine-month period due in part to lower legal costs in both periods and a
contractually obligated severance charge recorded in the nine-month period of
the prior year.
Segment income for the group decreased $0.6 million, or 7%, for the
quarter and increased $10.7 million, or 58%, for the nine-month period primarily
due to the previously mentioned revenue activity and a one-time adjustment.
Segment income was favorably impacted by both lower administrative expenses and
lower programming amortization and online content expenses, which were $1.3
million, or 12%, lower for the quarter and $4.1 million, or 12%, lower for the
nine-month period primarily due to the mix of programming. We continue to expect
that our cash programming investments for television will be approximately $38.0
million for the year, down nearly 10% from last year, and online content expense
will be approximately $2.0 million. We expect programming amortization expense
related to television to decline to about $38.0 million for the year, down from
$41.7 million in 2004, and online content amortization expense to be
approximately $2.0 million, down from $2.3 million in 2004.
PUBLISHING GROUP
Playboy magazine revenues decreased $2.1 million, or 8%, and $7.3 million,
or 10%, for the quarter and nine-month period, respectively. Newsstand revenues
were relatively flat for the quarter and declined $1.7 million for the
nine-month period, primarily due to fewer copies sold, partially offset by
higher display costs in both periods in the prior year. Additionally, the
current year nine-month period included an unfavorable adjustment of $0.1
million related to prior year issues compared to a $0.4 million favorable
adjustment in the prior year period. Subscription revenues were relatively flat
for the quarter and decreased $1.3 million for the nine-month period, primarily
due to lower average net revenue per copy in the current year periods, partially
offset by an increase in the number of subscription copies served in the current
year periods. Also contributing to the decrease for the nine-month period were
higher favorable adjustments recorded in the prior year to recognize revenues
for paid subscriptions that will not be served and lower list rental revenues in
the current year. Advertising revenues decreased $1.8 million and $4.4 million
for the quarter and nine-month period, respectively, due to fewer advertising
pages. Additionally, the decrease for the quarter was partially offset by higher
net revenue per page while the nine-month period reflected lower net revenue per
page. Advertising sales for the 2005 fourth quarter magazine issues are closed,
and we expect to report approximately 23% lower advertising revenues and 23%
fewer advertising pages compared to the 2004 fourth quarter.
Revenues from our other domestic publishing businesses decreased $0.2
million, or 8%, and $1.5 million, or 17%, for the quarter and nine-month period,
respectively, primarily due to fewer newsstand copies of special editions sold
in the current year periods and higher unfavorable adjustments to prior year
issues for the nine-month period. An expected decrease in royalties from books
published in prior periods also contributed to the revenue decrease for the
nine-month period.
International publishing revenues were relatively flat and increased $0.3
million, or 7%, for the quarter and nine-month period, respectively, primarily
due to higher royalties from the German edition.
14
<PAGE>
The group's segment income decreased $1.9 million and $8.6 million for the
quarter and nine-month period, respectively, as a result of the lower revenues
discussed above combined with higher subscription acquisition expenses of $0.3
million and $1.3 million and higher paper costs of $0.6 million and $1.4 million
for the quarter and nine-month period, respectively, partially offset by a $1.0
million and $1.9 million decrease in editorial expenses for the quarter and
nine-month period, respectively.
LICENSING GROUP
Licensing Group revenues increased $1.3 million, or 29%, and $4.8 million,
or 31%, for the quarter and nine-month period, respectively, primarily due to
higher royalties from existing and new licensees in Europe and Asia. The group's
segment income increased $0.5 million, or 21%, and $3.0 million, or 41%, for the
quarter and nine-month period, respectively, due to the revenue increase,
partially offset by higher revenue-related expenses and development costs
related to our location-based entertainment business.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate Administration and Promotion expenses decreased $0.7 million, or 12%,
for the quarter and $1.2 million, or 9%, for the nine-month period primarily due
to a legal settlement and the reclassification of a senior position from
Corporate to a division that impacted prior year periods, partially offset by an
increase in internal audit expenses in the current year periods.
NONOPERATING INCOME (EXPENSES)
The nine-month period included debt extinguishment expenses of $19.3
million related to our redemption of all $80.0 million of the 11.00% senior
secured notes due 2010, or the senior secured notes, issued by our subsidiary,
PEI Holdings, Inc., or Holdings. These expenses were comprised of $14.9 million
of bond redemption premium combined with $0.3 million of related expenses and
$4.1 million for the non-cash write-off of the related deferred financing costs.
The senior secured notes were repurchased using the proceeds of the issuance of
$115.0 million of 3.00% convertible senior subordinated notes due 2025, or the
convertible notes. The prior year nine-month period included $5.9 million of
debt extinguishment expenses related to our redemption of $35.0 million
aggregate principal amount of the senior secured notes. Reduced interest expense
of $1.5 million and $5.2 million for the quarter and nine-month period,
respectively, related to the lower interest rate on the new convertible notes,
partially offset the redemption expenses.
INCOME TAX EXPENSE
Our effective income tax rate differs from U.S. statutory rates. The
income tax provision consists of foreign income tax related to our international
networks and withholding tax on licensing income for which we do not receive a
current U.S. income tax benefit because of our net operating loss position. The
tax provision also includes deferred federal and state income taxes related to
the amortization of goodwill and other indefinite-lived intangibles, which
cannot be offset against deferred tax assets due to the indefinite reversal
period of the deferred tax liabilities. During the third quarter, we recorded a
$0.5 million adjustment to our tax provision due to a refund related to our
European television operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, we had $27.5 million in cash and cash equivalents
compared to $26.7 million in cash and cash equivalents at December 31, 2004. At
September 30, 2005, we had $32.1 million of auction rate securities, or ARS,
included in short-term investments compared to $20.0 million at December 31,
2004. ARS generally have long-term maturities; however, these investments have
characteristics similar to short-term investments because at predetermined
intervals, typically every 28 days, there is a new auction process. Total
financing obligations were $115.0 million and $80.0 million at September 30,
2005, and December 31, 2004, respectively.
At September 30, 2005, our liquidity requirements were being provided by
cash generated from our operating activities, existing cash and cash equivalents
and short-term investments. At September 30, 2005, we had a $50.0 million credit
facility, which can be used for revolving borrowings, issuing letters of credit
or a combination of both. At September 30, 2005, there were no borrowings and
$10.8 million in letters of credit outstanding under this facility, permitting
$39.2 million of available borrowings under this facility. See "Credit Facility"
for additional information.
15
<PAGE>
DEBT FINANCINGS
On March 15, 2005, we issued and sold in a private placement $100.0
million aggregate principal amount of our 3.00% convertible senior subordinated
notes due 2025. On March 28, 2005, we issued and sold in a private placement an
additional $15.0 million aggregate principal amount of the convertible notes due
to the initial purchasers' exercise of the over-allotment option. The net
proceeds of approximately $110.3 million from the issuance and sale of the
convertible notes, after deducting the initial purchasers' discount and
estimated offering expenses payable by us, were used, together with available
cash, (i) to complete a tender offer and consent solicitation for, and to
purchase and retire, all $80.0 million outstanding principal amount of the
11.00% senior secured notes, for a total of approximately $95.2 million,
including the bond tender premium and consent fee of $14.9 million and other
expenses of $0.3 million, (ii) to purchase 381,971 shares of our Class B common
stock, or Class B stock, for an aggregate purchase price of $5.0 million
concurrently with the sale of the convertible notes and (iii) for working
capital and general corporate purposes. Also, on March 15, 2005, concurrently
with the convertible note offering, Hugh M. Hefner, our Editor-In-Chief and
Chief Creative Officer, purchased 381,971 shares of our Class B stock for an
aggregate purchase price of $5.0 million.
The convertible notes bear interest at a rate of 3.00% per annum on the
principal amount of the notes, payable semi-annually in arrears on March 15 and
September 15 of each year, beginning on September 15, 2005. In addition,
beginning in March 2012, if the trading price of the convertible notes exceeds a
specified threshold during a prescribed measurement period prior to any
semi-annual interest period, contingent interest will become payable on the
convertible notes for that semi-annual interest period at an annual rate of
0.25% per annum. The notes are convertible under specified circumstances into
cash and, if applicable, shares of our Class B stock based on an initial
conversion rate of 58.7648 shares per $1,000 principal amount of the convertible
notes (which represents an initial conversion price of approximately $17.02 per
share). In general, upon conversion of a convertible note, the holder of the
note will receive cash in an amount equal to the principal amount of the note
and Class B stock for the note's conversion value in excess of the principal
amount. See Footnote (I), Debt Refinancing, for additional information.
The convertible notes mature on March 15, 2025. On or after March 15,
2010, if the closing price of our Class B stock exceeds a specified threshold,
we may redeem any of the convertible notes at a redemption price in cash equal
to 100% of the principal amount of the notes, plus any accrued and unpaid
interest to, but excluding, the redemption date. On or after March 15, 2012, we
may at any time redeem any of the convertible notes at the same redemption
price. On each of March 15, 2012, March 15, 2015 and March 15, 2020, or upon the
occurrence of a fundamental change, as specified in the indenture governing the
convertible notes, holders may require us to purchase all or a portion of their
convertible notes at a purchase price in cash equal to 100% of the principal
amount of the notes, plus any accrued and unpaid interest up to, but excluding,
the purchase date.
The convertible notes are unsecured senior subordinated obligations of the
issuer, Playboy Enterprises, Inc., or Playboy, and rank junior to all of the
issuer's senior debt, including its guarantee of Holdings' borrowings under our
credit facility; equally with all of the issuer's future senior subordinated
debt; and senior to all of the issuer's future subordinated debt. In addition,
the assets of the issuer's subsidiaries are subject to the prior claims of all
creditors, including trade creditors, of those subsidiaries.
CREDIT FACILITY
Effective April 1, 2005, Holdings and its lenders amended and restated the
credit agreement governing our credit facility, primarily to increase the size
of the credit facility from $30.0 million to $50.0 million. Our credit facility
provides for revolving borrowings by Holdings of up to $50.0 million and the
issuance of up to $30.0 million in letters of credit, subject to a maximum of
$50.0 million in combined borrowings and letters of credit outstanding at any
time. Borrowings under the credit facility bear interest at a variable rate,
equal to a specified Eurodollar, LIBOR or base rate plus a specified borrowing
margin based on our Transactions Adjusted EBITDA, as defined in the credit
agreement. We pay fees on the outstanding amount of letters of credit under the
credit facility based on the margin that applies to borrowings that bear
interest at a rate based on LIBOR. All amounts outstanding under the credit
facility will mature on April 1, 2008. Holdings' obligations as borrower under
the credit facility are guaranteed by us and each of our other U.S.
subsidiaries, except for Playboy.com and its subsidiaries. The obligations of
the borrower and each of the guarantors under the credit facility are secured by
a first-priority lien on substantially all of the borrower's and the guarantors'
assets.
16
<PAGE>
CALIFA ACQUISITION
The Califa acquisition agreement gave us the option of paying $17.5
million of the remaining $23.5 million purchase price consideration obligation,
as of September 30, 2005, in cash or in shares of Class B stock. We notified the
sellers that the $7.0 million of base consideration due in 2005 would be paid in
cash. Under the terms of the agreement, the base consideration was due in two
installments of $3.5 million, one of which was paid on May 2, 2005, and the
other which was paid on November 1, 2005.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $21.1 million for the
nine-month period, which represents an increase of $22.5 million from the prior
year period. This increase is primarily due to improved overall operating
results combined with a decrease in investments in television programming of
$9.9 million and a decrease in legal settlement payments of approximately $4.6
million compared to the prior year period.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for investing activities increased $13.1 million primarily
due to investments made in auction rate securities during the nine-month period.
During the third quarter, $8.3 million was used to acquire an online
distribution business to complement our current business. An additional $2.0
million is payable on each of the first and second anniversaries of the closing.
Additionally, $4.0 million of cash was used for capital expenditures primarily
related to our Andrita and U.K. studios.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities was $4.8 million for the
nine-month period primarily due to the proceeds from the sale of $115.0 million
aggregate principal amount of convertible notes, partially offset by the payment
of $94.9 million in connection with the purchase and retirement of all $80.0
million outstanding principal amount of Holdings' 11.00% senior secured notes
and the payment of $0.3 million in associated debt extinguishment expenses and
$5.1 million of related financing fees. Proceeds from the convertible note
offering were also used to purchase 381,971 shares of our Class B stock for an
aggregate purchase price of $5.0 million. See Footnote (I), Debt Refinancing,
for additional information.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements,"
including statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as to expectations, beliefs, plans,
objectives and future financial performance, and assumptions underlying or
concerning the foregoing. We use words such as "may," "will," "would," "could,"
"should," "believes," "estimates," "projects," "potential," "expects," "plans,"
"anticipates," "intends," "continues" and other similar terminology. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which could cause our actual results, performance or outcomes to
differ materially from those expressed or implied in the forward-looking
statements. The following are some of the important factors that could cause our
actual results, performance or outcomes to differ materially from those
discussed in the forward-looking statements:
(1) Foreign, national, state and local government regulations, actions or
initiatives, including:
(a) attempts to limit or otherwise regulate the sale, distribution or
transmission of adult-oriented materials, including print,
television, video and online materials,
(b) limitations on the advertisement of tobacco, alcohol and other
products which are important sources of advertising revenue for us,
or
(c) substantive changes in postal regulations or rates which could
increase our postage and distribution costs;
(2) Risks associated with our foreign operations, including market acceptance
and demand for our products and the products of our licensees;
(3) Our ability to manage the risk associated with our exposure to foreign
currency exchange rate fluctuations;
(4) Changes in general economic conditions, consumer spending habits, viewing
patterns, fashion trends or the retail sales environment which, in each
case, could reduce demand for our programming and products and impact our
advertising revenues;
(5) Our ability to protect our trademarks, copyrights and other intellectual
property;
(6) Risks as a distributor of media content, including our becoming subject to
claims for defamation, invasion of privacy, negligence, copyright, patent
or trademark infringement, and other claims based on the nature and
content of the materials we distribute;
(7) The risk our outstanding litigation could result in settlements or
judgments which are material to us;
(8) Dilution from any potential issuance of common or convertible preferred
stock or convertible debt in connection with financings or acquisition
activities;
(9) Competition for advertisers from other publications, media or online
providers or any decrease in spending by advertisers, either generally or
with respect to the adult male market;
(10) Competition in the television, men's magazine, Internet and product
licensing markets;
(11) Attempts by consumers or private advocacy groups to exclude our
programming or other products from distribution;
(12) Our television and Internet businesses' reliance on third parties for
technology and distribution, and any changes in that technology and/or
unforeseen delays in its implementation which might affect our plans and
assumptions;
(13) Risks associated with losing access to transponders and competition for
transponders and channel space;
(14) The impact of industry consolidation, any decline in our access to, and
acceptance by, DTH and/or cable systems and the possible resulting
deterioration in the terms, cancellation of fee arrangements or pressure
on splits with operators of these systems;
(15) Risks that we may not realize the expected increased sales and profits and
other benefits from acquisitions, joint ventures and/or licensing
arrangements;
(16) Any charges or costs we incur in connection with restructuring measures we
may take in the future;
(17) Risks associated with the financial condition of Claxson Interactive
Group, Inc., our Playboy TV Latin America, LLC joint venture partner;
(18) Increases in paper, postage or printing costs;
(19) Effects of the national consolidation of the single-copy magazine
distribution system; and
(20) Risks associated with the viability of our primarily subscription- and
e-commerce-based Internet model.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2005, we did not have any floating interest rate
exposure. All of our outstanding debt as of that date consisted of the
convertible notes, which are fixed-rate obligations. The fair value of the
$115.0 million aggregate principal amount of the convertible notes will be
influenced by changes in market interest rates, the share price of our Class B
stock and our credit quality. As of September 30, 2005, the convertible senior
subordinated notes had an implied fair value of $119.3 million.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act) as of the end of the period covered by this quarterly report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by us in the reports that
we file or submit under the Exchange Act.
Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 17, 1998, Eduardo Gongora, or Gongora, filed suit in state
court in Hidalgo County, Texas against Editorial Caballero SA de CV, or EC,
Grupo Siete International, Inc., or GSI, collectively the Editorial Defendants,
and us. In the complaint, Gongora alleged that he was injured as a result of the
termination of a publishing license agreement, or the License Agreement, between
us and EC for the publication of a Mexican edition of Playboy magazine, or the
Mexican Edition. We terminated the License Agreement on or about January 29,
1998, due to EC's failure to pay royalties and other amounts due us under the
License Agreement. On February 18, 1998, the Editorial Defendants filed a
cross-claim against us. Gongora alleged that in December 1996 he entered into an
oral agreement with the Editorial Defendants to solicit advertising for the
Mexican Edition to be distributed in the United States. The basis of GSI's
cross-claim was that it was the assignee of EC's right to distribute the Mexican
Edition in the United States and other Spanish-speaking Latin American countries
outside of Mexico. On May 31, 2002, a jury returned a verdict against us in the
amount of approximately $4.4 million. Under the verdict, Gongora was awarded no
damages. GSI and EC were awarded $4.1 million in out-of-pocket expenses and
approximately $0.3 million for lost profits, respectively, even though the jury
found that EC had failed to comply with the terms of the License Agreement. On
October 24, 2002, the trial court signed a judgment against us for $4.4 million
plus pre- and post-judgment interest and costs. On November 22, 2002, we filed
post-judgment motions challenging the judgment in the trial court. The trial
court overruled those motions and we are vigorously pursuing an appeal with the
State Appellate Court sitting in Corpus Christi challenging the verdict. We have
posted a bond in the amount of approximately $8.5 million (which represents the
amount of the judgment, costs and estimated pre- and post-judgment interest) in
connection with the appeal. We, on advice of legal counsel, believe that it is
not probable that a material judgment against us will be sustained. In
accordance with Statement of Financial Accounting Standards, or Statement, 5,
Accounting for Contingencies, no liability has been accrued.
19
<PAGE>
On May 17, 2001, Logix Development Corporation, or Logix, D. Keith
Howington and Anne Howington filed suit in state court in Los Angeles County
Superior Court in California against Spice Entertainment Companies, Inc., or
Spice, Emerald Media, Inc., or EMI, Directrix, Inc., or Directrix, Colorado
Satellite Broadcasting, Inc., New Frontier Media, Inc., J. Roger Faherty, or
Faherty, Donald McDonald, Jr., and Judy Savar. On February 8, 2002, plaintiffs
amended the complaint and added as a defendant Playboy, which acquired Spice in
1999. The complaint alleged 11 contract and tort causes of action arising
principally out of a January 18, 1997 agreement between EMI and Logix in which
EMI agreed to purchase certain explicit television channels broadcast over
C-band satellite. The complaint further sought damages from Spice based on
Spice's alleged failure to provide transponder and uplink services to Logix.
Playboy and Spice filed a motion to dismiss the plaintiffs' complaint. After
pre-trial motions, Playboy was dismissed from the case and a number of causes of
action were dismissed against Spice. A trial date for the remaining breach of
contract claims against Spice was set for December 10, 2003, and then continued,
first to February 11, 2004, and then to March 17, 2004. Spice and the plaintiffs
filed cross-motions for summary judgment or, in the alternative, for summary
adjudication, on September 5, 2003. Those motions were heard on November 19,
2003, and were denied. In February 2004, prior to the trial, Spice and the
plaintiffs agreed to a settlement in the amount of $8.5 million, which we
recorded as a charge in the fourth quarter of 2003, $6.5 million of which was
paid in 2004 and $1.0 million in 2005. The remaining $1.0 million will be paid
in 2006.
On April 12, 2004, Faherty filed suit in the United States District Court
for the Southern District of New York against Spice, Playboy, Playboy
Enterprises International, Inc., or PEII, D. Keith Howington, Anne Howington
(together, the "Howington defendants") and Logix. The complaint alleges that
Faherty is entitled to statutory and contractual indemnification from Playboy,
PEII and Spice with respect to defense costs and liabilities incurred by Faherty
in the litigation described in the preceding paragraph, or the Logix litigation.
The complaint further alleges that Playboy, PEII, Spice, D. Keith Howington,
Anne Howington and Logix conspired to deprive Faherty of his alleged right to
indemnification by excluding him from the settlement of the Logix litigation. On
June 18, 2004, a jury entered a special verdict finding Faherty personally
liable for $22.5 million in damages to the plaintiffs in the Logix litigation. A
judgment was entered on the verdict on or around August 2, 2004. Faherty filed
post-trial motions for a judgment notwithstanding the verdict and a new trial,
but these motions were both denied on or about September 21, 2004. On October
20, 2004, Faherty filed a notice of appeal from the verdict. In consideration of
this appeal Faherty and Playboy have agreed to seek a temporary stay of the
indemnification action filed in the United States District Court for the
Southern District of New York. On January 14, 2005, Logix and the Howington
defendants filed a motion to dismiss the Faherty action for, among other things,
lack of personal jurisdiction. On February 15, 2005, Faherty filed a
cross-motion to stay the action pending the outcome of his appeal. The motion
and cross-motions are pending. In the event Faherty's indemnification and
conspiracy claims go forward against us, we believe they are without merit and
that we have good defenses against them. As such, based on the information known
to us to date, we do not believe that it is probable that a material judgment
against us will result. In accordance with Statement 5, Accounting for
Contingencies, no liability has been accrued.
On September 26, 2002, Directrix filed suit in the U.S. Bankruptcy Court
in the Southern District of New York against Playboy Entertainment Group, Inc.
In the complaint, Directrix alleged that it was injured as a result of the
termination of a Master Services Agreement under which Directrix was to perform
services relating to the distribution, production and post-production of our
cable networks and a sublease agreement under which Directrix would have
subleased office, technical and studio space at our Los Angeles, California
production facility. Directrix also alleged that we breached an agreement under
which Directrix had the right to transmit and broadcast certain versions of
films through C-band satellite, commonly known as the TVRO market, and Internet
distribution. On November 15, 2002, we filed an answer denying Directrix's
allegations, along with counterclaims against Directrix relating to the Master
Services Agreement and seeking damages. On May 15, 2003, we filed an amended
answer and counterclaims. On July 30, 2003, Directrix moved to dismiss one of
the amended counterclaims, and on October 20, 2003, the Court denied Directrix's
motion. The parties are engaged in discovery. We believe that we have good
defenses against Directrix's claims. We believe it is not probable that a
material judgment against us will result. In accordance with Statement 5,
Accounting for Contingencies, no liability has been accrued.
In the fourth quarter of 2004, we received a $5.6 million insurance
recovery partially related to the prior year litigation settlement with Logix.
20
<PAGE>
ITEM 6. EXHIBITS
Exhibit Number Description
- -------------- -----------
10.1 Affiliation Agreement between Spice, Inc., and Satellite
Services, Inc.
10.1.1* Affiliation Agreement, dated November 1, 1992, between Spice,
Inc., and Satellite Services, Inc.
10.1.2* Amendment No. 1, dated September 29, 1994, to Affiliation
Agreement, dated November 1, 1992, between Spice, Inc., and
Satellite Services, Inc.
10.1.3* Letter Agreement, dated July 18, 1997, amending the
Affiliation Agreement, dated November 1, 1992, between Spice,
Inc., and Satellite Services, Inc.
10.1.4* Letter Agreement, dated December 18, 1997, amending the
Affiliation Agreement between Spice, Inc., and Satellite
Services, Inc.
10.1.5* Amendment, effective September 26, 2005, to Affiliation
Agreement, dated November 1, 1992, between Spice, Inc., and
Satellite Services, Inc.
10.2 Affiliation Agreement between Playboy Entertainment Group,
Inc., and Satellite Services, Inc.
10.2.1* Affiliation Agreement, dated February 10, 1993, between
Playboy Entertainment Group, Inc., and Satellite Services,
Inc.
10.2.2* Amendment, effective September 26, 2005, to Affiliation
Agreement, dated February 10, 1993, between Playboy
Entertainment Group, Inc., and Satellite Services, Inc.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment pursuant to Rule 24b-2 of the Securities and Exchange Act of
1934 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLAYBOY ENTERPRISES, INC.
(Registrant)
Date: November 8, 2005 By /s/ Linda Havard
----------------
Linda G. Havard
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)
22
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.1
<SEQUENCE>2
<FILENAME>d65750_ex10-1.txt
<DESCRIPTION>AFFILIATION AGREEMENT
<TEXT>
Exhibit 10.1.1
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
AFFILIATION AGREEMENT
THIS AGREEMENT made as of the 1st day of November, 1992 is by and between
SPICE, INC., a New York corporation ("Network"), and Satellite Services, Inc., a
Delaware corporation ("Affiliate").
1. RIGHTS:
(a) Grant of Rights. Network hereby grants to Affiliate, and
Affiliate hereby accepts, the following rights relating to the pay-per-view
television programming service known as "Spice," whether in its current analog
format or in any other digitized, compressed, modified, replaced or otherwise
manipulated format (the "Service"):
(i) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the Service
(for the purposes described in Section 4 (e) hereof), by cable or other wire
transmission service, whether now existing or developed in the future, ("Cable")
in the Distribution Areas (as defined herein) of the System or Systems (as
defined herein), if any, set forth by Affiliate on Schedule 1, as such Schedule
1 may be added to or deleted from, from time to time, pursuant to the terms of
this Agreement;
(ii) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the Service
(for the purposes described in Section 4(e) hereof) by satellite master antenna
television systems ("SMATV"), by multipoint distribution services ("MDS"), by
multichannel multipoint distribution services ("MMDS"), by Satellite (as defined
below), and by any other means of distribution whether now existing or developed
in the future (all such technologies including SMATV, MDS, MMDS, Satellite and
any other means of distribution whether now existing or developed in the future
(other than cable) shall be referred to hereinafter, collectively, as
"Alternative Technologies") in (A) Operating Areas (as defined herein), (B)
other areas of counties in which Operating Areas are wholly or partially located
but which areas are not the subject of a cable television franchise or license
or, if a cable television franchise or license exists, the operator of such
franchise or license is not distributing the Service, and (C) areas of counties
(which are contiguous to such counties where an Operating Area is wholly or
partially located) which are not the subject of a cable television franchise or
license or, if a cable television franchise or license exists, the operator of
such franchise or license is not distributing the Service (the areas described
in subsections (A), (B), and (C) of this Section 1(a)(ii) shall be referred to
hereinafter, collectively, as a System's "Distribution Area"); and
<PAGE>
(iii) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the Service
(for the purposes described in Section 4(e) hereof) nationwide (including the
fifty United States, the District of Columbia and the territories, possessions
and commonwealths of the United States) to any person or entity ("Satellite
Subscribers") by means of equipment capable of receiving audio/visual signals
and/or programming directly from a satellite, including, but not limited to,
C-Band and Ku-Band signals, as digitized, compressed, modified, replaced or
- -otherwise manipulated, whether now existing or developed in the future,
including tier-bit access rights ("Satellite"). Without the prior written
authorization of Network, the Service may not be exhibited or otherwise
distributed to Satellite Subscribers in: Tennessee, Mississippi, Alabama,
Oklahoma, North Carolina or Utah.
The rights set forth in this Section 1(a), and elsewhere under this
Agreement, are also granted hereby to any affiliate of Affiliate. As used in
this Agreement, an affiliate of Affiliate shall include any entity meeting the
requirements of paragraphs I.1, II or III of Exhibit A hereto, regardless of
whether such entity is a cable television system.
"Operating Area" of a cable television system shall mean that
geographic area where the owner of the system is authorized by appropriate
governmental authority to operate an audio or video distribution facility
through Cable and is operating an audio or video distribution facility through
Cable within such area; provided, however, that if a franchise or license is not
required for the distribution of television services by Cable in a particular
geographic area, then the operating Area of a system shall mean that geographic
area where the system is operating regardless of the presence or absence of a
franchise or license.
(b) Affiliate shall have the right to elect to include, under
this Agreement, and to demand authorization from Network, if necessary, any
cable television system consisting of Cable which, (i) meets the System
Qualifications of Exhibit A hereto, and (ii) either carries the Service or
commits to carry the Service, by giving Network written notice within thirty
(30) days of the commencement of such carriage (individually, a "System" or,
collectively, "Systems"). Upon receipt of such notice or upon the launch of the
Service by a System, Schedule 1 hereof shall be deemed to include such System(s)
as of the later of: (i) the launch date of the Service on such System(s), or
(ii) the date of acquisition of such System(s) by Affiliate. Any then-existing
agreement with Network applicable to any such System for carriage of the Service
shall terminate and shall cease to be effective with respect to such System as
of the effective date of the addition or deemed addition of such System to
Schedule 1. Affiliate shall have the right, in Affiliate's sole discretion, to
discontinue carriage of the service on any or all Systems, and to delete any or
all Systems from Schedule 1, by providing Network with written notice within
thirty (30) days of such deletion or discontinuance; provided, however, if such
deletion or discontinuance is due to political, legal or community issues, no
such notice by Affiliate will be required to delete or discontinue the Service.
(c) Notwithstanding any provision of this Agreement to the
contrary, Affiliate shall not intentionally authorize any use of the Service:
(i) in a room
2
<PAGE>
open to the public in a commercial establishment (including, without limitation,
public areas of any restaurant, tavern, bar, club, fraternal organization,
hospital or correctional facility), or (ii) in any communal room in an otherwise
residential building (including without limitation, any lobby or social room in
an apartment house, dormitory, drilling rig or similar place). Furthermore,
Affiliate shall take all reasonable precautions to prevent such impermissible
uses from occurring through the facilities of a System.
2. TERM:
(a) Unless terminated sooner pursuant to the terms of this
Agreement, the Term of this Agreement shall consist of the Initial Term and any
number of Renewal Terms. The Initial Term of this Agreement shall commence upon
the date of complete execution of this Agreement and shall terminate on November
30, 2002 unless terminated sooner pursuant to the terms of this Agreement.
(b) This Agreement shall automatically renew for successive five (5)
year periods (each a "Renewal Term") after the Initial Term, and each Renewal
Term, unless either, (i) this Agreement is terminated earlier in accordance with
the terms hereof, or (ii) Affiliate provides a minimum of sixty (60) days' prior
written notice to Network of its intent to terminate this Agreement, in
Affiliate's sole discretion, prior to the end of the Initial Term or any Renewal
Term. As used herein, the word "Term" shall mean, collectively, the Initial Term
and any number of Renewal Terms.
3. CONTENT OF THE SERVICE:
(a) Throughout the Term, the Service shall be commercial-free and
shall consist of twenty-four (24) hours per day of high quality, non-rated
cable-version adult programming intended for an adult audience, similar to the
program schedule attached hereto as Exhibit B, but also including special Events
as described in Section 5 below. Notwithstanding the foregoing, the Service
shall not contain any programming depicting rape, necrophilia, sadism, sado
masochism, bestiality, bondage, incest or programming involving or suggesting
sexual activity with, between or among, minors. Network agrees that, during each
calendar month of the Term, Network will send one (1) copy of its monthly
program schedule to Affiliate, in care of: Vice President, Programming.
(b) During the Term, Network shall provide the Service in its
entirety to Affiliate. When the phrase "in its entirety" is used in this
section, it means that each subscriber of Affiliate receiving the Service shall
receive, at all points in time, the same programming received at each such point
in time by any other subscriber to the Service, and if any subscriber to the
Service is receiving, at such point in time, programming that is different than
the programming received by any subscriber of Affiliate receiving the Service at
that point in time, Affiliate shall have the unconditional right to elect which
programming it desires to receive and utilize at any System and which
programming it will authorize for reception.
3
<PAGE>
4. DELIVERY AND DISTRIBUTION OF THE SERVICE:
(a) During the Term, Network shall, at its own expense, deliver a
signal of the Service to the earth station of each System, to each Satellite
Subscriber and to any other location in the continental United States designated
by Affiliate by transmitting such signal via a domestic satellite commonly used
for transmission of domestic cable television programming and shall, at its own
expense, fully encode the satellite signal of the Service utilizing scrambling
technology commonly used in the domestic cable television industry. Except as
otherwise provided in this Section 4(a), Affiliate shall, at its own expense,
furnish an earth station and all other facilities necessary for the receipt of
such satellite transmission and the delivery of such signal to the Service Cable
Subscribers and PPV Cable Subscribers (each as defined below). In the event
Network either (i) changes the satellite to which the Service is transmitted, to
a satellite not susceptible to viewing by a System's or Systems' then-existing
earth station equipment, or (ii) changes the technology used by Network to
encrypt the Service, to a technology not compatible with a System's or Systems'
then existing descrambling equipment, then Affiliate shall have the right to
delete from Schedule 1 of this Agreement, immediately, any such System or
Systems, and to discontinue carriage of the Service on any such System or
Systems, provided that this termination right shall not apply to any System or
Systems if, (1) Network agrees, unconditionally, to reimburse such System or
Systems, as the case may be, (A) for the cost of acquiring and installing new
equipment necessary to descramble the signal of the Service, and/or (B) for the
cost of acquiring and installing equipment reasonably necessary for such System
or Systems to receive the Service from such new satellite; (2) physical space
exists at the then-existing headend or earth station site to accommodate the
necessary equipment; and (3) current zoning and other restrictions permit such
additional equipment.
(b) Network shall provide to each System distributing the Service
and to each Satellite Subscriber a video and audio signal of a technical quality
equivalent to the greater of the following: (i) comparable to the technical
quality of audio and video signals delivered by other television programming
services; or (ii) the technical standards set forth in Exhibit C hereof. If, at
any time during the Term, Network converts to a digital format, Network and
Affiliate shall negotiate in good faith to agree upon replacement specifications
for Exhibit C; provided, however, that the technical quality of the video and
audio signal under the replacement specifications shall not be of a lesser
technical quality than the video and audio signal quality of the Service as of
the month immediately preceding the conversion to digital technology. Each
System will deliver a principal video and audio signal of the Service to its
Service Cable Subscribers and PPV Cable Subscribers of a technical quality
comparable to other cable television programming services, but in no event
higher than the technical quality provided by Network.
(c) The Systems, if any, may distribute the Service as a fully
pre-emptible service. Network agrees that Affiliate will have complete authority
to control and to designate the channel(s) over which the Service is to be
carried on each System.
4
<PAGE>
(d) Each System retains and reserves any and all rights in and to
all signal distribution capacity contained within the bandwidth of the Service
as received at each System, including, without limitation, the vertical blanking
interval and audio subcarriers (and any other portions of the bandwidth that may
be created as a result of the conversion of the signal of the Service to a
digital format). Network shall not use any portion of the bandwidth other than
as provided herein without the prior written consent of Affiliate. Nothing
herein shall preclude Affiliate from exercising and exploiting such rights by
any means and in any locations freely and without restriction; provided,
however, that any such use by Affiliate or the Systems shall not degrade, or
otherwise interfere with, the picture quality of the Service or the audio
portion of the Service signal which is the principal audio carriage frequency of
the Service.
(e) Each System or other distribution facility or enterprise may
offer the Service, (i) as a Subscription (as defined below) service, and/or (ii)
as a PPV (as defined below) service.
(f) In each of the Systems, Affiliate shall employ reasonable
security measures to prevent pirating, theft or unauthorized exhibition of the
Service, or any portion thereof, or of any advertising or promotional materials.
Except as provided in Section 4(g) below, neither Affiliate, nor any affiliate
of Affiliate, shall authorize others to copy, tape or otherwise reproduce any
part of the Service without Network's prior written authorization and shall take
reasonable and practical security measures to prevent the unauthorized or
otherwise unlawful copying, taping or other reproduction of the Service, by
others, through the facilities of any System. Affiliate shall not be responsible
for home taping by anyone viewing the Service. Network acknowledges that this
Section 4(f) does not restrict Affiliate's practice of (i) connecting its
subscribers' videotape recorders, VCRs or other devices susceptible to use for
home duplication of video programming to the facilities of a System; or (ii)
promoting home taping of the Service by subscribers.
(g) Affiliate and any System shall have the right, at their own
expense, to make taped copies of any transmissions of the Service programming,
which taped programming may be used by such System for one or more of the
purposes described in Section 4(e) above, for exhibition and sale at times other
than at the times of original satellite transmission by Network.
(h) Network hereby grants Affiliate the right to receive the signal
of the Service, to digitize, compress, modify, replace or otherwise manipulate
the signal, and to transmit the signal as so altered (the "Altered Signal") to a
satellite or to a central location for redistribution to terrestrial or other
reception sites capable of receiving and utilizing the Altered Signal. Network
hereby grants Affiliate the right to deliver the Altered Signal for the uses set
forth in Section 1(a) of this Agreement, provided that no such alteration,
transmission, redistribution, reception or other use will cause a change in a
viewer's perception of the principal video or principal audio presentation of
the Service. Furthermore, Network shall not change the signal of the Service in
such a way as to technically or technologically defeat, or otherwise interfere
with, Affiliate's rights under this Section 4(h).
5
<PAGE>
5. FEES:
(a) In consideration of the terms and conditions set forth herein,
Affiliate shall pay the Fees set forth below. Each of the four categories of
Fees defined below (PPV Satellite Fees, Service Satellite Fees, PPV Cable Fees
and Service Cable Fees) shall be calculated, stated and reported separately. As
used herein, the following terms will have the following meanings:
(i) "PPV Satellite Subscriber" means someone who is both a
Satellite Subscriber and who utilizes the Service as a PPV service by making a
purchase through Affiliate or an affiliate of Affiliate. "PPV Satellite Fees"
are those Fees payable by Affiliate to Network in connection with sales of the
Service to PPV Satellite Subscribers.
(ii) "Service Satellite Subscriber" means someone who is both
a Satellite Subscriber and a Service Subscriber (as defined below) who utilizes
the Service as a Subscription service. "Service Satellite Fees" are those Fees
payable by Affiliate to Network in connection with sales of the Service to
Service Satellite Subscribers.
(iii) "PPV Cable Subscriber" means someone who is provided the
Service by Affiliate or an affiliate of Affiliate hereunder, who utilizes the
Service as a PPV service and who receives the Service by means other than
Satellite. "PPV Cable Fees" are those Fees payable by Affiliate to Network in
connection with sales of the Service to PPV Cable Subscribers.
(iv) "Service Cable Subscriber" means someone who both
receives the Service by means other than Satellite and is a Service Subscriber
and who utilizes the Service as a Subscription service. "Service Cable Fees" are
those Fees payable by Affiliate to Network in connection with sales of the
Service to Service Cable Subscribers.
(v) "Fees" means PPV Satellite Fees, Service Satellite Fees,
PPV Cable Fees and Service Cable Fees (collectively) payable by Affiliate to
Network during the Initial Term. Fees payable by Affiliate to Network during a
Renewal Term are referred to herein as Renewal Fees.
(vi) "Pay-per-view" or "PPV" means the authorization of a PPV
Satellite Subscriber or PPV Cable Subscriber to receive at least a single motion
picture, event or other program included in the Service for a fee separate and
distinct from fees paid by such PPV Satellite Subscriber or PPV Cable Subscriber
for other television or audio services. Viewing segments may include, but are
not limited to, pay-per-view, pay-per-night, pay-per-weekend, or any other
continuous segment of seventy-two (72) or fewer consecutive hours of the Service
received on a pay-per-view basis.
(vii) "Subscription" means the authorization of a Service
Cable Subscriber or Service Satellite Subscriber to receive the Service as a
monthly
6
<PAGE>
subscription service either on an a la carte basis or as part of a package of
other services, or both.
(viii) "Service Subscriber" means each customer to whom
Affiliate or an affiliate of Affiliate knowingly provides the Service directly,
through an affiliate, or, as permitted by this Agreement, through a third party,
as a Subscription service.
(ix) "Special Event" means an occasional, high-profile adult
comedy or sports event or program (other than a motion picture or other typical
adult dramatic or comedy program) produced originally for the Service,
premiering on the Service, and first appearing on the Service no more than one
(1) year from its completion date. Network may not include more than one Special
Event on the Service in any six (6) month period (except that, with the consent
of Affiliate (such consent to be in Affiliate's sole and exclusive discretion),
Network may include a Special Event on the Service more frequently than once in
a six (6) month period), and no adult comedy, sports event or program event may
be treated as a Special Event for more than twelve (12) exhibitions on the
Service. Further, no adult comedy, sports event or program may be treated as a
Special Event unless Network provides Affiliate with at least seventy-five (75)
days prior written notice of the premiere on the Service of such Special Event.
(x) "Addressable Subscriber" means a PPV Cable Subscriber
whose television set is connected on the PPV Cable Subscriber's premises, or by
interdiction, to equipment, issued by Affiliate, that allows the channel on
which the Service is received to be turned on or off (i.e., "authorized" or
"deauthorized") from a central location, controlled by the operator of the
System.
(xi) "Gross Receipts" means the amount billed for the Service
to a PPV Cable Subscriber, PPV Satellite Subscriber, Service Satellite
Subscriber or Service Cable Subscriber (as the case may be) less applicable
taxes, franchise fees or other charges, levies or assessments imposed by
governmental entities or agencies thereof attributable to the purchase or sale
of the Service or any portion thereof.
(xii) "Network Share" means that portion of the Gross Receipts
which is payable by Affiliate as Fees or Renewal Fees to Network pursuant to
this Agreement.
(b) Subscription
(i) For each calendar month during the Term, Affiliate will
pay Network as a Service Cable Fee for each Service Cable Subscriber an amount
equal to the greater of (A) ***** or (B) ***** of the Gross Receipts
attributable to such Service Cable Subscriber. When the Service is sold to a
Service Cable Subscriber in combination with other services for a package charge
(as, for example, in a tier or in a package of a la carte or other services),
the Gross Receipts attributable to a Service Cable Subscriber for the Service
shall be equal to the total charge for the tier or package of services sold in
combination with the Service, multiplied by a fraction, the numerator of
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<PAGE>
which is $1.59 and the denominator of which is the numerator plus the aggregate
of the net effective rates per subscriber charged to Affiliate by each of the
other service providers of the services included in the tier or package of a la
carte or other services; provided, however, that the amounts charged to
Affiliate for each of the services in the package or tier shall not be disclosed
by Affiliate to Network but, at Network's request, in order to assure Network of
compliance with this provision, Affiliate shall make such charges and any
pertinent calculations available to a representative of KPMG Peat Marwick (which
representative is neither Network's nor Affiliate's) on a confidential basis, at
Network's cost. This provision shall survive termination or expiration of this
Agreement. Affiliate shall pay a Service Satellite Fee to Network of $7.00 per
month for each Service Satellite Subscriber regardless of whether such Service
Satellite Subscriber purchases the Service alone, as an a la carte service or as
part of a tier or package of a la carte or other services and regardless of the
Gross Receipts attributable thereto.
(ii) The number of Service Satellite Subscribers or Service
Cable Subscribers (as the case may be) for whom Affiliate shall pay each month
shall be the average of (A) the number of Service Satellite Subscribers or
Service Cable Subscribers (as the case may be) on the first day of the month,
and (B) the number of Service Satellite Subscribers or Service Cable Subscribers
(as the case may be) on the last day of the month. Service Satellite Subscribers
or Service Cable Subscribers (as the case may be) shall include each occupied
dwelling (whether in a single family or multi-unit building), hotel or motel
guest room, drilling rig, nursing home room, dormitory room or other location in
which the Service is received. If Affiliate provides the Service to multiple
dwelling complexes, including, but not limited to, apartments, hotels and
motels, on a bulk-rate basis, the number of Service Satellite Subscribers or
Service Cable Subscribers (as the case may be) attributable to each such
bulk-rate subscriber shall be equal to the total monthly retail rate charged a
complex for the Service divided by the standard monthly retail rate charged a
non-bulk rate Service Satellite Subscriber or Service Cable Subscriber (as the
case may be) for the Service in the applicable System or by the pertinent
Satellite distributor, as the case may be. The monthly number of Service
Satellite Subscribers and the monthly number of Service Cable Subscribers shall
each be calculated, stated and reported separately.
(iii) The Service Cable Fees and Service Satellite Fees
payable by Affiliate to Network hereunder shall be due and payable forty-five
(45) days after the end of the calendar month to which they relate.
(c) PPV
(i) For each customer of Affiliate who receives and pays for
one (1) complete and technically satisfactory viewing of one viewing segment of
the Service as a PPV service as a PPV Cable Subscriber, Affiliate will pay
Network a PPV Cable Fee in an amount equal to the greater of, (A) (i) ***** for
orders taken from the date of full execution hereof through November 30, 1995,
(ii) ***** for orders taken from December 1, 1995 through November 30, 1998
(iii) ***** for orders taken from December 1, 1998 through November 30, 2001 and
(iv) ***** for orders from December 1, 2001 through the end of the Initial Term,
or (B) the Network Share of the Gross
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Receipts paid by such PPV Cable Subscriber. With respect to PPV Cable
Subscribers, "Network Share" shall equal the following percentage of the Gross
Receipts paid by each PPV Cable Subscriber: ***** percent ***** from the date of
execution of this Agreement by both parties hereof through November 30, 1995 and
***** percent ***** from December 1, 1995 through the end of the Initial Term.
For each customer of Affiliate who receives and pays for one (1) complete and
technically satisfactory viewing of one viewing segment of the Service as a PPV
service as a PPV Satellite Subscriber, Affiliate will pay Network a PPV
Satellite Fee in an amount equal to the greater of (C) (i) ***** for orders
taken from the date of full execution hereof through November 30, 1995, (ii)
***** for orders taken from December 1, 1995 through November 30, 1998, (iii)
***** for orders taken from December 1, 1998 through November 30, 2001, and (iv)
***** for orders taken from December 1, 2001 through the end of the Initial
Term, or (D) the Network Share of the Gross Receipts paid by such PPV Satellite
Subscriber. With respect to PPV Satellite Subscribers, the Network Share of the
Gross Receipts shall be *****. Notwithstanding the foregoing, each System and
each Satellite distributor shall have the right to discount the price of a PPV
viewing of the service during the first thirty (30) days after the launch of the
Service in such System or by such Satellite distributor, respectively, and
during no more than two (2) ten (10) day periods each calendar year. For orders
taken during such first thirty (30) days and during each such ten (10) day
period, Affiliate shall be required to pay to Network minimum PPV Satellite Fees
or PPV Cable Fees (as the case may be) of ***** per each complete and
technically satisfactory viewing of a viewing segment of the Service as a PPV
service, rather than the minimum PPV Satellite Fees or PPV Cable Fees specified
in either (A) or (C) of this Section 5(c)(i). Furthermore, there shall be no PPV
Satellite Fee or PPV Cable Fee (as the case may be) payable by Affiliate to
Network for any PPV viewing of the Service by a subscriber who pays for such
viewing by remitting a coupon provided by Affiliate or by an affiliate of
Affiliate to subscribers that have not ordered a PPV movie or event in the six
(6) months immediately preceding the issuance of such coupon.
(ii) In lieu of the PPV Satellite Fees or PPV Cable Fees
payable as calculated pursuant to Section 5(c)(i) above, for each PPV Satellite
Subscriber or PPV Cable Subscriber (as the case may be) who receives and pays
for one (1) complete and technically satisfactory viewing of a Special Event
included in the Service, Affiliate will pay Network a PPV Satellite Fee or PPV
Cable Fee (as the case may be) equal to the greater of (A) a minimum dollar
amount to be set by Network or (B) ***** of the Gross Receipts paid by such PPV
Satellite Subscriber or PPV Cable Subscriber (as the case may be).
Notwithstanding the above, however, any and all PPV Satellite Fees or PPV Cable
Fees paid by Affiliate to Network for any Special Event shall be subject in all
respects to Section 13(g) of this Agreement (including the minimum dollar amount
payable by Affiliate hereunder).
(iii) The PPV Cable Fees and/or PPV Satellite Fees (as the
case may be) payable by Affiliate to Network hereunder for exhibition to PPV
Cable Subscribers and PPV Satellite Subscribers (as the case may be) during a
Reporting Period (as defined below) during the Term shall be due and payable
forty-five (45) days after the end of the calendar month which includes the last
day of the Reporting Period. (The term "Reporting Period" shall mean the days
from the end of each System's or Satellite
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<PAGE>
distributor's last monthly reporting period (which date may vary in each System
or for each Satellite distributor from the 20th of the calendar month to the
last day of the calendar month) to the end of the System's or Satellite
distributor's then current monthly reporting period.) Affiliate shall have the
right, however, to make credit adjustments to any month's payment in an amount
equal to the portion of a previous month's PPV Cable Fees and/or PPV Satellite
Fees which represents an overpayment.
(d) Addressable Subscribers Volume Discount
(i) On the first day of each calendar quarter of the Term, for
orders taken during such calendar quarter of the Term, the Network Share with
respect to PPV Cable Subscribers as determined above may be reduced below the
Network Share otherwise stated above based upon the number of Addressable
Subscribers in all of the Systems on the first day of such calendar quarter, as
follows:
<TABLE>
<CAPTION>
If the Number of Addressable Subscribers in Then, the Network Share for each Month of
all Systems on the First Day of a Calendar such Calendar Quarter Hereunder Shall be
Quarter is: Reduced By the Following Percentage of the
Gross Receipts:
<S> <C>
2,000,000 - 2,999,999 *****
3,000,000 - 3,999,999 *****
4,000,000 - 4,999,999 *****
5,000,000 - 5,999,999 *****
6,000,000 - 6,999,999 *****
</TABLE>
(e) Each System shall have the right to expend funds for a market or
community research survey regarding adult, and other types of, television
programming. Any System which launches the Service after undertaking such a
survey shall be fully reimbursed for the costs of such survey from the Gross
Receipts received by the System from Subscription and Pay-Per-View sales of the
Service, or portions thereof, before any such system incurs an obligation to pay
Fees hereunder. Affiliate shall submit to Network complete documentation of the
costs incurred by each such System for such survey. Network shall have the right
(in accordance with Section 6(b)) to inspect and audit the books and records of
any System which has claimed reimbursement of such survey costs, but only those
books and records relating to such survey.
(f) Any amounts payable by Network to Affiliate pursuant to Section
7 hereof shall be due and payable forty-five (45) days after the end of the
pertinent calendar month during the Term.
(g) Notwithstanding any other provision of this Agreement to the
contrary, no Fees shall be payable for PPV Satellite Subscribers, PPV Cable
Subscribers, Service Satellite Subscribers or Service Cable Subscribers if they
are (i) employees of Affiliate or any affiliated party who are not charged for
the Service; or (ii) public officials, administrative personnel or public
buildings that are not charged for the Service; or (iii) subscribers who have
not paid their cable television bill for a given
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<PAGE>
month and are subsequently disconnected; or (iv) subscribers who, in the good
faith exercise of reasonable judgment by an employee either of Affiliate or of
an affiliate of Affiliate, are excused from paying for the Service either
because such subscriber claims that the Service was not properly ordered or
because such subscriber claims that a complete and technically satisfactory
viewing of the Service was not received.
(h) Network shall have the right to renegotiate the PPV Satellite
Fees, PPV Cable Fees, Service Satellite Fees and Service Cable Fees applicable
to any Renewal Term upon written notice to Affiliate at least twelve (12) months
prior to the end of the Initial Term or Renewal Term immediately preceding such
Renewal Term. Any such revised Fees ("Renewal Fees") shall be effective upon the
commencement of such Renewal Term. Said Renewal Fees shall be effective for the
five (5) year Renewal Term.
(i) The PPV Satellite Fees, PPV Cable Fees, Service Satellite Fees
and Service Cable Fees and any Renewal Fees payable by Affiliate to Network
hereunder, and any amounts payable by Network to Affiliate or any System
pursuant to Sections 5 or 7 hereof, that are unpaid after they are due and
payable shall accrue interest at one and one-half percent (1-1/2%) per month or
the highest lawful rate, whichever is less, from the due date until payment is
received by Network, a System or Affiliate, (as the case may be). Each
delinquent party shall be liable to the owed party for all reasonable costs and
expenses (including, without limitation, reasonable counsel fees, disbursements,
and administrative or court costs) in connection with the collection of any
overdue amounts.
6. REPORTS:
(a) Affiliate shall send to Network, along with the payments
described in Section 5 hereof, statements on a form mutually acceptable to
Affiliate and Network. Each statement shall set forth information necessary to
the calculation of the PPV Satellite Fees, PPV Cable Fees, Service Satellite
Fees and Service Cable Fees paid. Each of the four categories of Fees shall be
calculated, stated and reported separately.
(i) The statement accompanying each month's Service Satellite
Fees and Service Cable Fees shall include the number of Service Cable
Subscribers and Service Satellite Subscribers as of the first day of the month
and the number as of the last day of the month and the average thereof, and such
other information as may be necessary for the calculation of the Service
Satellite Fees and Service Cable Fees paid.
(ii) The statement accompanying each month's PPV Satellite
Fees and PPV Cable Fees shall include the number of PPV Satellite Subscribers
and PPV Cable Subscribers; the Gross Receipts paid by such PPV Satellite
Subscribers and PPV Cable Subscribers; the aggregate number of Addressable
Subscribers as of the first day of that calendar quarter in all Systems; and
such other information as may be necessary for the calculation of the PPV
Satellite Fees and PPV Cable Fees paid.
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<PAGE>
(b) Network shall send to Affiliate, not later than forty-five (45)
days after the end of each calendar month for which payment pursuant to Section
7 hereof is due, a statement on a form mutually acceptable to Affiliate and
Network which sets forth all pertinent information to compute the amount due to
Affiliate for such calendar month. Network shall deliver such statement to
Affiliate prior to or along with the amount payable to Affiliate as provided in
this Agreement.
(c) Affiliate and Network each agree to keep and maintain accurate
books and records of all matters directly relating to this Agreement in
accordance with generally accepted accounting principles. During the Term and
for one (1) year after the termination of this Agreement, such books and records
of each party shall be available to the other party for inspection and audit,
during normal business hours, at the inspecting party's expense, at the other
party's offices upon reasonable notice to the other party. Each party's right to
perform such audit shall be limited to once in any twelve (12) month period
during the Term and shall be limited to an audit with respect to amounts to be
paid in the then-current and prior calendar year only. If either party audits
the other party's books hereunder, the inspecting party must make any claim
against the other party within the earlier of, three (3) months after the
inspecting party or the inspecting party's representative leaves the other
party's offices, or twenty-four (24) months after the close of the earliest
month which is the subject of such claim. If a claim is not made within such
time, then the Fees and reports shall be deemed final and uncontestable, and the
inspecting party will be deemed to have waived its right to collect any
shortfalls from the other party for the period(s) audited. Each System which
takes a credit against Gross Receipts for repayment of survey costs pursuant to
Section 5(c) hereof must comply fully with Section 5(c) and this Section 6(c).
7. PROMOTION:
(a) Network agrees to spend marketing monies within the Operating
Areas of the Systems in an amount relative to all marketing monies spent by
Network that is equal to or greater than the ratio of the number of Affiliate's
cable television subscribers in the Systems to the total number of Network's
cable television subscribers, including Affiliate's cable television
subscribers. Specifically, but not in limitation of the foregoing, Network shall
do the following:
(i) No later than fifty (50) days prior to the first day of
each calendar month, Network shall make available to Affiliate its monthly
program schedule for such month and such trailers and other publicity materials
as Network may have available to be used for advertising and publicity for such
month. Affiliate may, at its sole expense, make copies of such materials and
make such copies available solely for use by the Systems.
(ii) Commencing upon launch of the Service on any System
and/or the commencement of the sale of the Service to PPV Subscribers or Service
Subscribers (as the case may be), and throughout the Term, Network shall
contribute ***** per copy for any catalogue or guide utilized by the Systems or
by any Satellite distributor which includes listings for the Service and at
least one (1), 1/4 page promotion
12
<PAGE>
for the Service, whether or not a subscriber receives such catalogue or guide
without charge. Each System or distributor of the Service to Satellite
Subscribers shall be entitled to claim the contribution provided for in this
Section 7(a)(ii) by providing Network with appropriate documentation verifying
the content and quantity of guides or catalogues for which such contribution is
sought, no more often than once per month. Network shall remit such
contributions to the appropriate Systems or Satellite distributor later than
forty-five (45) days after receipt of such appropriate documentation.
(b) Network may not, without Affiliate's prior written consent,
undertake marketing tests or surveys, rating polls or any other research in the
Systems in connection with the Service. With respect to any test, surveys or
research which apply to a System or Systems for which Network seeks Affiliate's
consent, Network shall notify Affiliate of the nature and scope of each such
project and, upon Affiliate's written consent to such project (which consent may
be withheld in Affiliate's sole and absolute discretion), Affiliate and/or the
pertinent affiliate of Affiliate shall, to the extent permitted by applicable
law and company policy, cooperate in such research by rendering such assistance
as Network may reasonably request and which Affiliate or such affiliate of
Affiliate can reasonably provide, the cost of which assistance shall be borne by
Network. Network shall keep the results of all research relating to a System or
Systems confidential under the provisions of Section 12 hereof and shall retain
the results of such research in an aggregate form only, which does not identify
any subscriber, cable television system or cable television system operator.
(c) Affiliate acknowledges that the names and marks "SPICE" (and the
names of certain programs which appear in the Service) are the exclusive
property of Network and its suppliers and that Affiliate has not and will not
acquire any proprietary rights therein by reason of this Agreement. Network
shall have the right to approve any of Affiliate's mentioning or using of such
names or marks and publicity about Network or the products or programming
included in the Service. Uses of such names and marks in routine promotional
materials or presentations such as program guides, program listings, bill
stuffers and video promotions, including, but not limited to, barker channels
and cross-channel promotions, shall be deemed approved unless Network
specifically notifies Affiliate to the contrary prior to such use by Affiliate.
Affiliate shall, however, comply with all of Network's clear, unambiguous and
reasonable advance written instructions regarding the content or use of
advertising or promotional materials provided to Affiliate by Network prior to
Affiliate's use of such materials; provided, however, that, Affiliate reserves
the right in its sole and absolute discretion to use or decline to use any
advertising or promotional material provided by Network.
(d) Network agrees that in the event Network does any direct on-air
marketing and sale of products or services, including, but not limited to, sales
through "800", "900" or "976" telephone services, Network will:
(i) provide Affiliate with lists of the names of respondents
from within the zip code areas of the Systems who respond to such direct on-air
marketing and sales, for use by Affiliate or the Systems, and
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<PAGE>
(ii) Network shall *****.
(e) Network and Affiliate hereby acknowledge that (i) their
interests are often in direct conflict, (ii) their relationship is often
adversarial, and (iii) Network could cause Affiliate significant harm by the
nature of Network's communications to Affiliate's subscribers or to the
governmental entities or to franchise or licensing authorities whose opinions
and actions could adversely affect cable television systems affiliated with
Affiliate. Therefore, Network shall not initiate communications with any
subscribers or franchise or licensing authorities or governmental entities in
the Operating Area of any cable television system which meets the System
Qualifications of Exhibit A without Affiliate's prior written approval, and
under no circumstances shall Network engage in any communications with any
subscribers or franchise or licensing authority or governmental entity in the
Operating Area of any of such systems which would, or could, adversely interfere
with the relationship between Affiliate or any affiliate of Affiliate, and
subscribers, or the relationship between Affiliate or any affiliate of Affiliate
and any governmental entity or community in any such Operating Area. This
provision shall not apply, (x) to any national advertising, (y) to any
proceeding before any judicial body, or (z) to any communications with Congress
or with any other branch or agency of the federal government. This Section 7(e)
shall survive the expiration or termination of this Agreement (regardless of the
reason for such expiration or termination) for a period of two (2) years.
(f) Network may not promote any other cable programming service
which is affiliated with Network on the Service without the prior written
consent of Affiliate.
(g) Network shall not provide to any third party any telephone
number of, or any information about (whether personally identifiable or
otherwise), any subscriber to any cable television system which meets the System
Qualifications of Exhibit A.
8. WARRANTIES AND INDEMNITIES:
(a) Network represents and warrants to Affiliate that (i) Network is
a corporation duly organized and validly existing under the laws of the State of
New York; (ii) Network has the power and authority to enter into this Agreement
and to fully perform its obligations hereunder; (iii) Network is under no
contractual or other legal obligation which shall in any way interfere with its
full, prompt and complete performance hereunder; (iv) the individual executing
this Agreement on behalf of Network has the authority to do so; (v) Network is
in compliance with all laws, rules, regulations, and court and administrative
decrees to which it is subject including, without limitation, all applicable
rules and regulations of the Federal Communications Commission (the "FCC"); (vi)
Network has, or will have acquired at the pertinent time all or part of the
Service is made available to Affiliate, good title to, and/or each and every
property right (whether relative to tangible or intangible property), or
license, usage or other right necessary or appropriate whatsoever to effectuate
the acts or performances
14
<PAGE>
contemplated by, or satisfy the obligations imposed on it pursuant to, this
Agreement, including all permits, rights, licenses and approvals necessary,
required or appropriate for any and all performances through to the premises and
to the listeners frequenting the premises of Service Cable Subscribers, Service
Satellite Subscribers, PPV Cable Subscribers and PPV Satellite Subscribers;
(vii) neither the Service, any program related thereto, or any component thereof
is subject to, or the subject of, any lien, encumbrance, charge, lis pendens,
administrative proceeding, governmental investigation, or litigation pending or
threatened; and (viii) the obligations created by this Agreement, insofar as
they purport to be binding on Network, constitute legal, valid and binding
obligations of Network enforceable in accordance with their terms.
(b) Affiliate represents and warrants to Network that (i) Affiliate
is a corporation duly organized and validly existing under the laws of the State
of Delaware; (ii) Affiliate has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder; (iii) Affiliate is
under no contractual or other legal obligation which shall in any way interfere
with its full, prompt and complete performance hereunder; and (iv) the
individual executing this Agreement on behalf of Affiliate has the authority to
do so.
(c) Network represents and warrants to Affiliate that neither the
Service nor any material provided to Affiliate by Network in connection
therewith including, without limitation, any advertising or promotional
materials, will contain any material which will libel, slander or defame any
person, and the Service and such additional materials provided to Affiliate will
not, when exhibited, transmitted or otherwise exploited in accordance herewith,
violate, infringe upon or give rise to any adverse claim with respect to any
contract right, common law right or any other right of any party (including,
without limitation, any copyright, trademark, literary or dramatic right, music
synchronization right, right of privacy or publicity or music performance right)
or violate any law, or (when exhibited by Affiliate as contemplated hereby)
cause Affiliate or any affiliate of Affiliate to violate any law.
(d) Network represents, covenants, and warrants that the Service
complies, and will continue to comply, in all respects with the commercial
matter limitations of the Children's Television Act of 1990, Public Law 101-437
(October 18, 1990) and the regulations of the FCC promulgated thereunder as the
same may apply to cable television systems and cable operators, including 47
C.F.R. ss. 76.225, 76.305, and as the same may from time-to-time be amended
("Children's Television Regulations"); provided further, that Network
represents, covenants and warrants that it will provide to Affiliate all records
demonstrating such compliance under the Children's Television Regulations as are
necessary for Affiliate to timely demonstrate its compliance as a cable operator
with the commercial matter limitations and record keeping requirements of the
Children's Television Regulations. Network further represents, covenants and
warrants that the Service complies and will continue to comply, with all
origination cablecasting regulations of the FCC, including but not limited to 47
C.F.R. ss.ss. 76.205 - 76.221 (political equal time, personal attack, lotteries
and sponsorship identification), as the same may from time to time be amended
("Origination Cablecasting Requirements"), and that Network shall provide
Affiliate all necessary documentation required thereunder for
15
<PAGE>
Affiliate to timely meet its documentation and public file requirements under
the Origination Cablecasting Requirements. In the event that any other
programming offered by the Service shall be among the kind of programming which
is regulated by federal, state or local law, as the same may apply to pay or
cable television systems and operators, then Network shall provide to Affiliate
all statements, records or other documents reasonably necessary for Affiliate to
demonstrate timely compliance as an operator or distributor with such laws and
regulations.
(e) Affiliate and Network shall each indemnify, defend and forever
hold harmless the other, the other's affiliated companies and each of the
other's and the other's affiliated companies' respective officers, directors,
employees, partners and agents against and from any and all losses, liabilities,
claims, costs, damages and expenses (including, without limitation, fines,
forfeitures, attorneys' fees, disbursements and administrative or court costs)
arising out of any breach by it of any term of this Agreement or any warranty,
covenant or representation.
(f) Without limiting the provisions of Section 8(e) or Section 8(g)
hereof, Network will indemnify, defend and forever hold Affiliate and
Affiliate's affiliated companies, and each of Affiliate's and Affiliate's
affiliated companies' respective officers, directors, employees, partners and
agents, harmless from and against any and all losses, liabilities, claims,
costs, damages and expenses (including, without limitation, fines, forfeitures,
attorneys' fees, disbursements and administrative or court costs) arising out of
the content of the Service or the use and delivery of the Service under this
Agreement (including, but not limited to, sponsorship, promotional and
advertising spots, any background music and anything else inserted by any party
other than Affiliate), including, without limitation, any losses, liabilities,
claims, costs, damages and expenses based upon any lien, encumbrance, charge,
lis pendens, administrative proceeding, government investigation or litigation
relating to the Service, any program included therein or any component thereof,
or based upon alleged or proven libel, slander, defamation, invasion of the
right of privacy or the right of publicity, or violation or infringement of
copyright (including music performance rights for any and all performances
through to subscribers), literary or music synchronization rights, obscenity or
any other form or forms of speech (whether or not protected by the Constitution
of the United States or any State) or otherwise arising out of the content of
the Service.
(g) Without limiting the provisions of Section 8(e) or Section 8(f)
hereof, Network shall indemnify and hold harmless Affiliate, and Affiliate's
affiliated companies, and each of Affiliate' and Affiliate's affiliated
companies' respective officers, directors, employees, partners and agents, from
and against any and all losses, liabilities, claims, costs, damages and expenses
(including, without limitation, fines, forfeitures, attorneys' fees,
disbursements, court or administrative costs) or any other losses or liabilities
of whatever nature, arising from any violation by Network of the Origination
Cablecasting Requirements, including required documentation and public file
requirements, or of the Children's Television Regulations, either with respect
to the Service or to any of the compliance demonstration or record keeping
requirements of the Children's Television Regulations.
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<PAGE>
(h) In connection with any indemnification provided for in this
Section 8, each party shall so indemnify the other only if such other party
claiming indemnity shall give the indemnifying party prompt notice of any claim
or litigation to which its indemnity applies; it being agreed that the
indemnifying party shall have the right to assume the full defense of any or all
negotiations, claims or litigation to which its indemnity applies. The
indemnified party will cooperate fully (at the cost of the indemnifying party)
with the indemnifying party in such defense and in the settlement of such claim
or litigation, and the indemnified party shall make no compromise or settlement
of any such claim without the prior written consent of the indemnifying party.
The settlement of any claim or action by the indemnified party without the prior
written consent of the indemnifying party shall release the indemnifying party
from its obligations hereunder with respect to such claim or action so settled.
(i) Network represents, warrants and covenants that it has obtained
general liability insurance covering the Service and all elements thereof from a
nationally recognized insurance carrier and in accordance with industry
standards; that such insurance shall remain in full force and effect throughout
the Term; that Affiliate shall be named as an additional insured on such policy;
and Network that will provide Affiliate with documentation to such effect upon
the execution hereof.
(j) The representations, warranties and indemnities contained in
this Section 8 shall continue throughout the Term and the indemnities shall
survive the expiration or termination of this Agreement regardless of the reason
for such expiration or termination.
9. EARLY TERMINATION RIGHTS:
(a) In addition to Network's other rights at law or in equity or
pursuant to other provisions of this Agreement, Network may, by so notifying
Affiliate, terminate this Agreement: (i) if Affiliate is in material breach of
this Agreement, provided, however, that if such breach is of the type that is
curable, then Network shall not exercise its termination or other rights at law
or in equity hereunder unless Network has, by so notifying Affiliate, given
Affiliate at least thirty (30) days to fully cure such material breach and to
demonstrate to Network that such material breach has been cured, and provided
further, that if such breach is confined to a System or to a limited number of
Systems, Network shall have the right to terminate this Agreement only as to
such System or Systems; or (ii) if Affiliate has filed a petition in bankruptcy,
is insolvent, or has sought relief under any law related to Affiliate's
financial condition or its ability to meet its payment obligations; or (iii) if
any involuntary petition in bankruptcy has been filed against Affiliate, or any
relief under any such law has been sought by any creditor(s) of Affiliate,
unless such involuntary petition is dismissed, or such relief is denied, within
thirty (30) days after it has been filed or sought.
(b) In addition to Affiliate's other rights at law or in equity or
pursuant to other provisions of this Agreement, and in addition to any other
right to terminate provided hereunder, Affiliate may, by so notifying Network,
terminate this Agreement: (i) if Network is in material breach of this
Agreement, provided, however, if
17
<PAGE>
such breach is of the type that is curable, then Affiliate shall not exercise
its termination or other rights at law or in equity hereunder unless Affiliate
has, by so notifying Network, given Network at least thirty (30) days from the
time such notice is sent, to fully cure such material breach and to demonstrate
to Affiliate that such material breach has been cured; or (ii) if Network has
filed a petition in bankruptcy, is insolvent or has sought relief under any law
related to Network's financial condition or its ability to meet its payment
obligations; or (iii) if any involuntary petition in bankruptcy has been filed
against Network, or any relief under any such law has been sought by any
creditor(s) of Network, unless such involuntary petition is dismissed, or such
relief is denied, within thirty (30) days after it has been filed or sought; or
(iv) on at least fifteen (15) days' notice in the event of any Force Majeure
provided for in Section 10 of this Agreement which continues for a continuous
period of thirty (30) days.
10. FORCE MAJEURE:
Except as herein provided to the contrary, neither Affiliate nor Network
shall have any rights against the other party hereto for the non-operation of
facilities or the non-furnishing of the Service if such non-operation or
non-furnishing is due to an act of God; inevitable accident; fire; lockout;
strike, or other labor dispute; riot or civil commotion; flood; hurricane;
tornado; earthquake; war; act of government or governmental instrumentality
(whether federal, state or local); failure of performance by a common carrier;
failure in whole or in part of technical facilities; or other cause (financial
inability excepted) beyond such party's reasonable control. With respect to
monthly subscriptions to the Service, credit will be given to Affiliate,
however, on that portion of the Service which is affected by any interruption
during any month equal to the product of (x) the Fees which would be due for
such month, assuming no interruption of Service during such month, multiplied by
(y) a fraction, the numerator of which is the total number of hours of
interruption of the Service during such month and the denominator of which is
the total number of hours of the Service which would have been provided during
such month absent such interruption (s), provided, however, that such credit
shall be given to Affiliate only if Affiliate shall pass on such credit to its
Service Subscribers.
11. NOTICES:
Any notice or report given under this Agreement shall be in writing, shall
be sent postage prepaid by registered or certified mail return receipt requested
or by hand or messenger delivery, or by Federal Express or similar overnight
delivery service, or by facsimile transmission, to the other party, at the
following address (unless either party at any time or times designates another
address for itself by notifying the other party thereof by certified mail, in
which case all notices to such party thereafter shall be given at its most
recently so designated address):
To Network: 532 Broadway
New York, New York 10012
Attention: President
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<PAGE>
To Affiliate: Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
With copies to: - Vice President, Programming
- Vice President, Pay Per View
- Corporate Counsel, Business Affairs
Notice or report given by personal delivery shall be deemed given on
delivery. Notice or report given by mail shall be deemed given on the earlier to
occur of actual receipt thereof or on the fifth day following mailing thereof in
accordance with the notice requirements of this Section 11. Notice or report
given by Federal Express or similar overnight delivery service shall be deemed
given on the next business day following delivery of the notice or report to
such service with instructions for overnight delivery. Notice or report given by
facsimile transmission shall be deemed given on the day of transmission if a
business day, or on the next business day after the day of transmission if not
transmitted on a business day.
12. CONFIDENTIALITY: PRESS RELEASES:
Neither Affiliate nor Network shall disclose (whether orally or in
writing, or by press release or otherwise) to any third party (other than each
party's respective officers, directors and employees, in their capacity as such,
and their respective auditors or attorneys, provided, however, that the
disclosing party agrees to be responsible for any breach of the provisions of
this Section 12 by such officers, directors or employees, auditors or
attorneys), any information with respect to the terms and provisions of this
Agreement and neither party hereto shall disclose any information obtained in
any inspection and/or audit of the other party's books and records, except: (i)
to the extent necessary (but redacted to the greatest extent possible) to comply
with law or the valid order of an administrative agency or a court of competent
jurisdiction, in which event the party making such disclosure shall so notify
the other as promptly as practicable (and, if possible, prior to making such
disclosure) and shall seek confidential treatment of such information; (ii) as
part of its normal reporting or review procedure to its parent company, its
auditors or its attorneys, provided, however, that the disclosing party agrees
to be responsible for any breach of the provisions of this Section 12 by such
parent company, its auditors or attorneys; (iii) in order to enforce its rights
or perform its obligations pursuant to this Agreement; and (iv) if mutually
agreed by Affiliate and Network, in advance of such disclosure, in writing. In
addition, Network shall not use or disclose information (whether personally
identifiable information or not) to any third party regarding Affiliate's or any
affiliate of Affiliate's cable television subscribers or Satellite subscribers
and shall not engage in any direct mailing or telephone solicitation, for any
purpose, to cable television subscribers or Satellite subscribers of Affiliate
or any affiliate of Affiliate. This Section 12 shall survive the expiration or
termination of this Agreement regardless of the reason for such expiration or
termination.
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<PAGE>
13. MISCELLANEOUS:
(a) Assignment; Binding Effect; Reorganization. This Agreement,
including both its obligations and benefits, shall redound to the benefit of,
and be binding on the respective transferees and successors of, the parties,
except that neither this Agreement nor either party's rights or obligations
hereunder shall be assigned or transferred by either party without the prior
written consent of the other party; provided, however, no consent shall be
necessary in the event of an assignment to a successor entity resulting from a
merger, acquisition or consolidation by either party or assignment to an entity
under common control, controlled by or in control of either party.
Notwithstanding the foregoing, Network shall give Affiliate thirty (30) days'
prior written notice of a change in the control or ownership of the Service or
Network. In such event, this Agreement may, in the sole discretion of Affiliate,
be terminated. For purposes of this paragraph, the term "control" means the
power to direct the management and policies of an entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
(b) Service Combinations. In the event that the Service is merged
with, or Network acquires control of, or Network is acquired by or merges with,
or control of the Network is acquired by, or the Service is acquired by, any
other programming service, if Affiliate has (at the time of such merger or
acquisition) an affiliation agreement with any such other service or entity,
Affiliate shall have the option to choose to continue carriage of the Service
and of such other service, as the case may be, under either this Agreement or
under such other affiliation agreement. If Affiliate does not have an
affiliation agreement with such other service or entity, Affiliate shall have
the option to elect to have this Agreement continue to apply to the Service
after such merger or acquisition, or to any surviving service after such merger
or acquisition.
(c) Taxes. Affiliate shall be responsible to pay all income, sales,
use and other taxes arising out of Affiliate's exhibition of the Service by the
Systems, Affiliate's storage, possession or use of any advertising or
promotional materials and/or any personal property or other taxes imposed,
assessed or levied against Affiliate by any governmental authority. Network
shall be responsible to pay all income, sales, use and other taxes arising out
of its provision of the Service to Affiliate and the Systems, Network's storage,
possession or use of its advertising or promotional materials and/or any
personal property or other taxes imposed, assessed or levied by any governmental
authority.
(d) Entire Agreement; Amendments; Waivers. This Agreement contains
the entire understanding of the parties and supersedes and abrogates all
contemporaneous and prior understandings of the parties, whether written or
oral, relating to the subject matter hereof. This Agreement may not be modified
except in writing executed by both parties hereto. Any waiver of any provision
of, or right included in, this Agreement must be in writing and signed by the
party whose rights are being waived and no waiver by either Affiliate or Network
of any breach of any provision hereof shall be or be deemed to be a waiver of
any preceding or subsequent breach of the same or any other provision of this
Agreement.
20
<PAGE>
(e) Governing Law. The obligations of Affiliate and Network under
this Agreement are subject to all applicable federal, state and local laws,
rules and regulations (including but not limited to the Communications Act of
1934, as amended from time to time, and the rules and regulations of the FCC
promulgated thereunder) and this Agreement and all matters or issues collateral
thereto shall be governed by the laws of the State of New York (except with
respect to issues regarding perpetuity, which shall be governed by the laws of
the State of Colorado), without regard to choice of law rules.
(f) Relationship. Neither Affiliate nor Network shall be, or hold
itself out as, the agent of the other under this Agreement. No subscriber of
Affiliate shall be deemed to have any privity of contract or direct contractual
or other relationship with Network by virtue of this Agreement or Network's
delivery of the Service to Affiliate hereunder. Likewise, no supplier of
advertising or programming or anything else included in the Service by Network
shall be deemed to have any privity of contract or direct contractual or other
relationship with Affiliate by virtue of this Agreement or Affiliate's carriage
of the Service hereunder. Nothing contained herein shall be deemed to create,
and the parties do not intend to create, any relationship of partners, joint
venturers or agents, as between Affiliate and Network, and neither party is
authorized to or shall act toward third parties or the public in any manner
which would indicate any such relationship with the other. Network disclaims any
present or future right, interest or estate in or to the transmission facilities
of Affiliate or the parent, subsidiaries, partnerships or joint venturers
controlling the Systems on which the Service is transmitted, such disclaimer
being to acknowledge that neither Affiliate nor the transmission facilities of
the Systems (nor the owners thereof) are common carriers.
(g) *****. Network agrees that ***** of this Agreement, signed by a
duly authorized officer of Network, stating that Network has satisfied its
obligations under this section.
(h) Severability. The invalidity under applicable law of any
provision of this Agreement shall not affect the validity of any other provision
of this Agreement, and in the event that any provision hereof is determined to
be invalid or otherwise illegal, this Agreement shall remain effective and shall
be construed in accordance with its terms as if the invalid or illegal provision
were not contained herein; provided however, that both parties shall negotiate
in good faith with respect to an equitable modification of the provision, or
application thereof, held to be invalid and all provisions logically related
thereto. Notwithstanding the foregoing, in the event volume discounts are
declared null and void, or otherwise curtailed or restricted by legislative
enactment, administrative ruling or court order or decree, and Affiliate is
required by Network to pay a higher net effective rate as a result, or if any
other legislation is enacted, or administrative ruling, or court decree or
order, issued which materially deprives Affiliate of the overall net economic
benefits of this Agreement with respect to the cable exhibition of the Service,
and if the parties fail to reach an agreement after good faith negotiation,
Affiliate shall have the right to terminate this Agreement upon thirty (30)
days' prior written notice to Network.
21
<PAGE>
(i) No Inference Against Author. Network and Affiliate each
acknowledge that this Agreement was fully negotiated by the parties and,
therefore, no provision of this Agreement shall be interpreted against any party
because such party or its legal representative drafted such provision.
(j) No Third Party Beneficiaries. The provisions of this Agreement
are for the exclusive benefit of the parties hereto and their permitted assigns,
and no third party shall be a beneficiary of, or have any rights by virtue of,
this Agreement.
(k) Headings. The titles and headings of the sections in this
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AFFILIATE: NETWORK:
SATELLITE SERVICES, INC. SPICE, INC.,
a Delaware corporation a New York corporation
By: /s/ Jedd Palmer By: [SIGNATURE ILLEGIBLE]
Jedd Palmer, Name: _______________________
Vice President, Title: _______________________
Programming
22
<PAGE>
SCHEDULE 1
To Affiliation Agreement By and Between
Spice, Inc. and
Satellite Services, Inc.
Dated November 1, 1992
SYSTEMS
[TO BE PROVIDED]
23
<PAGE>
EXHIBIT A
To Affiliation Agreement By and Between
Spice, Inc. and
Satellite Services, Inc.
Dated November 1, 1992
System Qualifications
I. Affiliate represents and warrants the following regarding each System listed
on Schedule I hereof:
1. that (a) either Tele-Communications, Inc. or Liberty Media Corporation
(Tele-Communications, Inc. and Liberty Media Corporation shall be hereinafter
referred to as "TCI"; any reference to TCI herein shall be deemed to be a
reference to either Tele-Communications, Inc. or Liberty Media Corporation, or
both, as is necessary to qualify the greatest number of television distribution
facilities hereunder) or its agent owns, directly or indirectly, at least a
***** interest in the general manager of the System pursuant to a valid written
agreement in full force and effect; or (b) TCI or its agent owns, directly or
indirectly, a ***** interest in such System or owns an interest or obligation by
which TCI, directly or indirectly, owns a right (whether conditional or not) to
convert into or acquire, directly or indirectly, an interest equal to at least
the required interest. An "indirect" ownership is an interest resulting from
ownership through any series of ownership interests, including corporations,
partnerships, joint ventures or other forms of business organizations; an
indirect interest shall be quantified in amount by a series of percentage
multiplications commencing with TCI's direct interest and multiplying that by
the next most proximate percentage interest and, then, multiplying in turn each
succeeding ownership interest in the order of their progression away from TCI by
the result of the immediately preceding multiplication until the most distant
percentage interest is multiplied;
2. that Affiliate or an agent has been authorized, pursuant to a valid
written agreement in full force and effect, to make and execute decisions on
behalf of each such System with respect to the Service, including but not
limited to billing and collection of fees, and Affiliate continues throughout
the Term to exercise such authority with respect to matters affecting the
distribution of the Service by such System;
3. that either a franchise or license is not required or a valid franchise
or license is in effect through the Term of this Agreement or the franchisee or
licensee has held a valid cable television franchise or license and continues to
operate in the franchise or license area under a claim of right or is otherwise
lawfully operating or franchisee or licensee has held a valid cable franchise or
license and is continuing to operate while diligently pursuing, in good faith,
its available judicial remedies. For the above purposes, in the event a
franchise or license expires before the end of the Term, such franchise or
license shall be deemed valid for so long as franchisee or
24
<PAGE>
licensee is negotiating in good faith with the franchising or licensing
authority for a franchise or license renewal;
4. that, except as permitted under this Agreement, Affiliate is not
subdistributing and will not in the future subdistribute, nor does it claim to
be authorized to subdistribute, the Service through any cable television system
which does not satisfy the requirements set forth above.
II. In the event TCI's direct or indirect equity interest in a System or in the
entity managing such System decreases because of a refinancing of the entity
(other than as described in Paragraph III below) which owns or manages such
System, and provided TCI's interest does not decrease to zero, such System shall
continue to qualify under Paragraph I hereof, provided however, TCI's interest
in such System shall increase to the level required under Paragraph I hereof
within eighteen (18) months of the decrease.
III. In the event Affiliate, or any of the entities which owns or manages
Systems which qualify hereunder, effects a corporate separation, reorganization
or restructuring (including, but not limited to, by a distribution of stock, or
other assets or rights, to its shareholders, partners or joint venturers), the
Systems of the entity resulting from such transaction (including all interim and
supporting entities) and/or all of such resulting entities, in the aggregate,
will continue to qualify under Paragraph I hereof, so as to continue to qualify
to distribute the Service under the terms and conditions hereof, as if such
separation, reorganization or other restructuring had not occurred.
25
<PAGE>
EXHIBIT B
To Affiliation Agreement By and Between
Spice, Inc. and
Satellite Services, Inc.
Dated November 1, 1992
PROGRAM SCHEDULE
26
<PAGE>
EXHIBIT C
To Affiliation Agreement By and Between
Spice, Inc. and
Satellite Services, Inc.
Dated November 1,1992
TECHNICAL SPECIFICATIONS
GENERAL
1.1 All specifications are to be adhered to anywhere in the contiguous 48 United
States. This specification uses a 5 meter reference antenna which is peaked at
the center of the orbital box. It is the responsibility of the Network to
provide center of the box times on a monthly basis.
1.2 The specification is divided into space segment and total system. Total
system is defined as the additional noise contribution by the originating studio
and transport facility to the input to the uplink.
1.3 System availability based on total system 99.998% per year calculated on a
monthly basis excluding sun outage. The system shall be declared unavailable
under the following:
A. Loss of video
B. Loss of audio
C. Video signal to noise <45db
D. Audio signal to noise <.45db
1.4 This specification is for analog service. A specification for digital system
will be added at a later date when equipment is developed.
VIDEO SPECIFICATIONS
Parameter Space Segment Total System
2.1 Frequency response: .25db box .5db box
2.2 Signal to Noise Ratio: 52db 50.3db
Definition: lv p/p vid to RMS
noise, 4.2 Mhz weighted.
2.3 Chrominance/luminance delay: <20ns <50ns
2.4 2T K Factor: <2% <3%
2.5 Differential Gain: <.2db <.45db
27
<PAGE>
VIDEO SPECIFICATIONS
Parameter Space Segment Total System
2.6 Differential Phase: +/-1(degree) <+/-2(degree)
2.7 Insertion gain/loss: <2 IRE <4 IRE
2.8 Video formats, waveforms, timing shall
adhere to latest FCC requirements. All
other parameters not specified shall
conform to NTSC Engineering Report #7.
AUDIO SPECIFICATIONS
Parameter Space Segment Total System
3.1 Frequency response: <.5db box <1db box
3.2 Video/Audio Sync: <10 m/sec <20 m/sec
3.3 Signal to Noise Ratio: >56db >55db
Definition: RMS test tone to RMS noise
with 15Khz weighting. This parameter to
be measured with program video or full
field color bar test pattern.
3.4 Distortion: <.5% at TT <.7% at TT
At 10db above TT distortion shall not
exceed 3%. Distortion shall be measured
at 1004Hz.
3.5 Wow and Flutter: <.1%rms
3.6 Crosstalk: >65db >65db
3.7 Insertion gain/loss: <.5db <1db
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.2
<SEQUENCE>3
<FILENAME>d65760_ex1012.txt
<DESCRIPTION>AMENDMENT NO. 1 TO SPICE AFFILIATION AGREEMENT
<TEXT>
Exhibit 10.1.2
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
AMENDMENT NO. 1
TO SPICE
AFFILIATION AGREEMENT
THIS AMENDMENT, made as of Sept. 29, 1994, is by and between Spice, Inc., a New
York corporation ("Network"), and Satellite Services, Inc., a Delaware
corporation ("Affiliate"), and, with the exception of paragraph 13 hereto,
amends that certain Affiliation Agreement dated as of November 1, 1992 (the
"Agreement") between Network and Affiliate. All capitalized terms not otherwise
defined herein shall have the meaning ascribed to such terms in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto agree as follows:
1. Section 4(a) is hereby amended to read in its entirety as follows:
"(a) During the Term, Network shall, at its own expense, deliver a
signal of the Service to the earth station of each System, to each Satellite
Subscriber and to any other location in the continental United States designated
by Affiliate by transmitting such signal via a domestic satellite commonly used
for transmission of domestic cable television programming and shall, at its own
expense, fully encode the satellite signal of the Service utilizing scrambling
technology commonly used in the domestic cable television industry. Except as
otherwise provided in this Section 4(a), Affiliate shall, at its own expense,
furnish an earth station and all other facilities necessary for the receipt of
such satellite transmission and the delivery of such signal to the Service Cable
Subscribers and PPV Cable Subscribers (each as defined below). In the event
Network either (i) changes the satellite to which the Service is transmitted, to
a satellite not susceptible to viewing by a System's or Systems' then-existing
earth station equipment, (ii) changes the technology used by Network to encrypt
the Service to a technology not compatible with a System's or Systems' then
existing descrambling equipment, or (iii) compresses, digitizes, or otherwise
modifies the signal of the Service in such manner that it cannot be received or
utilized by a System or Systems, then Affiliate shall have the right to delete
from Schedule 1 of this Agreement, immediately, any such System or Systems, and
to discontinue carriage of the Service on any such System or Systems, provided
that this termination right shall not apply to any System or Systems if, (1)
Network agrees, unconditionally, to reimburse such System or Systems, as the
case may be, (A) for the cost of acquiring and installing new equipment
necessary to descramble, receive, and or utilize the signal of the Service,
and/or (B) for the cost of acquiring and installing equipment reasonably
necessary for such System or Systems to receive the Service from such new
satellite; (2) physical space exists at the then-existing headend or earth
station site to accommodate the necessary equipment; and (3) current zoning and
other restrictions permit such additional equipment."
<PAGE>
2. Sections 5(a)(i) through (iv) are amended to read in their entirety as
follows:
"(i) "PPV Satellite Subscriber" means someone who is both a
Satellite Subscriber and who utilizes the Service as a PPV service by making a
purchase through Affiliate or an affiliate of Affiliate. Except for purposes of
Section 5(c) hereof, PPV Satellite Subscribers shall include Combination PPV
Satellite Subscribers. "PPV Satellite Fees" are those Fees payable by Affiliate
to Network in connection with sales of the Service to PPV Satellite Subscribers.
(ii) "Service Satellite Subscriber" means someone who is both
a Satellite Subscriber and a Service Subscriber (as defined below) who utilizes
the Service as a Subscription service. Except for purposes of Section 5(b)
hereof, Service Satellite Subscribers shall include Combination Service
Satellite Subscribers. "Service Satellite Fees" are those Fees payable by
Affiliate to Network in connection with sales of the Service to Service
Satellite Subscribers.
(iii) "PPV Cable Subscriber" means someone who is provided the
Service by Affiliate or an affiliate of Affiliate hereunder, who utilizes the
Service as a PPV service and who receives the Service by means other than
Satellite. Except for purposes of Section 5(c) hereof, PPV Cable Subscribers
shall include Combination PPV Cable Subscribers. "PV Cable Fees" are those Fees
payable by Affiliate to Network in connection with sales of the Service to PPV
Cable Subscribers.
(iv) "Service Cable Subscriber" means someone who both
receives the Service by means other than Satellite and is a Service Subscriber
and who utilizes the Service as a Subscription service. Except for purposes of
Section 5(b) hereof, Service Cable Subscribers shall include Combination Service
Cable Subscribers. "Service Cable Fees" are those Fees payable by Affiliate to
Network in connection with sales of the Service to Service Cable Subscribers."
3. Section 5(a)(x) of the Agreement is hereby amended to read in its
entirety as follows:
(x) "Addressable Subscriber" means a cable television system
subscriber whose television set is connected (or who has been issued equipment
by the operator of the cable television system to permit a connection) on the
subscriber's premises, or by interdiction, to equipment operated by Affiliate,
or an affiliate of Affiliate, that allows the channel on which the Service is
received to be turned on or off (i.e., "authorized" or "deauthorized") from a
central location, controlled by the operator of the pertinent System or such
operator's agent or designee."
4. Attached hereto is Exhibit B to the Agreement, and any and all
references in the Agreement to Exhibit B is hereby deemed to be a reference to
Exhibit B attached hereto.
5. Sections 5(b)(i) through (iii) of the Agreement are hereby
amended to read in their entirety as follows:
(b) Subscription
2
<PAGE>
(i) For each calendar month during the Term, Affiliate will
pay Network as a Service Cable Fee for each Service Cable Subscriber an amount
equal to the greater of (A) *****, or (B) ***** of the Gross Receipts
attributable to such Service Cable Subscriber. When the Service is sold to a
Service Cable Subscriber in combination with other services (excluding a package
which contains the cable television service known as "Spice 2" (the "Multiplex
Service")) for a package charge (as, for example, in a tier or in a package of a
la carte or other services), the Gross Receipts attributable to a Service Cable
Subscriber for the Service shall be equal to the total charge for the tier or
package of services sold in combination with the Service, multiplied by a
fraction, the numerator of which is ***** and the denominator of which is the
numerator plus the aggregate of the net effective rates per subscriber charged
to Affiliate by each of the other service providers of the services included in
the tier or package of a la carte or other services; provided, however, that the
amounts charged to Affiliate for each of the services in the package or tier
shall not be disclosed by Affiliate to Network but, at Network's request, in
order to assure Network of compliance with this provision, Affiliate shall make
such charges and any pertinent calculations available to a representative of
KPMG Peat Marwick (which representative is neither Network's nor Affiliate's) on
a confidential basis, at Network's cost. This provision shall survive
termination or expiration of this Agreement.
Affiliate shall pay a Service Satellite Fee to Network in the following amounts
for each Service Satellite Subscriber (based on the subscription term purchased
by such Satellite Subscriber), regardless of whether such Service Satellite
Subscriber purchases the Service alone as an a la carte service or as part of a
tier or package of a la carte or other services and regardless of the Gross
Receipts attributable thereto:
Service Satellite Fee
Per Service Satellite
Service Term Subscriber
------------ ---------------------
1 Month *****
3 Months *****
6 Months *****
1 Year *****
Notwithstanding the foregoing, if the Service is sold to a Service Cable
Subscriber in combination with the Multiplex Service (a "Combination Service
Cable Subscriber"), Affiliate will pay Network as a Service Cable Fee for each
Combination Service Cable Subscriber an amount equal to the greater of (A)
*****, or (B) ***** of the Gross Receipts attributable to such Combination
Service Cable Subscriber for purchase of both the Service and the Multiplex
Service. If the Service and the Multiplex Service are sold in combination with
other services for a package charge (as, for example, in a tier or in a package
of a la carte or other services), the Gross Receipts attributable to a
Combination Service Cable Subscriber for the Service and the Multiplex Service
shall be equal to the total charge for the tier or package of services sold in
combination with the Service, multiplied by a fraction, the numerator of which
is $2.19 and the denominator of which is the numerator plus the aggregate of the
net effective rates per subscriber charged to Affiliate by each of the other
service providers of the services included in the tier or package of a la carte
or other services; provided, however, that the amounts charged to Affiliate for
each of the services in the package or tier shall not be disclosed by Affiliate
to Network but,
3
<PAGE>
at Network's request, in order to assure Network of compliance with this
provision, Affiliate shall make such charges and any pertinent calculations
available to a representative of KPMG Peat Marwick (which representative is
neither Network's nor Affiliate's) on a confidential basis, at Network's cost.
This provision shall survive termination or expiration of this Agreement.
If the Service is sold to a Service Satellite Subscriber in combination with the
Multiplex Service (a "Combination Service Satellite Subscriber"), the Service
Satellite Fees for both the Service and the Multiplex Service shall equal the
following amounts for each Combination Service Satellite Subscriber, based on
the subscription term purchased by such Combination Service Satellite
Subscriber:
Service Subscription
Fee Per Combination Service
Service Term Satellite Subscriber
------------ ---------------------------
1 Month *****
3 Months *****
6 Months *****
1 Year *****
(ii) The number of Service Satellite Subscribers, Combination
Service Satellite Subscribers, Service Cable Subscribers, or Combination Service
Cable Subscribers (as the case may be) for whom Affiliate shall pay each month
shall be the average of (A) the number of Service Satellite Subscribers,
Combination Service Satellite Subscribers, Service Cable Subscribers, or
Combination Service Cable Subscribers (as the case may be) on the first day of
the month, and (B) the number of Service Satellite Subscribers, Combination
Service Satellite Subscribers, Service Cable Subscribers, or Combination Service
Cable Subscribers (as the case may be) on the last day of the month. Service
Satellite Subscribers, Combination Service Satellite Subscribers, Service Cable
Subscribers, or Combination Service Cable Subscribers (as the case may be) shall
include each occupied dwelling (whether in a single family or multi-unit
building), hotel or motel guest room, drilling rig, nursing home room, dormitory
room or other location in which the Service (and, if applicable, the Multiplex
Service) is received. If Affiliate provides the Service (and, if applicable, the
Multiplex Service) to multiple dwelling complexes, including, but not limited
to, apartments, hotels and motels, on a bulk-rate basis, the number of Service
Satellite Subscribers, Combination Service Satellite Subscribers, Service Cable
Subscribers, or Combination Service Cable Subscribers (as the case may be)
attributable to each such bulk-rate subscriber shall be equal to the total
monthly retail rate charged a complex for the Service (and, if applicable, the
Multiplex Service) divided by the standard monthly retail rate charged non-bulk
rate Service Satellite Subscribers, Combination Service Satellite Subscribers,
Service Cable Subscribers, or Combination Service Cable Subscribers (as the case
may be) for the Service (and, if applicable, the Multiplex Service) in the
applicable System or by the pertinent Satellite distributor, as the case may be.
The monthly number of Service Satellite Subscribers, Combination Service
Satellite Subscribers, Service Cable Subscribers, or Combination Service Cable
Subscribers shall each be calculated, stated and reported separately.
(iii) The Service Cable Fees and Service Satellite Fees
payable by Affiliate to Network hereunder shall be due and payable forty-five
(45) days after the end of the
4
<PAGE>
calendar month to which they relate. In the event that the Service is sold to
Service Satellite Subscribers or Combination Service Satellite Subscribers for a
term greater than one month, the Service Satellite Fees payable with respect to
such Service Satellite Subscriber or Combination Service Satellite Subscriber
shall be due and payable forty-five (45) days after the end of the calendar
month in which delivery of the Service to such Service Satellite Subscriber
commences; provided that if Affiliate does not receive full payment for a term
(or gives a credit), Affiliate shall receive a like credit against the Service
Satellite Fees.
6. Section 5(c)(i) of the Agreement is hereby amended to read in its
entirety as follows:
"(c) PPV
(i) For each customer of Affiliate who receives and pays for
one (1) complete and technically satisfactory viewing of one viewing segment of
the Service as a PPV service as a PPV Cable Subscriber, Affiliate will pay
Network a PPV Cable Fee in an amount equal to the greater of, (A) (i) ***** for
orders taken from the date of full execution hereof through October 31, 1995,
(ii) ***** for orders taken from November 1, 1995 through October 31, 1998 (iii)
***** for orders taken from November 1, 1998 through October 31, 2001 and (iv)
***** for orders from November 1, 2001 through the end of the Initial Term, or
(B) the Network Share of the Gross Receipts paid by such PPV Cable Subscriber.
With respect to PPV Cable Subscribers, "Network Share" shall equal the following
percentage of the Gross Receipts paid by each PPV Cable Subscriber: ***** from
the date of execution of this Agreement by both parties hereof through October
31, 1995 and ***** from November 1, 1995 through the end of the Initial Term.
For each customer of Affiliate who receives and pays for one (1) complete and
technically satisfactory viewing of one viewing segment of the Service as a PPV
service as a PPV Satellite Subscriber (provided that it is technically feasible
to sell the Service on a PPV basis to PPV Satellite Subscribers), Affiliate will
pay Network a PPV Satellite Fee in an amount equal to the greater of (C) (i)
***** for orders taken from the date of full execution hereof through October
31, 1995, (ii) ***** for orders taken from November 1, 1995 through October 31,
1998, (iii) ***** for orders taken from November 1, 1998 through October 31,
2001, and (iv) ***** for orders taken from November 1, 2001 through the end of
the Initial Term, or (D) the Network Share of the Gross Receipts paid by such
PPV Satellite Subscriber. With respect to PPV Satellite Subscribers, the Network
Share of the Gross Receipts shall be *****.
Notwithstanding the foregoing, if the Service is sold to a PPV Cable Subscriber
in combination with the Multiplex Service as a PPV service (a "Combination PPV
Cable Subscriber"), Affiliate will pay Network a PPV Cable Fee for each
Combination PPV Cable Subscriber who receives and pays for one (1) complete and
technically satisfactory viewing of one viewing segment of each of the Service
and the Multiplex Service in an amount equal to the greater of, (A) (i) *****
for orders taken from the date of full execution hereof through October 31,
1995, (ii) ***** for orders taken from November 1, 1995 through October 31,
1998, (iii) ***** for orders taken from November 1, 1998 through October 31,
2001 and (iv) ***** for orders from November 1, 2001 through the end of the
Initial Term, or (B) the Network Share of the Gross Receipts paid by such PPV
Cable Subscriber. With respect to Combination PPV Cable Subscribers, "Network
Share" shall equal ***** of the Gross Receipts paid by each Combination PPV
Cable Subscriber. If the Service is sold to a PPV Satellite Subscriber in
combination with the Multiplex Service as a PPV
5
<PAGE>
service (provided that it is technically feasible to sell the Service on a PPV
basis to PPV Satellite Subscribers) (a "Combination Satellite PPV Subscriber"),
Affiliate will pay Network a PPV Satellite Fee for each PPV Satellite Subscriber
who receives and pays for one (1) complete and technically satisfactory viewing
of one viewing segment of each of the Service and the Multiplex Service,
Affiliate will pay Network a PPV Satellite Fee in an amount equal to the greater
of (C) (i) ***** for orders taken from the date of full execution hereof through
October 31, 1995, (ii) ***** for orders taken from November 1, 1995 through
October 31, 1998, (iii) ***** for orders taken from November 1, 1998 through
October 31, 2001, and (iv) ***** for orders taken from November 1, 2001 through
the end of the Initial Term, or (D) the Network Share of the Gross Receipts paid
by such Combination PPV Satellite Subscriber. With respect to Combination PPV
Satellite Subscribers, the Network Share of the Gross Receipts shall be *****.
Notwithstanding the foregoing, each System and each Satellite distributor shall
have the right to discount the price of a PPV viewing of the Service during the
first thirty (30) days after the launch of the Service in such System or by such
Satellite distributor, respectively, and during no more than two (2) ten (10)
day periods each calendar year. For orders taken during such first thirty (30)
days and during each such ten (10) day period, Affiliate shall be required to
pay to Network minimum PPV Satellite Fees or PPV Cable Fees (as the case may be)
of ***** per each complete and technically satisfactory viewing of a viewing
segment of the Service as a PPV service, rather than the minimum PPV Satellite
Fees or PPV Cable Fees specified in this Section 5(c)(i). Furthermore, there
shall be no PPV Satellite Fee or PPV Cable Fee (as the case may be) payable by
Affiliate to Network for any PPV viewing of the Service by a subscriber who pays
for such viewing by remitting a coupon provided by Affiliate or by an affiliate
of Affiliate to subscribers that have not ordered a PPV movie or event in the
six (6) months immediately preceding the issuance of such coupon.
Notwithstanding the foregoing, if in any month the sum of the PPV Cable Fees
payable hereunder and the PPV Cable Fees payable under the agreement between
Network and Affiliate for the distribution of the Multiplex Service (the
"Multiplex Agreement") (excluding PPV Cable Fees attributable to Combination PPV
Cable Subscribers under this Agreement and the Multiplex Agreement) do not equal
or exceed an amount equal to the product of the Minimum Average Percentage (as
defined herein) multiplied by the sum of the Gross Receipts paid by PPV Cable
Subscribers (excluding Combination PPV Cable Subscribers) who receive and pay
for one (l) complete and technically satisfactory viewing of one viewing segment
of either the Service or the Multiplex Service (the "Minimum Average PPV Fee"),
Affiliate shall pay' to Network the Minimum Average PPV Fee in lieu of PPV Cable
Fees under this Agreement and the Multiplex Agreement. For purposes of this
Agreement, the Minimum Average Percentage shall mean the arithmetic mean average
of the Network Share payable under this Agreement in the pertinent month with
respect to PPV Cable Subscribers to the Service and the Network Share (as
defined in the Multiplex Agreement) payable under the Multiplex Agreement in the
pertinent month with respect to PPV Cable Subscribers to the Multiplex Service."
7. Section 5(c)(iii) of the Agreement is hereby amended to read in its
entirety as follows:
"(iii) The PPV Cable Fees and/or PPV Satellite Fees (as the case may be)
payable by Affiliate to Network hereunder for exhibition to PPV Cable
Subscribers, Combination PPV Cable Subscribers, PPV Satellite Subscribers, and
6
<PAGE>
Combination PPV Satellite Subscribers (as the case may be) during a Reporting
Period (as defined below) during the Term shall be due and payable forty-five
(45) days after the end of the calendar month which includes the last day of the
Reporting Period. (The term "Reporting Period" shall mean the days from the end
of each System's or Satellite distributor's last monthly reporting period (which
date may vary in each System or for each Satellite distributor from the 20th of
the calendar month to the last day of the calendar month) to the end of the
System's or Satellite distributors then current monthly reporting period.)
Affiliate shall have the right, however, to make credit adjustments to any
month's payment in an amount equal to the portion of a previous month's PPV
Cable Fees and/or PPV Satellite Fees which represents an overpayment."
8. The first sentence of Section 5(e). of the Agreement is hereby amended
to read as follows:
(e) Each System shall have the right to expend funds for a market or
community research survey, which survey shall be primarily for the purpose of
determining the market response to adult television programming."
9. Commencing as of the date of execution of this Amendment,
notwithstanding anything set forth in Section 7(a)(ii) of the Agreement to the
contrary regarding payment by Network of certain contributions to Systems and
Satellite distributors for certain catalogues or guides used by such Systems and
Satellite distributors, Network shall remit such contributions to the
appropriate Systems and Satellite distributors no later than forty-five (45)
days after receipt of the documentation required to be provided to Network
pursuant to Section 7(a)(ii) of the Agreement.
10. Section 7(b) of the Agreement is hereby amended to read in its
entirety as follows:
"7(b) Network shall send to Affiliate, not later than forty-five (45) days
after the end of each calendar month for which payment pursuant to Section 7
hereof is due, a statement on a form mutually acceptable to Affiliate and
Network which sets forth all pertinent information to compute the amount due to
Affiliate for such calendar month. Network shall deliver such statement to
Affiliate prior to or along with the amount payable to Affiliate as provided in
this Agreement. Notwithstanding the foregoing, in the event that Network is paid
gross shopping revenue by a fulfillment agency or other agent on a quarterly
basis, Network shall send to Affiliate the reports and payments hereunder not
later than forty-five (45) days after the end of each such quarter, which report
and payment shall relate to such quarter.
11. Section 7(d) of the Agreement is hereby amended to read in its
entirety as follows:
(d) Network agrees that in the event Network does any direct on-air
marketing and sale of products or services, including, but not limited to, sales
through "800", "900" or "976" telephone services, Network will:
(i) provide Affiliate with lists of the names of respondents
from within the zip code areas of the Systems who respond to such direct on-air
marketing and sales, for use by Affiliate or the Systems, and
7
<PAGE>
(ii) Network shall pay to Affiliate *****.
Network agrees that no direct on-air marketing or sale of products or services
will advertise, promote, sell, or contain any: (1) illegal products or services;
(2) products or items which invade the body; or (3) sexual appliances or items
used for simulated sexual intercourse.
12. Section 8(f) is hereby amended to read in its entirety as follows:
(f) Without limiting the provisions of Section 8(e) or Section 8(g)
hereof, Network will indemnify, defend and forever hold Affiliate and
Affiliate's affiliated companies, and each of Affiliate's and Affiliate's
affiliated companies' respective officers, directors, employees, partners and
agents, harmless from and against any and all losses, liabilities, claims,
costs, damages and expenses (including, without limitation, fines, forfeitures,
attorneys' fees, disbursements and administrative or court costs) arising
directly or indirectly out of: (1) sales or marketing of any products or
services by, through, or on the Service (including, but not limited to, claims
related to product liability, patent, trademark, copyright infringement, right
of privacy or publicity, personal injury, express or implied warranties, or
obscenity,) or (2) the content of the Service (in its entirety) or the use and
delivery of the Service under this Agreement (including, but not limited to,
sponsorship, promotional and advertising spots, any background music and
anything else inserted by any party other than Affiliate), including, without
limitation, any losses, liabilities, claims, costs, damages and expenses based
upon any lien, encumbrance, charge, lis pendens, administrative proceeding,
government investigation or litigation relating to the Service, any program
included therein or any component thereof, or based upon alleged or proven
libel, slander, defamation, invasion of the right of privacy or the right of
publicity, or violation or infringement of copyright (including music
performance rights for any and all performances through to subscribers),
literary or music synchronization rights, obscenity or any other form or forms
of speech (whether or not protected by the Constitution of the United States or
any State) or otherwise arising out of the content of the Service.
13. The parties agree that all the obligations, terms, provisions and
conditions set forth in the Agreement, as amended by Sections 1, 3, 8, 10, 11,
and 12 hereby, shall apply to the exhibition, distribution, subdistribution, and
authorized reception of the television programming service currently known as
"Spice 2" (the "Multiplex Service"), as if the Multiplex Service were the
"Service" as defined in the Agreement, with the exception of the following
amendments to the Agreement applicable only to the Multiplex Service (the
agreement for the provision of the Multiplex Service, as described in this
paragraph, shall be referred to herein as the Multiplex Agreement):
a. Section 4 of the Multiplex Agreement is hereby amended by the
addition of the following new Section 4(i):
"4(i) Notwithstanding anything contained in this Agreement to
the contrary, no System or Satellite Distributor shall exhibit, distribute,
subdistribute or authorize the reception of the Service unless such System or
Satellite Distributor is also exhibiting, distributing, of authorizing the
reception of the pay-per-view television programming service known as "Spice" or
"Spice 1" (the "Base Service"); provided, however, that this paragraph shall
apply
8
<PAGE>
only if such System or Satellite Distributor has rights to exhibit, distribute,
subdistribute or authorize the reception of the Base Service."
b. Section 4 of the Multiplex Agreement is hereby amended by the
addition of the following new Section 4(j):
"4(j) Notwithstanding anything contained in this Agreement to
the contrary, the Service may not be carried by a System more hours per day
(based on weekly averages of hours of carriage) than the Base Service is carried
by such System; provided, however, that this paragraph shall apply only if such
System has rights to exhibit, distribute, subdistribute or authorize the
reception of the Base Service."
c. Section 5(b)(i) of the Multiplex Agreement is hereby amended to
read in its entirety as follows:
"(b) Subscription
(i) For each calendar month during the Term, Affiliate will
pay Network as a Service Cable Fee for each Service Cable Subscriber an amount
equal to the greater of (A) *****, or (B) ***** of the Gross Receipts
attributable to such Service Cable Subscriber. When the Service is sold to a
Service Cable Subscriber in combination with other services (excluding a package
which includes the Base Service) for a package charge (as, for example, in a
tier or in a package of a la carte or other services), the Gross Receipts
attributable to a Service Cable Subscriber for the Service shall be equal to the
total charge for the tier or package of services sold in combination with the
Service, multiplied by a fraction, the numerator of which is the a la carte
retail price for the Service, and the denominator of which is the numerator plus
the aggregate of the a la carte rates charged for each of the other services
including in the tier or package; provided, however, that the amounts charged to
Affiliate for each of the services in the package or tier shall not be disclosed
by Affiliate to Network but, at Network's request, in order to assure Network of
compliance with this provision, Affiliate shall make such charges and any
pertinent calculations available to a representative of KPMG Peat Marwick (which
representative is neither Network's nor Affiliate's) on a confidential basis, at
Network's cost. This provision shall survive termination or expiration of this
Agreement. Affiliate shall pay a Service Satellite Fee to Network in the
following amounts for each Service Satellite Subscriber, based on the
subscription term purchased by such Satellite Subscriber, regardless of whether
such Service Satellite Subscriber purchases the Service alone, as an a la carte
service or as part of a tier or package of a la carte or other services and
regardless of the Gross Receipts attributable thereto:
Service Satellite Fee
Per Service Satellite
Service Term Subscriber
------------ ----------------------
1 Month *****
3 Months *****
6 Months *****
1 Year *****
9
<PAGE>
Notwithstanding the foregoing, if the Service is sold in combination with the
Base Service to Service Cable Subscribers or Service Satellite Subscribers,
Service Cable Fees and Service Satellite Fees shall be paid in accordance with
Section 5 of the Affiliation Agreement dated as of November 1, 1992 between
Spice, Inc. and Satellite Services, Inc. (the "Base Agreement"), as amended, and
no Service Cable Fees or Service Satellite Fees shall be payable hereunder,"
d. Section 5(b)(iii) of the Agreement is hereby amended to read in
its entirety as follows:
"(iii) The Service Cable Fees and Service Satellite Fees
payable by Affiliate to Network hereunder shall be due and payable forty-five
(45) days after the end of the calendar month to which they relate. In the event
that the Service is sold to Service Satellite Subscribers for a term greater
than one month, the Service Satellite fees payable with respect to such Service
Satellite Subscriber shall be due and payable forty-five (45) days after the end
of the calendar month in which delivery of the Service to such Service Satellite
Subscriber commences; provided that if Affiliate does not receive full payment
for a term (or gives a credit), Affiliate shall receive a like credit against
the Service Satellite Fees."
e. Section 5(c)(i) of the Multiplex Agreement is hereby amended to
read in its entirety as follows:
"(c) PPV
(i) For each customer of Affiliate who receives and pays for
one (l) complete and technically satisfactory viewing of one viewing segment of
the Service as a PPV service as a PPV Cable Subscriber, Affiliate will pay
Network a PPV Cable Fee in an amount equal to the greater of, (A) (i) ***** for
orders taken from the date of full execution hereof through February 28, 1996,
(ii) ***** for orders taken from March 1, 1996 through October 31, 1998 (iii)
***** for orders taken from November 1, 1998 through October 31, 2001 and (iv)
***** for orders from November 1, 2001 through the end of the Initial Term, or
(B) the Network Share of the Gross Receipts paid by such PPV Cable Subscriber.
For purposes of this subparagraph, "Network Share" shall equal the following
percentage of the Gross Receipts paid by each PPV Cable Subscriber: ***** from
the date of execution of this Agreement by both parties hereof through February
28, 1996; ***** from March 1, 1996 through October 31, 1998; and ***** from
November 1, 1998 through the end of the Initial Term. For each customer of
Affiliate who receives and pays for one (1) complete and technically
satisfactory viewing of one viewing segment of the Service as a PPV service as a
PPV Satellite Subscriber, Affiliate will pay Network a PPV Satellite Fee in an
amount equal to ***** of the Gross Receipts paid by such PPV Satellite
Subscriber.
Notwithstanding the foregoing, each System and each Satellite distributor shall
have the right to discount the price of a PPV viewing of the Service during the
first thirty (30) days after the launch of the Service in such System or by such
Satellite distributor, respectively, and during no more than two (2) ten (10)
day periods each calendar year. For orders taken during such first thirty (30)
days and during each such ten (10) day period, Affiliate shall be required to
pay to Network minimum PPV Satellite Fees or PPV Cable Fees (as the case may be)
of ***** per each complete and technically satisfactory viewing of a viewing
segment of the Service as a PPV
10
<PAGE>
service, rather than the minimum PPV Satellite Fees or PPV Cable Fees specified
in this Section 5(c)(i). Furthermore, there shall be no PPV Satellite Fee or PPV
Cable Fee (as the case may be) payable by Affiliate to Network for any PPV
viewing of the Service by a subscriber who pays for such viewing by remitting a
coupon provided by Affiliate or by an affiliate of Affiliate to subscribers that
have not ordered a PPV movie or event in the six (6) months immediately
preceding the issuance of such coupon.
Notwithstanding the foregoing, if the Service is sold in combination with the
Base Service to PPV Cable Subscribers or PPV Satellite Subscribers, PPV Cable
Fees and PPV Satellite Fees shall be paid in accordance with the Base Agreement,
as amended, and no PPV Cable Fees or PPV Satellite Fees shall be payable
hereunder. In addition, if in any month Minimum Average PPV Fees are due in
accordance with Section 5(c)(i) of the Base Agreement, no PPV Cable Fees shall
be due and payable hereunder for such month under this Agreement with respect to
PPV Cable Subscribers."
f. Section 5(d) of the Multiplex Agreement is hereby deleted in its
entirety.
g. Section 5 of the Multiplex Agreement is hereby amended by the
addition of the following new Section 5(j):
"(j) Notwithstanding anything contained in this Agreement to
the contrary, the retail price of the Service charged to a Service Cable
Subscriber, a PPV Cable Subscriber, a Satellite Service Subscriber, or a PPV
Satellite Subscriber shall not exceed the standard retail price (exclusive of
special promotions) charged by such System or Satellite distributor in the same
month to a Service Cable Subscriber, a PPV Cable Subscriber, a Satellite Service
Subscriber, or a PPV Satellite Subscriber (as the case may be and as those terms
are defined in the Base Agreement) receiving the Base Service; provided,
however, that this paragraph shall apply only if such System or Satellite
Distributor has rights to exhibit, distribute, subdistribute or authorize the
reception of the Base Service."
h. Section 7(a)(ii) of the Multiplex Agreement is hereby
deleted in its entirety.
i. Exhibit B of the Multiplex Agreement is hereby replaced by
Exhibit B-1 attached hereto.
j. The parties shall execute such further documents (including
without limitation an Affiliation Agreement in the same form as the Multiplex
Agreement as described herein) to give effect to this paragraph.
14. This Amendment, the Agreement, and the Multiplex Agreement shall be
construed and enforced to give effect to each provision hereof and thereof. Any
reference in the Agreement to itself, or in this Amendment to the Agreement,
shall be deemed a reference to the Agreement as modified and amended hereby,
unless otherwise stated. The Agreement, as so modified and amended, shall be and
remain in full force and effect.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
SPICE, INC.,
a New York corporation
By: /s/ Steven Saril
----------------------------------
Name: Steven Saril
--------------------------------
Title: Executive Vice President
-------------------------------
Sales and Marketing
AGREED:
Satellite Services, Inc.,
a Delaware corporation
By: /s/ Jedd S. Palmer
--------------------------------
Name: Jedd S. Palmer
Title: Vice President, Programming
12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.3
<SEQUENCE>4
<FILENAME>d65750_ex1013.txt
<DESCRIPTION>LETTER AGREEMENT
<TEXT>
Exhibit 10.1.3
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
[Satellite Services Inc. Logo] July 18, 1997 MAILING ADDRESS:
Post Office Box 5630
Denver, CO 80217-5630
(303) 267-5500
Mr. Steve Saril, President VIA FACSIMILE
Spice Networks
536 Broadway, 7th Floor
New York, NY 10012
Re: Spice and Adam & Eve
Dear Steve:
This letter confirms our agreement that effective June 1, 1997, the Fees
payable for PPV Cable Subscribers for Spice and Adam & Eve shall be the greater
of: (1) ***** of the Gross receipts attributable to such PPV buys; or (2) *****.
This letter agreement shall remain in effect for the Term so long as there are
no less than ***** million Addressable Subscribers in Systems. Capitalized terms
in this letter agreement shall have the same meaning as the definition of such
terms in the Affiliation Agreement, as amended, dated as of November 1, 1992
between Spice, Inc., and Satellite Services, Inc.
If this letter accurately sets forth our agreement, please sign in the
space indicated below and return it to me.
Satellite Services, Inc.
By: /s/ J. Hinderg
Name: J. Hinderg, Jr.
Title: President
ACCEPTED AND AGREED TO:
By: /s/ Steve Saril
Name: Steve Saril
Title: President
cc: James Cofer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.4
<SEQUENCE>5
<FILENAME>d65750_ex1014.txt
<DESCRIPTION>LETTER AGREEMENT
<TEXT>
Exhibit 10.1.4
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
[Satellite Services Inc. Logo] December 18, 1997 MAILING ADDRESS:
Post Office Box 5630
Denver, CO, 80217-5630
(303) 267-5500
Mr. Steve Saril
President
Spice Networks
536 Broadway, 7th Floor
New York, NY 10012
Dear Steve:
This letter confirms our agreement that effective October 1, 1996, the Fees
payable for PPV Digital Cable Subscribers for Spice or both Spice and The Adam &
Eve Channel ("AEC") (together, the "Spice Networks") in each System where Spice
or the Spice Networks are distributed via the digital platform operated by
National Digital Television Center, Inc., d/b/a Headend in the Sky ("HITS")
shall in no event collectively exceed, for such Systems, an amount (the
following are referred to as the "Rate Caps") equal to: (1) ***** per month per
Digital Addressable Subscriber if one or both of the Spice Networks are the only
adult Channel(s) carried on such System, or (2) ***** per month per Digital
Addressable Subscriber if one or both of the Spice Networks are not the only
Adult Channel(s) carried on such System. A "Digital Addressable Subscriber"
shall mean an Addressable Subscriber in a System who receives television
programming from HITS in a digital format utilizing equipment through which such
Addressable Subscriber can also receive a digital PPV viewing segment of one or
both of the Spice Networks. A "PVC Digital Cable Subscriber" is a Digital
Addressable Subscriber who is a PPV Cable Subscriber, and who purchases a
viewing segment of one or both of the Spice Networks from a HITs provided
signal. An "Adult Channel" shall mean a cable television programming service or
channel where a majority of the programming regularly consists, during the hours
of ***** system local time, of sexually explicit adult-oriented programming,
similar to Playboy TV, AdultVision, Spice, AEC, Spice Hot or more explicit adult
programming. In clarification of the foregoing, Action PPV, Request 5, Hot
Choice, or any similarly themed PPV service shall not constitute an Adult
Channel, unless such channel changes its format to a format substantially
similar to that of an Adult Channel.
The availability of the Rate Caps are conditioned upon (i) the aggregate license
fees payable to Spice by SSI for both analog and digital distribution of the
Spice Networks in any month are no less than ***** of the Baseline; (ii) AEC
being included in the HITS programming lineup; and Spice being included in the
primary transponder grouping known as *****; and (iii) HITS *****
<PAGE>
Mr. Steve Saril
December 18, 1997
Page 2
to Spice for the Spice Networks, or Spice having otherwise agreed to terms of
carriage with HITS. If after the date hereof, the number of Addressable
Subscribers in Systems is increased or decreased from the number of Addressable
Subscribers in such Systems as of the date hereof (the "Baseline Subs"), the
Baseline shall be adjusted for any month to an amount equal to the Baseline
multiplied by a fraction, the numerator of which is the number of Addressable
Subscribers in such Systems in such month, and the denominator of which is the
Baseline Subs.
The "Baseline" shall mean an amount equal to the average monthly amount due to
Network under the Affiliation Agreement dated as of November 1, 1992 between
Network and SSI ("the Affiliation Agreement") for the months of October,
November, and December, 1997. Capitalized terms in this letter agreement shall
have the same meaning as the definitions of such terms in the Affiliation
Agreement, which, as amended, shall remain in full force and effect.
Sincerely,
SPICE NETWORKS, INC.
By: /s/ Steve Saril
Steve Saril
President
ACCEPTED AND AGREED TO:
SATELLITE SERVICES, INC.
By: /s/ J. Hinderg
Name:
Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.5
<SEQUENCE>6
<FILENAME>d65750_ex1015.txt
<DESCRIPTION>AMENDMENT TO AFFILIATION AGREEMENT
<TEXT>
Exhibit 10.1.5
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
AMENDMENT
to
Affiliation Agreement between
SPICE, INC.
and
SATELLITE SERVICES, INC.
WHEREAS, Spice, Inc. ("Spice") and Satellite Services, Inc. ("Affiliate")
entered into the Affiliation Agreement dated November 1, 1992, as amended by the
parties pursuant to Amendment No. 1 dated September 29, 1994 and the letter
agreements between the parties dated, respectively, July 18, 1997 and December
18, 1997 (the "Agreement"), under which Spice licensed the use of its Spice
programming service (the "Spice Service") to SSI;
WHEREAS, Affiliate further entered into certain affiliation agreements with (i)
AdultTVision, Inc. ("AdulTVision") dated February 12, 1997 (the "AdulTVision
Agreement"), under which AdulTVision licensed the use of its AdulTVision
programming service (the "AdulTVision Service") to SSI, and (ii) Adam & Eve
Communications, Inc. ("Adam & Eve") dated October 17, 1994 (the "Adam & Eve
Agreement"), under which Adam & Eve licensed the use of its Adam & Eve
programming service (the "Adam & Eve Service") to SSI, and (iii) Califa
Entertainment ("Califa") dated February 9, 2000 (the "Califa Agreement"), under
which Califa licensed the use of its "Hot Network" and "Hot Zone" programming
services (the "Hot Services") to SSI, which Califa Agreement was acquired by an
affiliate of Spice in a July 6, 2001 transaction;
WHEREAS, the parties acknowledge and agree that Spice is the successor in
interest to AdulTVision, Inc. and Adam & Eve Communications, Inc.;
WHEREAS, the parties acknowledge and agree that Affiliate was acquired by
Comcast Corporation, and Affiliate's offices now are located at 1500 Market
Street, Philadelphia, Pennsylvania 19102; and
WHEREAS, Spice and Affiliate now desire to amend the Agreement per this
amendment (the "Amendment") to include carriage of the Spice Service, the former
AdulTVision Service and former Adam & Eve Service (collectively, the "Spice 2
Service"), the Hot Services, and other X rated and XX rated programming services
offered by Spice.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Spice and Affiliate
hereby agree as follows:
<PAGE>
1. This Amendment shall become effective upon the date of the last signature
written below (the "Amendment Effective Date").
2. Capitalized terms used in this Amendment, unless otherwise defined herein,
shall have the meanings set forth in the Agreement.
3. The Agreement, as amended, contains the entire agreement of the parties
with respect to the subject matter thereof and supersedes all prior and
contemporaneous agreements, understandings and communications between the
parties. Without limiting the foregoing, the parties hereby expressly
agree that the AdulTVision Agreement, the Califa Agreement, and the Adam &
Eve Agreement referenced in the preamble to this Amendment, including,
without limitation, all exhibits and amendments thereto, are hereby
cancelled and shall be of no further force and effect (the "Terminated
Agreements").
4. Except as expressly modified herein, all terms of the Agreement shall
remain in full force and effect. In the event of a conflict between the
terms and conditions of this Amendment and the Agreement, the terms of
this Amendment shall govern.
5. The first sentence of Section 1(a) of the Agreement is deleted in its
entirety and replaced with the following:
(a) Grant of Rights. Network hereby grants to Affiliate, and
Affiliate hereby accepts, the following rights relating to any X
rated and XX rated programming services offered by Network,
including, without limitation, such programming currently offered by
Network under the names "Spice", "Spice 2", "Spice Platinum", "Spice
Ultimate", "Spice Hot", "Spice Live" and "Spice HD", and any other X
rated and XX rated programming services that may be offered by
Network (or commonly-controlled entity) from time to time (including
the VOD Content and the HVOD Content (as such terms are defined
herein), as applicable), whether in their current format or in any
other analog, digitized, compressed, modified, replaced or otherwise
manipulated format (collectively, the "Service"):
6. Section 1(a)(i) shall be amended by adding the following parenthetical
immediately following the phrase "whether now existing or developed in the
future": *****. Furthermore, Distribution Technology shall not include
distribution to personal mobile and cellular handheld devices (provided
that personal mobile and cellular handheld devices will not include
Short-Range Wireless Devices, as defined below). *****. "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. A Set Top Box located at a
Subscriber's premises may be connected through short-range wireless
technology to one or more Set-Top Boxes and/or Display Devices authorized
by Affiliate for use in and around a Subscriber's premises ("Short-Range
Wireless Devices").
2
<PAGE>
7. The last sentence of Section 1(a)(iii) of the Agreement is deleted in its
entirety.
8. A new Section 1(a)(iv) of the Agreement is hereby added as follows: *****
9. The second sentence of Section 2(a) of the Agreement is deleted in its
entirety and replaced with the following:
The Initial Term of this Agreement shall commence upon the date of
execution hereof and shall terminate on December 31, 2015, unless
terminated sooner pursuant to the terms of this Agreement.
10. The first sentence of Section 4(e) of the Agreement is deleted in its
entirety and replaced with the following:
Each System or other distribution facility or enterprise may offer
the Service, (i) as a Subscription (defined in Section 5(a)(vii)
below) service; (ii) as a Pay-per-view (defined in Section 5(a)(vi)
below) service marketed and sold in any of the ways described in
Section 5(a)(vi); and/or (iii) notwithstanding anything to the
contrary in this Agreement, as a VOD (defined in Section 5(a)(xiii)
below) service. The Service may be sold in combination with other
services (e.g., in a package of services or in a tier); provided
that the Service, and/or viewing segments of the Service as
described in Section 5(a)(vi) and 5(a)(xiii), must always also be
available for sale through each television distribution facility
selling the Service under this Agreement on a purely a la carte
basis.
11. In the last two sentences of Section 4(f) of the Agreement, the phrase
"home taping" shall be replaced by "home taping and / or digital
recording." Additionally, the following shall be added to the end of the
last sentence:
"; or (iii) authorizing Subscribers to use devices and/or
functionality (whether provided by Affiliate or otherwise) that
enables such Subscribers to engage in lawful duplication, digital
recording and/or playback of the Service or any portions thereof for
non-public viewing of such content."
12. The following language is hereby added as Section 4(i) of the Agreement:
(i) Affiliate shall have the right to make any VOD Content and HVOD
Content titles offered by Network available to any subscriber on a
VOD basis. Network shall be responsible under this Agreement and
that certain Affiliation Agreement between Playboy Entertainment
Group, Inc. and Affiliate dated February 10, 1993, as amended (the
"Playboy Agreement") collectively for supplying to Affiliate a
minimum of ***** of VOD Content (defined in
3
<PAGE>
Section 5(a)(xiii) below) and a minimum of ***** of HVOD Content
(defined in Section 5(a)(xiii) below) at any given time, which shall
be refreshed on a ***** basis such that at least ***** of the VOD
Content and HVOD Content is changed each month; provided, however,
that Network shall make commercially reasonable efforts to
accommodate Affiliate's requests concerning (i) the types of
programming to be included in the VOD Content and HVOD Content; (ii)
the total amount of VOD Content and HVOD Content that is made
available by Network; and (iii) the amount and extent to which the
Programs comprising the VOD Content and HVOD Content are refreshed.
Unless Affiliate notifies Network in writing that it desires for the
VOD Content and/or HVOD Content to include X rated, XX.5 rated,
and/or XXX Programs, the VOD Content and HVOD Content will include
only XX rated Programs (as such ratings designations are generally
understood in the industry). Network shall at all times offer to
make available to Affiliate any adult content made available by
Network to any other United States distributor for subscribers to
view on an VOD basis (including other versions of content provided
to Affiliate with a different editing standard). Notwithstanding
anything to the contrary in this Agreement, Network hereby agrees
that Affiliate shall at all times, and at any time during the Term,
have the absolute right to air or offer or to cease airing or
offering any VOD Content or HVOD Content to any individual and/or
System(s). Affiliate, at its own expense, shall obtain and install
equipment necessary to distribute the VOD Content and HVOD Content
to such subscribers from the server in each System's headend.
Network, at its own expense, shall deliver the VOD Content and HVOD
Content in compliance with generally accepted standards of good
practice and according to parameters specified in the CableLabs
Video On Demand Content Specification Version 1.0 ("CLI 1.0") or
future releases thereof, including all applicable digitally encoded
non-video data attributes ("Meta Data"). Network shall deliver the
VOD Content and HVOD Content via either of the following methods, as
selected by Network at its sole option, upon advance written notice:
(i) satellite or program master to the Comcast Media Center ("CMC")
in Denver, Colorado, or (ii) FTP directly to a point or points
designated by Affiliate. The maximum MPEG 2 encoding data rate shall
be 3.75 mbps, provided that Network agrees that when it becomes
commercially feasible or industry standard to do so, then Network
will encode at a maximum rate of 3.375 mbps. Network shall bear all
costs in connection with the encoding of, and the transport to
applicable Systems of, the VOD Content and HVOD Content regardless
of the method of delivery (and to the extent necessary to ensure
Network's compliance with the provisions of this sentence (including
if Network elects to deliver unencoded VOD Content and HVOD Content
to the CMC), Network shall enter into an agreement, and/or maintain
any existing agreement, with the CMC concerning the CMC's services
related to such encoding and transport).
13. The following language is hereby added as Section 4(j) of the Agreement:
4
<PAGE>
(j) Network shall be responsible for any and all royalties and/or
other fees payable to any applicable programming licensor(s) for
content included in the VOD Content and HVOD Content (including,
without limitation, residuals or other payments to guilds or unions,
rights for music clearances, including but not limited to Network's
through-to-the-viewer performance rights, synchronization rights,
and mechanical rights, and all other content-based fees, payments,
or obligations arising out of the activities contemplated by this
Agreement), and Affiliate shall have no responsibility or liability
for any such royalties or fees, including any content-based
royalties or fees associated with distribution of the VOD Content or
HVOD Content via VOD, except for fees payable to Network in
accordance with Section 5 of this Agreement. Network acknowledges
that Affiliate may, from time to time, direct Network not to include
as part of the VOD Content or HVOD Content any particular Program
that Affiliate reasonably determines does not meet the intent of the
rating such Program has been given or otherwise may cause Affiliate
business, political, or operational difficulty; provided, however,
that such Program shall count toward Network's satisfaction of its
obligations hereunder to provide at least ***** of VOD Content and
at least ***** of HVOD Content for the period of time during which
such Program was scheduled to be made available as part of the VOD
Content or HVOD Content. The VOD Content and HVOD Content shall not
contain any sponsorships or advertising, except sponsorship or
advertising for the Service permitted under this Agreement or the
Spice Agreement.
14. The second sentence of Section 5(a) of the Agreement is hereby deleted in
its entirety and replaced with the following:
The Fees shall be calculated, stated, and reported separately for each
category of subscriber.
15. The third sentence of each of Sections 5(a)(i), 5(a)(ii), 5(a)(iii) and
5(a)(iv) of the Agreement, which contain the definitions of, respectively,
"PPV Satellite Fees", "Service Satellite Fees", "PPV Cable Fees" and
"Service Cable Fees", are hereby deleted.
16. Section 5(a)(v) of the Agreement is deleted in its entirety and replaced
with the following:
(a)(v) "Fees" means the fees payable by Affiliate to Network, as described
in Section 5(b) below. Fees payable by Affiliate to Network during a
Renewal Term are referred to as Renewal Fees.
17. Section 5(a)(ix) of the Agreement is deleted in its entirety and replaced
with the following:
Deleted without implication.
18. The following language is hereby added as Section 5(a)(xiii) of the
Agreement:
5
<PAGE>
(a)(xiii) "VOD" means the authorization of a subscriber to receive
the VOD Content or HVOD Content that is chosen by a subscriber for
display to that subscriber. For purposes hereof, the "VOD Content"
shall mean all content delivered by Network to Affiliate for
delivery to subscribers on a per-Program basis in exchange for a
per-viewing fee. For purposes hereof, the "HVOD Content" shall mean
all high-definition content delivered by Network to Affiliate for
delivery to subscribers on a per-Program basis in exchange for a
per-viewing fee. A "Program" shall mean an individual feature film,
direct-to-video programming (including a movie), extended-length
video, live performance or production, or other audio-visual
program; provided, however, that each such Program shall be (i)
professionally produced, commercial free, high quality heterosexual
male- or couple-targeted adult-oriented content intended only for
adult consumers because of its sexual content; and (ii) at least
twenty (20) minutes in duration.
19. Section 5(b) (including Sections 5(b)(i) through 5(b)(iii)) of the
Agreement is deleted in its entirety and replaced with the following:
(b) For each Service Cable Subscriber or Service Satellite
Subscriber, Affiliate will pay Network the applicable Revenue Share
Percentage (as defined in Section 5(d)) of Gross Receipts, less the
deductions described in Section 5(g), subject to a monthly minimum
of ***** per Service Cable Subscriber or Service Satellite
Subscriber, which Fees (as defined below) shall not be subject to
rate caps. When the Service is sold to a Service Cable Subscriber or
Service Satellite Subscriber in combination with other services for
a package charge (as, for example, in a tier or in a package of a la
carte or other services), the Gross Receipts deemed to be
attributable to a Service Cable Subscriber or Service Satellite
Subscriber for the Service shall be equal to the total Gross
Receipts for the tier or package of services sold in combination
with the Service, multiplied by a fraction, the numerator of which
is the a la carte retail charge for the Service otherwise charged
for the pertinent System and the denominator of which is the
numerator plus the aggregate of the a la carte retail charges
otherwise charged by the pertinent System for the other services
included in the tier or package of a la carte or other service. In
addition, if Affiliate provides the Service to multiple dwelling
complexes, including, but not limited to, apartment buildings, on a
bulk-rate basis, the number of Service Satellite Subscribers or
Service Cable Subscribers (as the case may be) attributable to each
such bulk-rate subscriber shall be equal to the total monthly retail
rate charged a complex for the Service divided by the standard
monthly retail rate charged a non-bulk rate Service Satellite
Subscriber or Service Cable Subscriber (as the case may be) for the
Service in the applicable System or by the pertinent Satellite
distributor, as the case may be.
20. Section 5(c) (including Sections 5(c)(i) through 5(c)(iii)) of the
Agreement is deleted in its entirety and replaced with the following:
(c) For each PPV Cable Subscriber and each PPV Satellite Subscriber
who receives and pays for one (1) technically satisfactory viewing
of one (1) viewing segment of
6
<PAGE>
the Service, including by means of VOD, Affiliate will pay Network
the Network Share of the Gross Receipts paid by such PPV Cable
Subscriber and each PPV Satellite Subscriber to Affiliate. "Network
Share" shall equal the applicable Revenue Share Percentage (as
defined in Section 5(d)) of the Gross Receipts paid by each such
subscriber but not less than ***** per PPV Cable Subscriber or PPV
Satellite Subscriber, and ***** for each VOD transaction), except
that such amount paid by each PPV Cable Subscriber or each PPV
Satellite Subscriber (as the case may be) shall be subject to
reduction as provided in Section 5(g) below.
21. Section 5(d) of the Agreement is deleted in its entirety and replaced with
the following:
(d) For purposes hereof, "Revenue Share Percentage" shall mean
*****. Notwithstanding the foregoing, Revenue Share Percentage shall
mean ***** effective upon the first date upon which Affiliate offers
both (A) at least ***** of the TV-SVOD Content (as such term is
defined in the Playboy Agreement) for distribution of Playboy TV
(the "Playboy Service")) in connection with a subscription to the
Playboy Service in systems comprising at least ***** of the basic
cable television subscribers within Systems that offer adult content
on a VOD basis (i.e., VOD content that is rated X or a more explicit
editing standard, other than such VOD content that is included as
part of an SVOD offering from a premium service provider not
targeted exclusively to adult audiences (e.g., Cinemax, Showtime))
(such systems, the "Adult VOD-Enabled Systems"), and the parties
agree that the number of basic television subscribers in the Adult
VOD-Enabled Systems shall be deemed to be *****, and (B) at least
***** of the VOD Content offered, at a minimum, via a branded entry
point (i.e., the name "Playboy" or "Spice," but not necessarily
using a logo) in systems comprising at least ***** of the basic
cable television subscribers within the Adult VOD-Enabled Systems
((A) and (B) together, the "Carriage Incentive Benchmarks");
provided, however, that if a System offers at least ***** of the
TV-SVOD Content and such System (or another System (i.e., whether
this occurs in a single System or as a combination of two separate
Systems)) offers at least ***** of the VOD Content before *****,
then the Revenue Share Percentage shall mean *****, provided
further, however, that if Affiliate fails to achieve the Carriage
Incentive Benchmarks on or before *****, then the Revenue Share
Percentage shall be deemed to be ***** between ***** and Affiliate
shall be required to remit to Network outstanding amounts
retroactive to ***** for those Systems that are not offering either
at least ***** of the TV-SVOD Content in connection with a
subscription to the Service, or at least ***** of the VOD Content
***** as of *****Agreement.
22. Section 5(f) of the Agreement is deleted in its entirety and replaced with
the following:
7
<PAGE>
(f) The Fees that are attributable to Gross Receipts based on
Subscription services payable by Affiliate to Network hereunder
shall be due and payable forty-five (45) days after the end of the
calendar month to which they relate. The Fees that are attributable
to Gross Receipts based on PPV or VOD services payable by Affiliate
to Network hereunder shall be due and payable forty-five (45) days
after the last day of the calendar month which includes the last day
of the Reporting Period. The term "Reporting Period" shall mean the
days from the end of each System's or Satellite distributor's prior
monthly reporting period (which date may vary in each System or for
each Satellite distributor from the 20th of the calendar month to
the last day of the calendar month) to the end of the System's or
Satellite distributor's then current monthly reporting period.
Affiliate shall have the right, however, to make adjustments to any
month's payment in an amount equal to the portion of a previous
month's Fees which represent an overpayment or underpayment.
23. The following shall be added as a new last sentence of Section 5(g) of the
Agreement:
In addition, the Gross Receipts attributable to purchases of VOD
Content or HVOD Content shall be equal to the total amount of
per-viewing fees billed by Affiliate to the VOD subscribers for
viewing of the VOD Content or HVOD Content, less any technical
credits given by Affiliate to such subscribers pursuant to this
Section. In the event of a substantiated, technological failure
within the transmission system for delivering VOD Content or HVOD
Content to subscribers resulting in the substantial interruption or
termination of an exhibition of a Program, Affiliate may, in its
discretion, offer a technical credit to the subscriber affected
thereby not to exceed the amount charged to the affected subscriber
and shall maintain documentation in support of the granted technical
credit.
24. The phrase "PPV Satellite Fees, PPV Cable Fees, Service Satellite Fees and
Service Cable Fees" is deleted in its entirety from Sections 5(h) and 5(i)
and replaced in each instance with the term "Fees".
25. Section 6(a) of the Agreement (including Sections 6(a)(i) through
6(a)(iv)) is deleted in its entirety and replaced with the following:
(a) For all Reporting Periods, Affiliate shall send to Network along
with the payments, if any, due under Section 5 hereof, informational
statements. Each statement shall set forth information necessary to
the calculation of the Fees and Renewal Fees paid, which shall
include but not be limited to:
i. the total number of PPV purchases for the applicable
month;
ii. to the extent necessary to determine the Fees payable by
Affiliate, the number of basic cable television
subscribers served by Adult VOD-
8
<PAGE>
Enabled Systems, and the number of Adult VOD-Enabled
Systems offering the VOD Content and/or the SVOD Content
in connection with a subscription to the Playboy
Service, for the applicable month;
iii. the average number of Service Cable Subscribers and
Service Satellite Subscribers for the applicable month;
and
iv. the total number of VOD purchases and the names of the
titles (or other appropriate identifier) for each VOD
purchase, for the applicable month.
26. Section 7(a)(ii) of the Agreement is deleted in its entirety and replaced
with the following:
(a)(ii) Deleted without implication.
27. In Section 7(d)(ii) of the Agreement is deleted in its entirety and
replaced with the following:
(d)(ii) Network shall have the right to run ***** of commercial time
per hour. In the event that Network elects to run more than ***** of
commercial time per hour, Network shall make available ***** of
commercial time per hour to Affiliate for Affiliate's use. With the
exception of the ***** per hour granted above, the Service shall not
contain any advertising, including but not limited to audio text
services, merchandise sales, Internet services and other such
products. Notwithstanding the foregoing, during the "breaks" between
movies and/or other programs, the Service may contain the following
audio text spots: (x) if the break is less than or equal to ***** in
length, audio text spots not exceeding ***** in the aggregate during
such break; and (y) if the break is greater than ***** in length,
audio text spots not exceeding ***** in the aggregate during such
break; provided that, in either case, Network shall not interrupt
any programming to air the audio text spots, and each audio text
spot shall be accompanied by a visual (if not moving video) element.
In addition, Network shall be permitted to refer viewers to
Network's and its affiliated companies' websites for scheduling
information regarding the Service and may refer generally to the
websites (e.g., "Visit our website at Playboy.com"); provided that,
such referrals shall not contain any advertising, promotions or
sales.
28. The following language shall be added to the end of Section 7(f),
"provided that Network shall not be restricted from making incidental
references to other services affiliated with Network as part of Network's
regular programming."
29. The Affiliate contact information at Section 11 of the Agreement is
deleted in its entirety and replaced with the following contact
information:
9
<PAGE>
To Affiliate: Satellite Services, Inc.
c/o Comcast Cable
1500 Market Street
Philadelphia, PA 19102
Attention: Senior VP, Programming
With a copy to:
Comcast Cable
1500 Market Street
Philadelphia, PA 19102
Attention: General Counsel
To Network: Playboy Entertainment Group, Inc.
2706 Media Center Drive
Los Angeles, CA 90065
Attention: President
With a copy to:
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, IL 60611
Attention: General Counsel
30. Section 13(b) of the Agreement is deleted in its entirety and replaced
with the following:
(b) In the event that (i) Network acquires or otherwise obtains
operating control of, any programming service other than the Service
(an "Other Service"), and (ii) such Other Service is merged into, or
otherwise combined with, the Service, in each case so that there is
only one surviving service, then (a) if the Service is the surviving
service, then this Agreement shall remain in full force and effect
and any agreement concerning distribution of the Other Service shall
be terminated and the parties thereto shall be discharged of any
further obligations and/or liabilities thereunder as of the date of
such merger or combination; or (b) if the Other Service is the
surviving service in such merger or combination, (x) if Affiliate
has (at the time of such merger, combination, or acquisition) an
affiliation agreement concerning distribution of the Other Service,
then such affiliation agreement for the Other Service shall remain
in full force and effect, and this Agreement shall be terminated and
the parties hereto shall be discharged of any further obligations
and/or liabilities hereunder as of the date of such merger, or (y)
if Affiliate does not have an affiliation agreement concerning
distribution of the Other Service, then Affiliate shall have the
option to elect to have this Agreement continue to apply to such
Other Service or to negotiate a new agreement to apply to such Other
Service. In the event that Network acquires or otherwise exercises
10
<PAGE>
operating control over an Other Service, and such Other Service is
not merged into, or combined with, the Service, then (A) this
Agreement shall not apply to the distribution of such Other Service,
and (B) Affiliate shall not be entitled, by virtue of such merger or
combination, to distribute the Service under any agreement governing
Affiliate's distribution of such Other Service.
31. The first sentence of Section 13(d) of the Agreement shall be modified to
read as follows:
(d) This Agreement, as amended, contains the entire understanding of
the parties and supersedes and abrogates all contemporaneous and
prior understandings of the parties, whether written or oral,
relating to the subject matter hereof, including that certain prior
agreement between Comcast Programming and Spice, Inc. made as of
October 1, 1999, as amended, which expired September 30, 2004 (the
"Prior Comcast Agreement").
32. The following sentences are hereby added to the end of Section 13(g) of
the Agreement:
1) Affiliate acknowledges that it is specifically granted the terms of
this Section 13(g) in consideration for the provisions set forth in
Section 5(d) of this Agreement. Additionally, Affiliate hereby
agrees that, in consideration for the Fees granted pursuant to this
Agreement, as amended, Affiliate shall *****.
The above notwithstanding ***** shall apply only if *****. Furthermore,
Affiliate's *****.
33. The following language is hereby added as Section 13(l) of the Agreement:
(l) No Press Releases. Neither party shall issue any press release,
announcement or statement to the public or any third party regarding
the business relationship of the parties as set forth herein or the
transactions described in this Agreement without the advance written
consent of the other party, except to the extent such disclosure or
statement is required by law.
34. The following language is hereby added as Section 13(m) of the Agreement:
(m) Release of Claims. Network, on behalf of itself, its parent,
subsidiary and other affiliated companies and each of their
respective officers, directors, employees, partners, agents,
shareholders, representatives, successors, predecessors and assigns
(collectively, the "Network Releasing Parties") hereby voluntarily
and forever completely remises, relinquishes, releases and forever
discharges Affiliate, its parent, subsidiary and affiliated
companies and each of their respective present and former officers,
directors, employees, partners, agents, shareholders,
representatives, successors, predecessors and
11
<PAGE>
assigns (collectively, the "Affiliate Released Parties"), of and
from any and all claims (including claims for conversion liability),
demands, losses, penalties, costs, expenses (including, without
limitation, reasonable attorneys' fees), interest, damages, actions,
causes of action and liabilities, whether at law or in equity,
whether based on contract, statute, tort, or strict liability, and
whether for compensatory, special, punitive, statutory or any other
damages or remedies, whether known or unknown, accrued or unaccrued,
foreseen or unforeseen, contingent or non-contingent, direct or
indirect, whether heretofore asserted or not, or arising by
assignment, operation of law or otherwise, that are based on,
connected to, arising out of or related to the payment, alleged
failure to pay or alleged liability for the payment of any Fees,
Renewal Fees, license fees or any other charges or payments
whatsoever by Affiliate on account of the Systems to Network for the
Service (including any feeds or multiplex signals thereof) for the
period prior to, and including, *****. Network shall indemnify,
defend, and hold the Affiliate Released Parties harmless from and
against any claim brought by a Network Releasing Party, and/or by
any person or entity, under any actual or purported assignment,
subrogation or other right of substitution by or under a Network
Releasing Party, against an Affiliate Released Party relating to the
claims released in this Section 13(m), and Network's indemnification
shall be subject to the provisions of Sections 8(h) herein.
35. Exhibit A shall be deleted in its entirety and replaced with Exhibit A
attached hereto.
36. Exhibit B-1 (Programming Schedule) shall be deleted in its entirety and
replaced with Exhibit B-1 (Programming Schedule) attached hereto.
37. The parties acknowledge that those Majority-Owned Systems distributing the
Service pursuant to the Terminated Agreements or the Prior Comcast
Agreement are hereby added to the Agreement as of the Amendment Effective
Date.
AGREED TO AND ACCEPTED BY THE PARTIES AS OF THE LAST DATE WRITTEN BELOW.
SPICE, INC. SATELLITE SERVICES, INC.
By: James F. Griffiths By: Jennifer T. Gaiski
Name: James F. Griffiths Name: Jennifer T. Gaiski
Title: President Title: Vice President, Programming
Date: 9/26/05 Date: 9/26/05
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EXHIBIT A
to
Affiliation Agreement
by and between
Spice, Inc.
And
Satellite Services, Inc.
dated as of November 1992, as amended
SYSTEM QUALIFICATIONS
Affiliate represents and warrants that, with respect to each System listed on
Schedule 1 hereto, Comcast Corporation, or any person or entity controlling,
controlled by, or under common control with Affiliate or Comcast Corporation,
now or hereafter (Affiliate, Comcast Corporation and each such person or entity
a "Comcast Entity"), (i) owns or has the right to acquire ownership of, directly
or indirectly, a minimum of ten percent (10%) of such System; and (ii) with
respect to Systems that are less than fifty percent (50%) owned, has been
authorized to execute decisions on behalf of such System with respect to the
Service. In the event Affiliate's direct or indirect equity interest in a System
or in the entity managing such System decreases below the level required by the
immediately preceding sentence, and provided Affiliate's interest does not
decrease to zero, such System shall continue to qualify for inclusion on
Schedule 1 as long as Affiliate's interest in such System increases to the level
required hereunder within eighteen (18) months of such decrease. In the event
Affiliate, or any of the entities that owns or manages systems or enterprises
that qualify hereunder, effects a corporate separation, reorganization or
restructuring (including, without limitation, by a distribution of stock, or
other assets or rights, to its shareholders, partners or joint venturers), the
systems or enterprises of the entity resulting from such transaction (including
all interim and supporting entities) and/or all of such resulting entities, in
the aggregate, will qualify under the system qualifications set forth herein, so
as to continue to qualify to distribute the Service under the terms and
conditions hereof, as if such separation, reorganization or other restructuring
had not occurred. Any system that satisfies the qualifications of this Exhibit A
and in which a Comcast Entity owns more than fifty percent (50%) interest shall
be referred to as a "Majority-Owned System."
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2.1
<SEQUENCE>7
<FILENAME>d65760_ex10-21.txt
<DESCRIPTION>AFFILIATION AGREEMENT
<TEXT>
Exhibit 10.2.1
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
AFFILIATION AGREEMENT
THIS AGREEMENT made as of the 10th day of February 1993 is by and between
PLAYBOY ENTERTAINMENT GROUP, INC., a Delaware corporation ("Network"), and
SATELLITE SERVICES, INC., a Delaware corporation ("Affiliate").
1. RIGHTS:
(a) Grant of Rights. Network hereby grants to Affiliate, and
Affiliate hereby accepts, the following rights relating to the pay cable
television programming service currently known as "PLAYBOY TELEVISION" (and as
it may be renamed from time to time by Network), whether in its current analog
format or in any other format, whether digitized, compressed, modified, replaced
or otherwise manipulated (the "Service"):
(i) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the Service by
cable or other wire transmission service, whether now existing or developed in
the future, ("Cable") in the Distribution Areas (as defined herein) of the
System or Systems.(as defined herein), if any, set forth by Affiliate on
Schedule 1, as such Schedule 1, may be added to or deleted from, from time to
time, pursuant to the terms of this Agreement;
(ii) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the Service by
satellite master antenna television systems ("SMATV"); by multipoint
distribution services ("MDS"), and by multichannel multipoint distribution
services ("MMDS"), in (A) Operating Areas (as herein defined) of Systems, (B)
other areas of counties in which Operating Areas of Systems are wholly or
partially located but which areas are not the subject of a cable television
franchise or license or, if a cable television franchise or license exists in
such area, the operator of such franchise or license is not distributing the
Service, and (C) areas of counties (which areas are contiguous to counties where
an Operating Area of a System is wholly or partially located) which are not the
subject of a cable television franchise or license or, if a cable television
franchise or license exists in such area, the operator of such franchise or
license is not distributing the Service (the areas described in (A), (B), and
(C) of this Section 1(a)(ii) shall be referred to herein as a System's
"Distribution Area");
(iii) in the event Network offers or grants to any third party
the right to authorize the service for reception, or the right to otherwise
exhibit, distribute, or authorize the reception of the Service, in the District
of Columbia, the United States, or its territories, possessions or
commonwealths, to anyone by means of equipment capable
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of receiving audio/visual signals and/or programming directly from a satellite
(other than a C-Band satellite), including; but not limited" to, K or Ku-Band
signals, whether now existing or developed in the future ("DBS"); or by any
other means of distribution not otherwise mentioned in this Agreement, whether
now existing or developed in the future, *****.
(iv) the non-exclusive right, but not the obligation, to
exhibit, distribute (pursuant to the terms of this Agreement) and authorize the
reception of the Service, nationwide (including, collectively, in the fifty
United States; the District of Columbia, and the territories, possessions and
commonwealths of the United States) to any person or entity ("Satellite
Subscribers"), by means of equipment capable of receiving audio/visual signals
and/or programming directly from a C-Band satellite, in an analog format or as
digitized, compressed, modified, replaced or otherwise manipulated, including
tier-bit access rights and the right to include tier-bit :messages on the
Service on any three (3_) consecutive days of each calendar month, provided
that, if such three (3) days are not the first consecutive Thursday, Friday and
Saturday of a month, Affiliate, (or an affiliate of Affiliate) will give Network
written notice of the days Affiliate selects no less than seven (7) days prior
to the first day of the month in which the selected days occur. Notwithstanding
the foregoing, if: (i) upon the expiration of two years after the date of
execution of this Agreement, Affiliate's Retail Satellite Sales (as computed
below) does not equal or exceed Network's Retail Satellite Sales (as computed
below), then Affiliate's tier-bit messaging rights hereunder may be terminated
by Network as of the end of such two-year period; or (ii) upon the expiration of
five years after the date of execution of this Agreement, Affiliate's Retail
Satellite Sales does not equal or exceed Network's Retail Satellite Sales, then
Affiliate's tier-bit messaging rights hereunder may be terminated by Network as
of the end of such five-year period. "Affiliate's Retail Satellite Sales" shall
equal the total dollar amount of retail sales (net of discounts and credits)
accrued by Affiliate or an affiliate of Affiliate for sales of the Service to
PPV Satellite Subscribers (as defined herein) and Service Satellite Subscribers
(as defined herein) during the days on which Affiliate or an affiliate of
Affiliate exercised tier-bit messaging rights in the three months immediately
prior to the expiration of the two- or five-year periods (as the case may be)
set forth above. "Network's Retail Satellite Sales" shall equal the total dollar
amount of retail sales (net of discounts and credits), accrued by Network for
sales of the Service to Satellite Subscribers during three-day periods in the
three months immediately prior to the expiration of the two- or five-year
periods (as the case may be) set forth above, which three-day periods are
comparable to the days on which Affiliate exercised tier-bit messaging rights in
such three-month period. Affiliate, or an affiliate of Affiliate, shall utilize
a port for access to Network's tier-bit for the purpose of tier-bit access which
port is assigned to, or is owned or leased by, Affiliate, or an affiliate of
Affiliate, unless Network has consented to the utilization by Affiliate or such
affiliate of Affiliate of another port, with such consent not to be unreasonably
withheld or delayed.
The rights set forth in this Section 1(a), and elsewhere under this
Agreement, are also granted hereby to any affiliate of Affiliate. Any use of the
Service under this Agreement by such an affiliate of Affiliate, or by any
permitted subdistributee, shall be subject to the obligations and limitations of
this Agreement. As used in this
2
<PAGE>
Agreement, an "affiliate of Affiliate" shall include any entity meeting the
requirements of paragraphs 1.1, II or III of Exhibit A hereto regardless of
whether such entity is a cable television system.
"Operating Area" of a cable television system shall mean that
geographic area where the owner of the system is authorized by appropriate
governmental authority to operate an audio or video distribution facility
through Cable and is operating an audio or video distribution facility through
cable within such area; provided, however, that if a franchise or license is not
required for the distribution of television services by Cable in a particular
geographic area, then the Operating Area of a system shall mean that geographic
area where the system is operating regardless of the presence or absence of a
franchise or license.
(b) Affiliate shall have the right, upon written notice to Network
within thirty (30) days thereof, to elect to launch the Service in, and to
include under this Agreement, any cable television system which meets the System
Qualifications of Exhibit A hereto (individually, a "System" or, collectively,
"Systems"). Upon receipt of such a notice, Schedule 1 hereof shall be deemed to
include such System(s) as of the later of: (i) the launch date of the Service on
such System(s), (ii) the date such System(s) first satisfies the requirements of
Exhibit A hereto, or (iii) the date set forth in such notice if such notice is
properly given pursuant to Section 11 of this Agreement. Any then-existing
agreement with Network applicable to any such System or Systems for carriage of
the Service shall be extinguished and shall cease to be effective with respect
to such System as of the effective date of: the addition or deemed addition of
such System to Schedule 1. Affiliate shall have the right, in Affiliate's sole
and absolute discretion, to discontinue carriage of the Service on any or all
Systems, and to delete any or all Systems from Schedule 1, by providing Network
with no less than sixty (60) days prior written notice of such deletion and
discontinuance; provided, however, if such deletion and discontinuance is due to
political, legal or community pressure, such sixty (60) days' notice shall not
be required prior to such deletion or discontinuance but, instead, Affiliate
shall give notice to Network and Network shall have ten (10) days to propose
and, if agreed to by Affiliate in its sole and absolute discretion, to implement
a plan to cure such pressure. If such plan is not successful, as determined by
Affiliate in its sole and absolute discretion, within ten (10) days after
commencement of implementation of such plan, then Affiliate may immediately
discontinue carriage of the Service from such System(s) and delete such
System(s) from Schedule 1. After such discontinuance and deletion, the System(s)
shall cooperate with Network to the extent reasonably necessary to determine the
feasibility of re-launching the Service in such System (s), which re-launch
shall be in the sole and absolute discretion of Affiliate.
(c) Notwithstanding any provision of this Agreement to the contrary,
Affiliate shall not intentionally authorize any use of the Service in a
commercial establishment including; without limitation, any restaurant, tavern,
bar, club, fraternal organization, hospital, correctional facility or any
communal room in an otherwise residential building (including, without
limitation, any lobby or social room in an apartment house, dormitory, drilling
rig or similar place); provided, however, that affiliate may authorize
Pay-per-view (as defined herein) exhibitions of the Service and
3
<PAGE>
Subscriptions (as defined herein) to the Service in sorority, fraternity and
dormitory rooms; provided further, that Affiliate may authorize Pay-per-view
exhibitions of the Service, but not Subscriptions to the Service, in individual
rooms of transient occupancy, such as hotel, motel and hospital guest rooms and
jail cells, except that sorority houses, fraternity houses and dormitories shall
not be considered places of transient occupancy for purposes of this Agreement.
Furthermore, Affiliate shall take all reasonable precautions to prevent such
impermissible uses from occurring through the facilities of a cable television
system which is a System.
(d) (d) For the first thirty (30) days following commencement of
carriage of the Service by a System, such System may provide the service, to its
employees, only, free of charge without any obligation to sell or promote the
Service to customers (the "Test Period"). At the end of the Test Period in each
System, such System may determine to terminate carriage of the Service or to
continue carriage pursuant to the terms of this Agreement. Any determination by
a System to terminate carriage of the Service will not result in any charge, fee
or penalty to Affiliate or to such System.
2. TERM:
(a) Unless terminated sooner pursuant to the terms of this
Agreement, the "Term" of this Agreement shall consist, collectively, of the
Initial Term and any number of Renewal Terms. The Initial Term of this Agreement
shall commence upon the date of execution hereof and shall terminate on December
31, 2001, unless terminated sooner pursuant to the terms of this Agreement.
Notwithstanding the foregoing, Network and Affiliate hereby ratify the terms and
conditions (including, but not limited to, the payments made by Affiliate and
affiliates of Affiliate) of carriage of the Service by cable television systems
that met the System Qualifications of Exhibit A hereto, for the period ending on
the date of execution hereof.
(b) This Agreement shall automatically renew for successive five (5)
year periods (each, a "Renewal Term") after the expiration of the initial Term
and each Renewal Term, unless either, (i) this Agreement is terminated earlier
in accordance with the terms hereof, or (ii) Affiliate, in Affiliate's sole and
absolute discretion, elects to terminate this Agreement pursuant to Section 5(h)
hereof.
3. CONTENT OF THE SERVICE:
(a) Throughout the Term, the programming on the Service shall
consist of not less than ten (10) hours per day (initially, from 8:00 p.m. to
6:00 a.m. prevailing Eastern Time) of high-quality adult programming with a
sexual theme and format, (including, but not limited to, R-rated (or R
equivalent non-rated) and NC-17 rated (or NC-17 equivalent non-rated) cable
version motion pictures) substantially similar to the program schedule attached
hereto as Exhibit B-1. The Service shall not contain any third party promotional
material, including without limitation, commercials, advertising or
infomercials, except that the Service may contain program sponsorship
billboards, or acknowledgements. Nothing in this paragraph shall be deemed to
limit Network's rights set forth in Section 7(e). The content of the Service
shall also, be consistent with
4
<PAGE>
Network's standards and practices as of this date, attached hereto as Exhibit
B-2. Notwithstanding anything in the foregoing which may be inconsistent
herewith, the Service shall not contain any programming depicting rape,
necrophilia; sadism, sadomasochism, bondage, incest, bestiality or programming
involving or suggesting sexual activity with, between, or among minors. Network
shall, during each month of the Term, send one copy of its monthly program
schedule to Affiliate, in care of: Vice President, Programming.
(b) During the Term, Network shall provide the Service in its
entirety to Affiliate. When the phrase "in its entirety" is used in this Section
3(b), it means that each subscriber of Affiliate receiving the Service shall be
able to receive, at all points in time, all programming received at each such
point in time by any other subscriber to the Service, and if any subscriber to
the service is receiving, at such point in time, programming that is different
than the programming received by any Subscriber (as defined herein) receiving
the Service at such point in time, Affiliate shall have the unconditional right
to elect which of such programming it desires to receive and utilize at any
System, and which of such programming it will authorize for reception by PPV
Satellite Subscribers (as defined herein) and Service Satellite Subscribers (as
defined herein); provided, however, that the foregoing rights of Affiliate and
obligations of Network shall not apply to limited testing by Network in specific
selected systems.
4. DELIVERY AND DISTRIBUTION OF THE SERVICE:
(a) During the Term, Network shall, at its own expense, deliver a
signal of the Service to the earth station(s) of each System, to each PPV
Satellite Subscriber and to each Service Satellite Subscriber and to any other
location within the continental United States designated by Affiliate (in its
sole and absolute discretion), by transmitting such signal via a domestic
satellite commonly used for transmission of domestic cable television
programming and shall, at its own expense, continue to fully encode the
satellite signal of the Service utilizing scrambling technology commonly used in
the domestic cable television industry. Except as otherwise provided in this
Section 4(a), Affiliate shall, at its own expense, furnish an earth station and
all other facilities necessary for the receipt of such satellite transmission
and the delivery of such signal to the PPV Cable Subscribers and/or Service
Cable subscribers (each as defined herein). In the event Network either (i)
changes the technology used by Network to encrypt the Service to a technology
not compatible with a System's or Systems' then-existing descrambling equipment,
or (ii) changes the satellite to which the Service is transmitted to a satellite
not susceptible to viewing by a System's or Systems' then-existing earth station
equipment, Affiliate shall then have the right to delete from Schedule 1 of this
Agreement, immediately, such System or Systems, and to discontinue carriage of
the Service, immediately; from such System or Systems; provided that this right
of deletion and discontinuance shall not apply to any System or Systems if, (1)
Network agrees, unconditionally, to reimburse such system or Systems, either, as
the case may be, (A) for the cost to such System or Systems to acquire and
install new equipment necessary for such System or Systems to descramble the
signal of the Service, and/or (B) for the cost to purchase and install equipment
reasonably necessary for such System or Systems to receive the Service from such
new satellite; (2) physical space exists at the then-existing
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<PAGE>
head-end or earth station site to accommodate the necessary equipment; and (3)
current zoning and other restrictions permit such additional equipment.
(b) Network shall provide to each System distributing the Service
and to each PPV Satellite Subscriber and to each Service. Satellite Subscriber a
video and audio signal of the Service of a technical quality equivalent to the
greater of the following: (i) comparable to the technical quality of audio and
video signals delivered by other cable television programming services; or (ii)
the technical standards set forth in Exhibit c hereof. If, at any time during
the Term, Network converts to a digital or other non-analog format, Network and
Affiliate shall negotiate in good faith to agree upon replacement specifications
for Exhibit C; provided, however, that the technical quality of the video and
audio signal under the replacement specifications shall not be of a lesser
technical quality than the video and audio signal quality of the service
required hereunder in the month immediately preceding the conversion to a
digital or other non-analog format. Each System will deliver to its Service
Cable Subscribers and PPV cable Subscribers a principal video and audio signal
of the Service of a technical quality at least comparable to other cable
television programming services, but in no event higher than the technical
quality provided by Network hereunder.
(c) The Systems, if any, shall carry the Service no less than ten
(10) hours per day, but may carry the Service any number of hours per day in
excess of ten (10) if the Service is made available for more than ten (10) hours
per day. Other than as specifically permitted in this Agreement, Affiliate will
not insert or remove any material into or from the Service. Notwithstanding the
foregoing, Network hereby grants each System which does not, at the pertinent
time, have another pre-emptible or unused, technically capable channel
available, permission to pre-empt such ten (10) hours of the Service for
exhibition of up to four (4) Pay-per-view, (as defined below) events (which may
not be movies) per month, (including replays of any such events); provided that
Affiliate shall not pre-empt such ten (10) hours of the service for exhibition
of Pay-per-view events or features, the content of which is substantially
similar to the content of the Service Network; agrees that Affiliate will have
complete authority to control, to designate and to change the channel(s) over
which the Service is to be carried on each system.
(d) Each System retains and reserves any and all rights in and to
all signal distribution capacity contained within the bandwidth of the Service
after receipt at each System, including, without limitation, the vertical
blanking interval and audio sub-carriers (and any other portions of the
bandwidth that may be created as a result of the conversion of the signal of the
Service to a compressed, digital or non-analog format), Network shall not use
any of the bandwidth other than as provided herein without the prior written
consent of Affiliate. Nothing herein shall preclude Affiliate from exercising
and exploiting such rights by any means and in any locations freely and without
restriction; provided, however, that any such use by Affiliate or the Systems
shall not degrade, or otherwise interfere with, the picture quality of the
Service or the audio portion of the Service signal which is the principal audio
carriage frequency of the Service. In the event Affiliate offers to a
third-party provider of cable television programming services (which is not an
affiliate of Affiliate) the right to use portions of
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the signal distribution capacity contained within the bandwidth of the Service
(other than the portion of the bandwidth used by the service and other than
portions of the bandwidth made usable by conversion by Affiliate of the signal
of the Service to a compressed, digital, or non-analog format), Affiliate shall
give Network prior written notice of the financial terms and conditions of such
offer. Upon such notice, Network shall have a right of first refusal to accept
Affiliate's offer to use portions of the signal distribution capacity contained
within the bandwidth of the Service (other than the portion of the bandwidth
used by the service and other than portions of the bandwidth made usable by
conversion by Affiliate of the signal of the Service to a compressed, digital,
or non-analog format) upon the same financial terms and conditions as those
offered by Affiliate to such unaffiliated third-party. Network shall have ten
(10) days after such notice to exercise in writing its right of first refusal
and to accept the grant pursuant to such financial terms and conditions. If
Network does not exercise its right of first refusal within such ten (10) day
period, then Network shall be deemed to have rejected such grant and waived all
rights to such portions of the signal distribution capacity contained within the
bandwidth of the Service signal.
(e) Each System or other distribution facility or enterprise may
offer the Service, (i) as a Subscription (as defined below) service and/or (ii)
as a Pay-per-view service marketed and sold in any of the ways described in
Section 5(a)(vii); provided, however, that if the Service is sold in combination
with other programming services, the Service shall be sold in no less than ten
(10) consecutive hour segments. The Service (in no less than ten (10) hour
segments) may be sold in combination with other services (e. g., in a package of
services or in a tier); provided that the Service, and/or viewing segments of
the Service as described in Section 5(a)(vii), must always also be available for
sale through each television distribution facility selling the Service under
this Agreement on a purely a la carte basis.
(f) Neither Affiliate, nor any affiliate of Affiliate, shall
authorize others to copy, tape or otherwise reproduce any part of the Service
without Network's prior written authorization, and each of the systems shall
take reasonable and practical security measures to prevent the unauthorized or
otherwise unlawful copying, taping or other reproduction of the Service by
others through the facilities of the system. Affiliate shall not be responsible
for home taping by anyone viewing the Service. Network acknowledges that this
Section 4(f) does not restrict Affiliate's or any affiliate of Affiliate's
practice of (i) connecting its subscribers, videotape recorders, video cassette
recorders, or other devices susceptible to use for home duplication of video
programming to the facilities of a System; or (ii) promoting home taping for
personal use by Subscribers (as defined below).
(g) Network hereby grants Affiliate the right to receive the signal
of the Service, to digitize, replace, compress, modify or otherwise
technologically manipulate the signal, and to transmit the signal as so altered
(the "Altered Signal") to a satellite, or to a location within the continental
United States designated by Affiliate (in its sole and absolute discretion), for
redistribution to terrestrial or other reception sites capable of receiving and
utilizing the Altered Signal. Network hereby grants Affiliate the right to
deliver the Altered Signal (without substitutions, delays or preemptions (except
7
<PAGE>
as otherwise permitted under Section 4(c) of this Agreement)) for the uses set
forth in Section 1(a) of this Agreement, provided that no such alteration,
transmission, redistribution, reception or other use will cause a material
change in a viewer's perception of the principal video or principal audio
presentation of the Service. Furthermore, Network shall not change the signal of
the Service in such a way as to technically or technologically defeat, or
otherwise interfere with, Affiliate's rights under this Section 4(g). In the
event Network interferes with or otherwise prevents receipt, digitization,
compression, modification, manipulation or utilization of the signal of the
Service by Affiliate pursuant to this Section 4(g), and fails to remedy such
interference within fifteen (15) days after written notice of such interference
is given by Affiliate, then Affiliate shall have the right to delete any or all
Systems from Schedule 1 of this Agreement, immediately, and to discontinue
carriage, immediately, of the Service on any or all such Systems.
5. FEES:
(a) In consideration of the terms and conditions set forth herein,
Affiliate shall, subject to the provisions of Section 5(f) and Section 7(b), pay
the Fees (as def fined herein) set forth below. Each of the four categories of
Fees defined below (PPV Satellite Fees, Service Satellite Fees, PPV Cable Fees
and Service Cable Fees) shall be calculated, stated and reported separately from
the others. As used in this Agreement, the following terms have the following
meanings:
(i) "PPV Satellite Subscriber" means someone who, (1) is a
Satellite Subscriber, (2) receives a complete and technically satisfactory
viewing of a viewing segment of the Service as a PPV service, and (3) is
authorized to receive the Service by or through Affiliate or an affiliate of
Affiliate pursuant to the terms of this Agreement. "PPV Satellite Fees" are
those Fees payable by Affiliate to Network in connection with sales! of the
Service to PPV Satellite Subscribers.
(ii) "Service Satellite Subscriber" means someone who, (1) is
a Satellite subscriber, (2) utilizes the Service as a Subscription service, and
(3) is authorized to receive the service by or through Affiliate or an affiliate
of Affiliate pursuant to the terms of this Agreement. "Service Satellite Fees"
are those Fees payable by Affiliate to Network in connection with sales of the
Service to service Satellite Subscribers.
(iii) "PPV Cable Subscriber" means someone who, (.1) is
provided the Service by or through Affiliate or an affiliate of Affiliate
pursuant to the terms of this Agreement, (2) receives a complete and technically
satisfactory viewing of a viewing segment of the Service as a PPV service, and
(3) receives the Service by means other than Satellite. "PPV Cable Fees" are
those Fees payable by Affiliate to Network in connection with sales of the
Service to PPV Cable Subscribers.
(iv) "Service Cable Subscriber" means someone who (1) receives
the Service by means other than Satellite, (2) utilizes the Service as a
Subscription service, and (3) receives the Service by or through Affiliate or an
affiliate of
8
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Affiliate pursuant to the terms of this Agreement. "Service Cable Fees" are
those Fees payable by Affiliate to Network in connection with sales of the
service to Service Cable Subscribers.
(v) "Subscribers" mean, collectively, PPV Satellite
Subscribers, Service Satellite Subscribers, PPV Cable Subscribers and Service
Cable Subscribers.
(vi) "Fees" means, collectively, PPV Satellite Fees, Service
Satellite Fees, PPV Cable Fees and Service Cable Fees payable by Affiliate to
Network during the Initial Term. Fees payable by Affiliate to Network during a
Renewal Term are referred to herein as Renewal Fees.
(vii) "Pay-per-view" or "PPV" means the authorization of a
subscriber (such as a PPV Satellite Subscriber or PPV Cable Subscriber) to
receive at least one viewing segment of the Service for a fee separate and
distinct from fees paid by such subscriber for other television or audio
services. Viewing segments may include, but are not limited to, any five (5)
consecutive hour segment, any reasonable portion of a single night's (or days)
performance of the Service, pay-per-night, pay per-weekend, or any other segment
of the Service representing a reasonable viewing period.
(viii) "Subscription" means the authorization of a subscriber
(such as a Service Cable Subscriber or Service Satellite Subscriber) to receive
the Service as a subscription service (on a monthly basis, on an annual basis,
or on some other basis representing a reasonable subscription period) either on
an a la carte basis or as part of a package of other services, or both.
(ix) "Addressable Subscriber" means a cable television system
subscriber whose television set is connected on the subscriber's premises to
equipment operated by Affiliate, or an affiliate of Affiliate, that allows the
channel on which the service is received to be turned on or off (i.e.,
"authorized" or "de-authorized") from a central location, controlled by the
operator of the pertinent System or such operator's agent or designee.
(x) "Gross Receipts" means the amount billed for the Service
to a PPV Cable Subscriber, PPV Satellite Subscriber, Service Satellite
Subscriber or Service Cable Subscriber (as the case may be) less all applicable
taxes, franchise fees or other charges, levies or assessments imposed by
governmental entities or agencies thereof attributable to the purchase or sale
of the Service or any portion thereof.
(xi) "Network Share" means that portion of Gross Receipts
which is payable by Affiliate to Network as Fees or Renewal Fees pursuant to
this Agreement.
(xii) "Gross Receipts Per Addressable Subscriber" mean Gross
Receipts attributable to purchases (including Pay-per-view and subscription
purchases) of the Service in a System in a Reporting Period (as defined below)
divided by the number of Addressable Subscribers in such System as of the last
day of such Reporting Period (as
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determined by Affiliate on the first day of the calendar quarter which includes
said last day of the pertinent Reporting Period, or as adjusted pursuant to
Section 5(d) hereof).
(b) Subscription
(i) For each calendar month during the indicated calendar year
during the Initial Term, Affiliate will pay Network a Service Cable Fee per
Service Cable Subscriber in such month in an amount equal to the following:
Service Cable Fee
For the Calendar Year Per Service Cable Subscriber
--------------------- ----------------------------
1992 *****
1993 *****
1994 *****
1995 *****
For each calendar month during the calendar years of the Initial Term after
1995, Affiliate will pay Network a Service Cable Fee per Service Cable
Subscriber in such month equal to the greater of (A) *****, or (B) ***** of the
Gross Receipts attributable to each such Service Cable Subscriber, except that
such ***** shall be subject to reduction as provided in Section 5(d) below. When
the Service is sold to a Service Cable Subscriber in combination with other
services for a package charge (as, for example, in a tier or in a package of a
la carte or other services), the Gross Receipts deemed to be attributable to a
Service cable subscriber for the Service shall be equal to the total Gross
Receipts for the tier or package of services sold in combination with the
service, multiplied by a fraction, the numerator of which is the a la carte
retail charge for the service otherwise charged by the pertinent System and the
denominator of which is the numerator plus the aggregate of the a la carte
retail charges otherwise charged by the pertinent System for the other services
included in the tier or package of a la carte or other services.
(ii) During the Initial Term, Affiliate shall pay a monthly
Service Satellite Fee to Network-per Service Satellite Subscriber in the
indicated calendar year of the amount indicated (regardless of whether such
Service Satellite Subscribers purchase the Service alone, as an a la carte
service or as part of a tier or package of a la carte or other services and
regardless of the amount of Gross Receipts attributable to such Service
Satellite Subscribers) as follows:
For any and
For the First For the next all
24,999 Service 15,000 Service additional
Satellite Satellite Service
Subscribers Subscribers Subscribers
---------------- ---------------- ----------------
1993 ***** ***** *****
1994 ***** ***** *****
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For any and
For the First For the next all
24,999 Service 15,000 Service additional
Satellite Satellite Service
Subscribers Subscribers Subscribers
---------------- ---------------- ----------------
1995 ***** ***** *****
1996 ***** ***** *****
1997 ***** ***** *****
1998 ***** ***** *****
1999 ***** ***** *****
2000 ***** ***** *****
2001 ***** ***** *****
(iii) The number of service Satellite Subscribers or Service
Cable Subscribers (as the case may be) for whom Affiliate shall pay each month
shall be the average of (A) the number of Service Satellite Subscribers or
Service Cable Subscribers (as the case may be) on the first day of the month,
and (B) the number of Service Satellite Subscribers or Service Cable Subscribers
(as the case may be) on the last day of the month. Service Satellite Subscribers
or Service Cable Subscribers (as the case may be) shall include each occupied
dwelling (whether a single family home or a multiunit building), drilling rig,
nursing home room, dormitory room, fraternity room, sorority room, or other
location in which the Service is received. If Affiliate provides the Service to
multiple dwelling complexes, including, but not limited to, apartment buildings,
on a bulk-rate basis, the number of Service Satellite Subscribers or Service
Cable Subscribers (as the case may be) attributable to each such bulk-rate
subscriber shall be equal to the total monthly retail rate charged a complex for
the Service divided by the standard monthly retail rate charged a non-bulk rate
Service Satellite Subscriber or Service Cable Subscriber (as the case may be)
for the service in the applicable System or by the pertinent satellite
distributor, as the case may be. The monthly number of Service Satellite
Subscribers and the monthly number of Service Cable Subscribers shall each be
calculated, stated and reported separately from the other.
(iv) The Service Cable Fees and Service Satellite Fees payable
by Affiliate to Network hereunder shall be due and payable forty-five (45) days
after the end of the calendar month to which they relate.
(c) PPV
For each PPV Cable Subscriber and each PPV Satellite
Subscriber who receives and pays for one (1) complete and technically
satisfactory viewing of one (1) viewing segment of the Service during the
Initial Term, Affiliate will pay Network a PPV Cable Fee or PPV Satellite Fee
(as the case may be) in an amount equal to the greater of: (A) *****, or (B) the
Network Share of the Gross Receipts paid by such PPV Cable Subscriber or PPV
Satellite Subscriber to Affiliate. "Network Share" shall equal ***** percent
***** of the Gross Receipts paid by each PPV Satellite Subscriber and shall
equal ***** percent ***** of the Gross Receipts paid by each PPV Cable
Subscriber,
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<PAGE>
except that such ***** percent ***** paid by each PPV Cable Subscriber shall be
subject to reduction as provided in Section 5(d) below.
(d) During the Initial Term, the Network Share in any System for Any
Reporting Period shall be subject to reduction (from the ***** percent ***** of
Gross Receipts otherwise payable by Affiliate to Network hereunder) based upon
the aggregate number of cents in Gross Receipts attributable to PPV Cable
Subscribers and Service Cable Subscribers in such System in such Reporting
Period as measured against the number of Addressable Subscribers in such System
during such Reporting Period (provided, however, that the number of Addressable
Subscribers in each System shall be determined by Affiliate on the first
calendar day of each calendar quarter and each such number of Addressable
Subscribers so determined shall be applied for each Reporting Period which
concludes during that pertinent calendar quarter; provided, however, that if the
number of Addressable Subscribers in a System increases or decreases more than
***** percent ***** in a calendar quarter, then the number of Addressable
Subscribers attributable to such System for Reporting Periods which conclude
during such calendar quarter shall be equal to the average of the number of
Addressable Subscribers in such System on the first calendar day of such
calendar quarter and the number of Addressable Subscribers in such System on the
first calendar day of the succeeding calendar quarter; provided, further, that
Affiliate shall make appropriate adjustments in its payments to Network to
properly pay under this provision), as follows:
For the calendar years 1993, 1994, and 1995:
If the Gross Receipts Per Then, the Network Share For
Addressable Subscriber In A Such Calendar Month for
System in a Calendar Month purchases by PPV Cable
Is: Subscribers in such System
shall be:
(A) equal to or greater than $.42 but
less than $.62 (A-1) *****
(B) equal to or greater than $.62 (B-1) *****
For the calendar years 1996, 1997 and 1998:
If the Gross Receipts Per Then the Network Share For
Addressable Subscriber In A Such Calendar Month for
System in a Calendar Month purchases by PPV Cable
Is: Subscribers and Service
Cable Subscribers in such
System shall be:
(C) equal to or greater than $.46 but
less than $.68 (C-1) *****
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<PAGE>
(D) equal to or greater than $.68 (D-1) *****
For the calendar years 1999, 2000 and 2001:
If the Gross Receipts Per Then the Network Share For
Addressable Subscriber In A Such Calendar Month for
System in a Calendar Month purchases by PPV Cable
Is: Subscribers and Service
Cable Subscribers in such
System shall be:
(E) equal to or greater than $.50 but
less than $.75 (E-1) *****
(F) equal to or greater than $.75 (F-1) *****
(e) The PPV Cable Fees and PPV Satellite Fees payable by Affiliate
to Network hereunder for each PPV Cable Subscriber and each PPV Satellite
Subscriber who receives and pays for one complete and technically satisfactory
Pay-per-view viewing of a segment of the Service pursuant to this Agreement
during a Reporting Period during the Term shall be due and payable forty-five
(45) days after the last day of the calendar month which includes the last day
of the Reporting Period. The term "Reporting Period" shall mean the days from
the end of each System's or Satellite distributor's prior monthly reporting
period (which date may vary in each System or for each Satellite distributor
from the 20th of the calendar month to the last day of the calendar month) to
the end of the System's or Satellite distributor's then current monthly
reporting period. Affiliate shall have the right, however, to make adjustments
to any month's payment in an amount equal to the portion of a previous month's
PPV cable Fees and/or PPV Satellite Fees which represents an overpayment or
underpayment.
(f) Notwithstanding any other provision of this Agreement to the
contrary, no Fees shall be payable for PPV Satellite Subscribers, PPV Cable
Subscribers, Service Satellite Subscribers or Service Cable Subscribers if such
Subscribers are (i) employees of Affiliate or of an affiliate of Affiliate who
are not charged for the Service; or (ii) public officials, administrative
personnel or public buildings that are not charged for the Service; or (iii)
subscribers who have not paid their cable television bill for a given month and
are subsequently disconnected; or (iv) subscribers who, in the good faith
exercise of reasonable judgment by an employee either of Affiliate or of an
affiliate of Affiliate, are excused from paying for the Service either because
such subscriber claims that the Service was not properly or intentionally
ordered or because such subscriber claims that a complete and technically
satisfactory viewing of the Service was not received. In addition, except for
the categories of Subscribers described in (i), (ii), (iii) and (iv) of this
paragraph, Affiliate shall not provide the Service or any viewing segment
thereof to persons who are not charged therefor.
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<PAGE>
(g) Any undisputed PPV Satellite Fees, PPV Cable Fees, Service
Satellite Fees and Service Cable Fees payable by Affiliate to Network hereunder,
and any undisputed amounts payable by Network to Affiliate or any System
pursuant to Section 7 hereof, that are unpaid after they are due and payable,
shall accrue interest at one and one-half percent (1-1/2%) per month or the
highest lawful rate, whichever is less, from the due date until payment is
received by Network, a System or Affiliate, (as the case may be); provided,
however, that any dispute which has the effect of suspending the accrual of
interest under this sentence must be a good faith dispute. Each delinquent party
shall be liable to the other party for all reasonable costs and expenses
(including, without limitation, reasonable counsel fees, disbursements, and
administrative or court costs) in connection with the collection of any such
overdue amounts. In the event of a good faith dispute regarding any Fees or
Renewal Fees, no such disputed Fees or Renewal Fees shall be subject to the
terms or conditions of this Section 5(g).
(h) Network shall have the right to renegotiate the PPV Satellite
Fees, PPV Cable Fees, Service Satellite Fees>and Service Cable Fees applicable
to any Renewal Term upon written notice to Affiliate at least twelve (12) months
,prior to the end of the Initial Term or the Renewal Term immediately preceding
such Renewal Term. Any such Renewal Fees shall be effective upon the
commencement of such Renewal Term. Said Renewal Fees shall be effective for such
five (5) year Renewal Term. If no agreement regarding Renewal Fees is reached
upon the expiration of the Initial Term or any Renewal Term, Affiliate may elect
in its sole and absolute discretion either to terminate this Agreement or to
provide the Service under this Agreement to Subscribers at a rate equal to the
Renewal Fee established by Network in connection with such renewal and such
subscribers.
6. REPORTS:
(a) For all Reporting Periods after the Test Period, Affiliate shall
send to Network along with the payments, if any, due under Section 5 hereof,
informational statements on a form mutually acceptable to Affiliate and Network.
Each statement shall set forth information necessary to the calculation of the
Fees or Renewal. Fees paid. Each of the four categories of Fees` shall be
calculated, stated, and reported separately from the others.
(i) The statements accompanying each month's Service Cable
Fees and Service Satellite Fees, respectively, shall include, on a
System-by-System and Satellite distributor-by-Satellite distributor basis, the
number of Service Cable Subscribers and Service Satellite Subscribers and, in
the case of Systems, the number of basic subscribers, as of the first day of the
month and as of the last day of the month, and the average thereof, and
commencing in 1996 in the case of Systems, the Cross Receipts attributable to
Service Cable Subscribers, the number of Addressable Subscribers as of the first
calendar day of the calendar quarter which includes the last day of such
Reporting Period, and the Cross Receipts per Addressable Subscriber for each
System; and such other information as may be necessary for the calculation of
the Service Cable Fees and Service Satellite Fees paid.
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<PAGE>
(ii) The statement accompanying each month's PPV Cable Fees
shall include, on a System-by-System basis, the number of PPV Cable Subscribers
(in the form of the number of Pay-per-view purchases of the Service); the Cross
Receipts paid by such PPV Cable Subscribers at each price level; on a
System-by-System basis., the number of basic subscribers, and the number of
Addressable Subscribers as of the first calendar day of the calendar quarter
which includes the last day of such Reporting Period, and the Gross Receipts per
Addressable Subscriber for each System; and such other information as may be
necessary for the calculation of the PPV Cable Fees paid.
(iii) The statement accompanying each months PPV Satellite
Fees shall include the number, of PPV Satellite Subscribers in the form of the
number of Pay-per-view purchases of the Service; the Gross Receipts paid by such
PPV Satellite Subscribers; and such other information as may be necessary for
the calculation of the PPV Satellite Fees paid.
(iv) In November 1998, Affiliate shall provide Network with
information necessary to allow Network to determine whether its right of
termination provided for in Section 9(a)(v)(B) is operable.
(b) Network shall send to Affiliate, not later than forty-five (45)
days after the end of each calendar month for which payment pursuant to Section
7 hereof is due, a statement on a form mutually acceptable to Affiliate and
Network which sets forth all pertinent information to compute the amount due to
Affiliate for such calendar month. Network shall deliver such statement to
Affiliate prior to or along with the amount payable to Affiliate as provided in
this Agreement.
(c) Affiliate and Network each agree to keep and maintain accurate
books and records of all matters directly relating to this Agreement in
accordance with generally accepted accounting principles. During the Term and
for two (2) years after the termination or expiration of this Agreement, such
books and records of each party shall be available to the other party for
inspection and audit, during normal business hours, at the inspecting party's
expense and at the other party's offices, upon reasonable notice to the other
party. Each party's right to perform such audit shall be limited to once in any
nine (9) month period during the Term (and, in the case of Network audits of
Affiliate, Network's rights under this sentence shall consist of one (1) audit
in any nine (9) month period of any System, whether the audit of such System is
conducted at the System or at another office or place of business of Affiliate
or an affiliate of Affiliate) and shall be limited to an audit with respect to
amounts to be paid in the then-current and prior calendar year only, provided,
however, that if Affiliate requires that Network conduct such audits at
individual System locations, Network shall be limited to audits of the
then-current and two prior calendar years only. If either party audits the other
party's books hereunder, the inspecting party must make any claim against the
other party within the earlier of, three (3) months after the inspecting party
or the inspecting party's representative leaves the other party's offices, or
twenty-four (24) months after the close of the earliest month which is the
subject of such audit or inspection (which twenty-four (24) months shall be
extended to thirty-six (36) months for Systems if Affiliate requires that
Network conduct audits at individual system locations). Furthermore, any claim
must
15
<PAGE>
relate to the then-current calendar year or the immediately preceding calendar
year only, provided, however, that if Affiliate requires that Network conduct
audits at individual System locations, such claims must relate to the
then-current calendar year or the immediately preceding two calendar years only.
If a claim is not made within such time, then all amounts paid during such time
period shall be deemed final and uncontestable and the inspecting party will be
deemed to have waived its right to collect any shortfalls from the other party
for the period(s) audited.
7. PROMOTION:
(a) Commencing three months after the commencement of the sale of
the Service to the customers of any System, and immediately upon the
commencement of the sale of the Service to Satellite Subscribers under this
Agreement (as the case may be) Network shall contribute $.02 per copy for any
pay-per-view catalogue or pay-per view guide utilized by the Systems or by any
Satellite distributor of the Service under this Agreement which includes
;listings for the Service and at least one (1), one quarter (1/4) page
advertisement for the service, whether or not a subscriber receives such
catalogue or guide without charge once each calendar month throughout the Term
hereof, each System and each Satellite distributor of the Service under this
Agreement shall be entitled to claim the contribution from Network provided for
in this Section 7(a) by providing. Network with appropriate documentation
verifying the quantity and content of the guides or catalogues for which such
contribution is sought. Network shall remit such contributions to the
appropriate Systems and Satellite distributors no later than forty-five (45)
days after receipt of such documentation.
(b) Notwithstanding the provisions of Section 5 of this Agreement to
the contrary, any System which launches the Service ***** after the Test Period,
if any, that the System carries the Service; provided, however, that the Test
Period, if any, in any System shall terminate immediately upon the first sale of
the service in the System to a customer; provided, further, that Affiliate shall
expend an amount of funds, in any System which launches the Service (which
amount is in the aggregate equal to or greater than the amount of Service Cable
Fees or PPV Cable Fees ***** during such ***** period in the absence of this
paragraph), either to, (Y) reimburse Affiliate or an affiliate of Affiliate for
the costs of a market or community research survey regarding programming,
including adult programming, undertaken in connection with, or preparatory to,
the launch of the Service on the pertinent System, (ii) acquire equipment
necessary to descramble the signal of the Service, or (iii) advertise or promote
the Service using methods and expenditures mutually agreeable to Affiliate and
Network. Furthermore, each System shall provide Network with written
documentation (such as receipts or invoices) reflecting such System's
expenditures under this paragraph no later than forty-five (45) days after the
ninetieth day after the expiration of the Fee Waiver Period. If and to the
extent that by ninety (90) days after the expiration of the Fee Waiver Period,
any System has expended an amount of funds under the preceding sentence which is
less than the amount of the Service Cable Fees and PPV Cable Fees so waived
during the Fee Waiver Period, then the difference shall be remitted to Network
promptly. Affiliate shall not be eligible to take advantage of this paragraph
more than once for any System.
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<PAGE>
(c) Network may not, without Affiliate's prior written consent,
undertake marketing tests or surveys, rating polls or any other research in the
systems in connection with the Service. With respect to any test, survey, rating
poll or research which applies to a System or Systems for which Network seeks
Affiliate's consent, Network shall notify Affiliate of the nature and scope of
each such project and, upon Affiliate's prior written consent to such project
(which consent may be withheld in Affiliate's sole and absolute discretion),
Affiliate will, to the extent permitted by applicable lam and company policy,
cooperate in such research by rendering such assistance as Network may
reasonably request and as Affiliate can reasonably provide, the cost of which
assistance shall be borne by Network. Network shall provide Affiliate, without
cost to Affiliate, with the results of such research to the extent it applies to
z System or Systems. Furthermore, Network shall otherwise keep the results of
all research relating to a System or Systems confidential under the provisions
of Section 12 hereof and shall retain the results of such research in an
aggregate form only, which results do not identify any subscriber, cable
television system or cable television operator.
(d) Network shall have the right to review and approve, in advance,
any of Affiliate's publicity, and the publicity of any affiliate of Affiliate or
any subdistributee under this Agreement, about the Service, which approval shall
not be unreasonably withheld or delayed. Affiliate has not and will not acquire
any proprietary rights in any trade names, trademarks, service marks or logos
associated with Network or its parent corporation (the "Marks") by reason of
this Agreement or otherwise. Affiliate further acknowledges the great value of
the goodwill associated with the Marks and the public renown and recognition of
the same, and that the Marks have a distinctiveness and a secondary meaning that
is firmly associated in the minds of the trade and general public with Playboy
Enterprises, Inc. and/or Network, and that any additional goodwill in the Marks
which may be created through the use of the Marks by Affiliate shall redound to
the sole benefit of Playboy Enterprises, Inc: and/or Network, as the case may
be. Affiliate may use the Marks only for the promotion of the programs and
program services of Network which Affiliate or any affiliate of Affiliate or any
subdistributee under this Agreement distributes, and such use shall be in
accordance with any further clear, unambiguous, reasonable prior written
instructions that may be issued by Network from time to time. Affiliate shall
submit any initial use of the Marks to Network for Network's prior written
approval at least ten (l0) working days prior to their intended distribution
which approval shall not be unreasonably withheld or delayed. Any use of any
Mark that is not consistent with prior approved uses requires the prior express
written approval of Network; which approval shall not be unreasonably withheld
or delayed. Any such submission or request for approval shall be made
simultaneously to General Manager, Playboy Television, 9242 Beverly Boulevard,
Beverly Hills, California 90210 and to General Counsel, Playboy Enterprises,
Inc., 680 N. Lake Shore Drive, Chicago, Illinois 60611. Network, through either
of such officers, may, pursuant to the terms hereof, disapprove of any use of
any Marks by Affiliate, which use does not meet the requirements hereof.
Affiliate will not disseminate any material that has not been approved or deemed
approved by Network in accordance with the terms hereof. Network shall use its
best efforts to either approve or disapprove any such use within one (1)
business day of Network's receipt of material for approval. Notwithstanding the
foregoing, any such approval must be granted or withheld within five (5)
business days of
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<PAGE>
Network's receipt of materials for approval. Failure by Network to respond
within five (5) business days of Network's receipt of materials for approval
will not be deemed approval. However, if Affiliate or any affiliate of Affiliate
or any subdistributee under this Agreement resubmits such materials after the
end of said five (5) business day period, then Network shall have two (2)
additional business days to respond, after which, in the absence of response
from Network, the use of such materials shall be deemed approved. For purposes
of this Section 7, Network's disapprovals must be given in writing but approvals
may be given telephonically. Unless otherwise specified by Network, all
materials, involving the Marks shall include the following notice: "PLAYBOY AND
RABBIT HEAD DESIGN ARE MARKS OF AND USED UNDER LICENSE WITH PLAYBOY ENTERPRISES,
INC."
(e) Network shall not, as a part of the Service, include any direct
on-air marketing or sales of products or services, including, but not limited
to, sales through "800", "900" or "976" telephone services (or other telephone
services which impose a charge in addition to the telephone service provider's
charge for placing the call); provided, however, that the Service may contain
commercials for the Network or merchandise or services offered by Playboy
Enterprises, Inc. or a subsidiary thereof ("Network commercials") if such
Network Commercials do not exceed an average (measured monthly) of two (2)
minutes per hour of the service. Network agrees that in the event Network
includes any Network Commercials on the Service in excess of such average of two
(2) minutes per hour, Network shall pay to Affiliate ten percent (l0%) of Net
Sales receipts on all revenues, merchandise, or services sold to respondents in
the Systems' zip code areas by such Network Commercials in excess of such two
(2) minutes per hour on the Service. For purposes of this paragraph, "Net Sales"
shall mean gross sales less taxes, fees, returns and allowances, freight out and
cash discounts. Furthermore, Network agrees that in the event Network does any
direct on-air marketing and sale of goods, merchandise or products offered by
Playboy Enterprises, Inc. or a subsidiary thereof, Network shall provide
Affiliate with lists of the names of respondents from within the zip code areas
of the Systems who respond to such direct on-air marketing and sales, for use by
Affiliate or any System or Systems. Any amounts payable by Network to Affiliate
hereunder shall be due and payable forty-five (45) days after the end of the
calendar month during the Term to which such amounts relate.
(f) Network and Affiliate hereby acknowledge that (i) their
interests are often in direct conflict, (ii) their relationship is often
adversarial, and (iii) Network could cause Affiliate significant harm by the
nature of Network's communications to Affiliate's subscribers or to the
governmental entities or franchise or licensing authorities whose opinions and
actions could adversely affect cable television systems affiliated with
Affiliate. Therefore, Network shall not engage in any communications with any
cable television subscribers or franchise or licensing authority or governmental
entity in the operating Area of any cable television system which satisfies the
requirements of Exhibit A hereto which would, or could, adversely interfere with
the relationship between Affiliate or any affiliate of Affiliate and
subscribers, or the relationship between Affiliate or any affiliate of
Affiliate, and any governmental entities or community in any such operating
Area. This provision shall not apply to any proceeding before any judicial body,
to communications with Congress or any other branch or agency of the Federal
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<PAGE>
government, or to the contents of Playboy Magazine. This Section i(g) shall
survive the expiration or termination of this Agreement for a period of two (2)
years regardless of the reason for such expiration or termination.
(g) Network shall not promote on the Service any other cable
programming service which is affiliated with Network without the prior written
consent of Affiliate.
(h) Network shall make available to Affiliate, each System, and each
distributor to Satellite Subscribers, such promotional materials, at no charge
to Affiliate or to any System, to be used by Affiliate, such Systems and each
distributor to Satellite Subscribers to advertise and promote the Service
programming, provided, however., that Network shall have no obligation to
provide any such materials to Affiliate if Network is not providing such
materials to any other cable television system operator or satellite television
programming distributor. Network shall exercise reasonable efforts to provide
such materials, if available, to Affiliate no later than fifty (50) days prior
to the first day of the calendar month to which they relate.
8. WARRANTIES AND INDEMNITIES:
(a) Network represents and warrants to Affiliate that (i) Network is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (ii) Network has the power and authority to enter
into this Agreement and to fully perform its obligations hereunder; (iii)
Network is under no contractual or other legal obligation which shall in any way
interfere with its full, prompt and complete performance hereunder; (iv) the
individual executing this Agreement on behalf of Network has the authority to do
so; (v) Network is in compliance with all laws, rules, regulations and court and
administrative decrees to which it is subject including, without limitation, all
applicable rules and regulations of the Federal Communications Commission (the
"FCC"), the non-compliance with which might adversely affect Affiliate; (vi)
Network has, or will have acquired at the time all or part of the Service is
made available to Affiliate, good title to, and/or each and every property right
(whether relative to tangible or intangible property), or license, usage or
other right necessary or appropriate whatsoever to effectuate the acts or
performances contemplated by, or satisfy the obligations imposed on it pursuant
to, this Agreement, including all permits, rights, licenses and approvals
necessary, required or appropriate for any and all performances through to the
premises and to the listeners frequenting the premises of Service Cable
subscribers, service Satellite Subscribers, PPV Cable Subscribers and PPV
Satellite Subscribers; (vii) neither the Service, any program related thereto,
or any component thereof is subject to, or the subject of, any lien,
encumbrance, charge, lis pendens, administrative proceeding, governmental
investigation, or litigation pending or threatened; (viii) the use and
exhibition of the Service by Affiliate, as contemplated by this Agreement, will
not cause Affiliate to violate any law, rule, regulation or court or
administrative decree which in each case is constitutional; and (ix) the
obligations created by this Agreement, insofar as they purport to be binding on
Network, constitute legal, valid and binding obligations of Network enforceable
in accordance with their terms.
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<PAGE>
(b) Affiliate represents and warrants to Network that (i) Affiliate
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (ii) Affiliate has the power and authority to
enter into this Agreement and to fully perform its obligations hereunder; (iii)
Affiliate is under no contractual or other legal obligation which shall in any
way interfere with its full, prompt and complete performance hereunder; (iv) the
individual executing this Agreement on behalf of Affiliate has the authority to
do so; and (v) the obligations created by this Agreement, insofar as they
purport to be binding on Affiliate, constitute legal, valid and binding
obligations of Network enforceable in accordance with their terms.
(c) Network represents and warrants to Affiliate that neither the
service nor any material provided to Affiliate by Network in connection
therewith including., without limitation, any advertising or promotional
materials, will contain any material which will libel, slander or defame any
person, and the Service and such additional materials provided to Affiliate will
not, when exhibited, transmitted or otherwise exploited in accordance herewith,
violate, infringe upon or give rise to any finally sustained adverse claim with
respect to any contract right, common law right or any other right of any party
(including, without limitation, any copyright, trademark, literary or dramatic
right, music synchronization right, right of privacy or publicity or violate any
law, or (when exhibited by Affiliate as contemplated hereby) cause Affiliate or
any affiliate of Affiliate to violate any law.
(d) Network represents, covenants, and warrants that the Service
complies, and will continue to comply, in all respects with the commercial
matter limitations of the Children's Television Act of 1990, Public Law 101-937
(October 18, 1990) and the regulations of the FCC promulgated thereunder as the
same may apply to cable television systems and cable operators, including 47
C.F.R. ss. 76.225, 76.305, and as the same may from time-to-time be amended
("Children's Television Regulations"); provided further, that Network
represents, covenants and warrants that it will provide to Affiliate all records
demonstrating such compliance under the Children's Television Regulations as are
necessary for Affiliate to timely demonstrate its compliance as a cable operator
with the commercial matter limitations and record keeping requirements of the
Children's Television Regulations, it being acknowledged by Affiliate that as of
the date of this Agreement, the providing of a letter to Affiliate pursuant
hereto substantially in the form attached hereto as Exhibit D shall constitute
full compliance with the record-keeping information requirements under the
Children's Television Act regulations existing as of the date hereof; provided
further that the Service contains neither commercial matter nor children's
programming as those terms are defined in such regulations; provided further
that Network represents, covenants and warrants that the Service complies, and
will continue to comply, with all origination cablecasting regulations of the
FCC, including but not limited to 47 C.F.R. ss. ss. 76.205 - 76.221 (political
equal time, personal attack, lotteries and sponsorship identification), as the
same may from time to time be amended ("Origination Cablecasting Requirements"),
and that Network shall provide Affiliate all necessary documentation required
thereunder for Affiliate to timely meet its documentation and public file
requirements under the Origination Cablecasting Requirements. In the event that
any other programming offered by the Service shall be among the kind of
programming which is regulated by federal,
20
<PAGE>
state or local law, as the same may apply to pay television systems and
operators, then Network shall provide to Affiliate all statements, records or
other documents reasonably necessary for Affiliate to demonstrate timely
compliance as an operator or distributor with such laws and regulations.
(e) Affiliate and Network shall each indemnify, defend and forever
hold harmless the other, the other's affiliated companies and each of the
other's (and the other's affiliated companies) respective officers, directors,
employees, partners and agents, against and from any and all losses,
liabilities, claims, costs, damages and expenses (including, without limitation,
fines, forfeitures, attorney's fees, disbursements and administrative or court
costs) arising out of any breach by it of any term of this Agreement or any
warranty, covenant or representation contained herein.
(f) Without limiting the provisions of Section 8(e) or Section 8 (g)
hereof, Network will indemnify, defend and forever hold Affiliate ,and
Affiliate's affiliated companies', and each of Affiliate's and Affiliate's
affiliated companies' respective officers, directors, employees, partners and
agents harmless from and against any and all losses, liabilities, claims, costs,
damages and expenses (including, without limitation, fines, forfeitures,
attorney's fees, disbursements and administrative or court costs) arising out of
the content of the Service or the use and delivery of the Service (including,
but not limited to, sponsorship, promotional and advertising spots, any
background music and anything else inserted by Network or any party acting under
authority of Network), including, without limitation, any losses, liabilities,
claims, costs, damages and expenses based upon any lien, encumbrance, charge,
lis pendens, administrative proceeding, government investigation or litigation
relating to the Service, any program included in the Service or any component
thereof, or based upon alleged or proven libel, slander, defamation, invasion of
the right of privacy or publicity, or violation or infringement of copyright
(including music performance rights for any and all performances through to
subscribers), literary or music synchronization rights, obscenity or any other
form or forms of speech (whether or not protected by the Constitution of the
United States or any State) or otherwise arising out of the content of the
Service as furnished by Network hereunder without any interruption, delay,
editing or alteration except as required or otherwise caused by Network. In no
event shall the foregoing indemnification include any compensation or
reimbursement for loss of prospective profits or anticipated sales arising from
any breach or alleged breach of Network's representations and warranties.
(g) Without limiting the provisions of Section 8(e) or Section 8(f)
hereof, Network shall indemnify, defend and forever hold harmless Affiliate and
Affiliate's affiliated companies, and each of Affiliate's and Affiliate's
affiliated companies respective officers, directors, employees, partners and
agents from and against any and all losses, liabilities, claims, costs, damages
and expenses (including, without limitation, fines, forfeitures, attorneys'
fees, disbursements, court or administrative costs) or any other losses or
liabilities of whatever nature, arising from any violation by Network of the
Origination Cablecasting Requirements, including required documentation and
public file requirements, or of the Children's Television. Regulations, either
with respect to the
21
<PAGE>
service or with respect to any of the compliance demonstration or record keeping
requirements of the Children's Television Regulations.
(h) In connection with any indemnification provided for in this
Section 8, each party shall so indemnify the other only if such other party
claiming indemnity shall give the indemnifying party prompt notice of any claim
or litigation to which its indemnity applies; it being agreed that the
indemnifying party shall have the right to assume the full defense of any or all
negotiations, claims or litigation to which its indemnity applies. The
indemnified party will cooperate fully (at the cost of the indemnifying party)
with the indemnifying party in such defense and in the settlement of such claim
or litigation, and the indemnified party shall make no compromise or settlement
of any such claim without the prior written consent of the indemnifying party.
The settlement of any claim or action by the indemnified party without the prior
written consent of the indemnifying party shall release the indemnifying party
from its obligations hereunder with respects to such claim or action so settled.
In addition, with regard to any indemnification relating to any prosecution or
claim arising from an alleged violation of statutory law concerning the content
of the service, Network shall so indemnify, defend and hold harmless Affiliate
as provided for in Section 8(f) hereof, only if each of the following conditions
is met:
(i) As soon as practicable after actual receipt by Affiliate's Vice
President, Programming, of actual notice of commencement of a
prosecution or claim involving the content of the Service, Affiliate
or a representative of Affiliate shall notify both the General
Counsel's office of Network in Chicago at (312) 751-8000 and
Network's President in Beverly Hills at (310) 246-4000, or at other
numbers hereafter specified by Network by giving Affiliate prior
written notice of such other numbers. Such telephone notification
shall be followed, within a reasonable period of time, by a letter
to Network containing copies of all papers in the possession of the
Vice President, Programming of Affiliate, served in connection with
such alleged violation of law and giving whatever information is
then in actual possession of Affiliate's Vice President, Programming
regarding the incident. After said initial notifications, Network
shall be solely responsible for further investigation and
information gathering about the incident.
(ii) Unless otherwise specified in this Section 8 (h) , Network
shall be required to select and pay for counsel to represent
Affiliate in any action relating to the content of the Service, and
to which Affiliate is a party defendant, cross-claimant, third-party
plaintiff, or counterclaimant. If Affiliate elects to engage its own
counsel (in addition to any counsel selected and paid for by Network
and acting as Affiliate's counsel) in connection with any such
prosecution or claim described herein, it shall do so at its own
cost and expense. Nothing herein shall abrogate Network's obligation
to indemnify, defend and hold harmless Affiliate.
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<PAGE>
(i) Network represents, warrants and covenants that (i) it has
obtained errors and omissions liability insurance covering the Service and all
elements thereof from a nationally recognized insurance carrier and in
accordance with industry standards; (ii) such insurance shall remain in full
force and effect throughout the Term; (iii) Affiliate shall be named as an
additional insured on such policy; and (iv) Network will provide Affiliate with
documentation to such effect upon the execution hereof.
(j) The representations, warranties and indemnities contained in
this Section 8 shall continue throughout the Term and the indemnities shall
survive the expiration or termination of this Agreement regardless of the reason
for such expiration or termination.
9. EARLY TERMINATION RIGHTS:
(a) In addition to Network's other rights at law or in equity or
pursuant to other provisions of this Agreement, Network may, by so notifying
Affiliate, terminate this Agreement: (i) if Affiliate is in material breach of
this Agreement, provided, however, that if such breach is of the type that is
curable, then Network shall not exercise its termination or other rights at law
or in equity hereunder unless Network has, by so notifying Affiliate in writing,
given Affiliate at least thirty (30) days to fully cure such material breach and
to demonstrate to Network that such material breach has been cured, and provided
further, that if such breach is confined to a System or to a limited number of
Systems, Network shall have the right to terminate this Agreement only as to
such System or Systems; or (ii) if Affiliate has filed a petition in bankruptcy,
is insolvent, or has sought relief under any law related to Affiliate's
financial condition or its ability to meet its payment obligations; or (iii) if
any involuntary petition in bankruptcy has been filed against Affiliate, or any
relief under any such law has been sought by any creditor (s) of Affiliate,
unless such involuntary petition is dismissed, or such relief is denied, within
thirty (30) days after it has been filed or sought; or (iv) upon 120 days prior
written notice, if Network terminates delivery of the Service to all
distribution technologies; provided that if Network commences distribution of a
new service that contains any programming which is substantially similar to any
programming included in the Service within twelve (12) months of such
termination., Affiliate may, in its sole and absolute discretion, elect to carry
such new service pursuant to the terms and conditions of this Agreement; or (v)
if by December 31, 1998, Affiliate is not then making the Service available in
Systems representing the lesser of (A) four million cable television
subscribers; or (B) Systems representing forty percent (40%) of the cable
television subscribers in systems which are then both managed and directly or
indirectly owned at least ten percent (10%) by Tele-Communications, Inc. ("TCI")
or a subsidiary of TCI, then, at any time during January, 1999, Network may
terminate this Agreement as of the later of 120 days after the giving of such
notice or the minimum time necessary for Affiliate to terminate its carriage of
the Service in compliance with applicable law.
(b) In addition to Affiliate's other rights at law or in equity or
pursuant to other provisions of this Agreement, and in addition to any other
right to terminate provided hereunder, Affiliate may, by so notifying Network,
terminate this Agreement: (i) if Network is in material breach of this
Agreement, provided, however, if such breach is
23
<PAGE>
of the type that is curable, then Affiliate shall not exercise its termination
or other rights at law or in equity hereunder unless Affiliate has, by so
notifying Network, given Network at least thirty (30) days from the time such
notice is sent, to fully cure such material breach and to demonstrate to
Affiliate that such material breach has been cured; or (ii) if Network has filed
a petition in bankruptcy, is insolvent or has sought relief under any law
related to Network's financial condition or its ability to meet its payment
obligations; or (iii) if any involuntary petition in bankruptcy has been filed
against Network, or any relief under any such law has been sought by any
creditor(s) of Network, unless such involuntary petition is dismissed, or such
relief is denied, within thirty (30) days after it has been filed or sought; or
(iv) on at least fifteen (15) days' notice in the event that delivery of the
Service is discontinued or interrupted for a continuous period of fifteen (15)
days.
10. FORCE MAJEURE:
Except as herein provided to the contrary, neither Affiliate nor
Network shall have any rights against the other party hereto for the
non-operation of facilities or the non-furnishing of the Service if such
non-operation or non-furnishing is due to an act of God; inevitable accident;
fire; lockout; strike, or other labor dispute; riot or civil commotion; flood;
hurricane; tornado; earthquake; war; act of government or governmental
instrumentality (whether federal, state or local); failure of performance by a
common carrier; failure in whole or in part of technical facilities; or other
cause (financial inability excepted) beyond such party's reasonable control.
Notwithstanding the foregoing, in the event of non-operation or non-furnishing
of the service, Affiliate shall have the right, immediately, to insert
programming of its choice on the channel otherwise identified with the Service
until such time as the Service is fully operational again. In addition, with
respect to Service Cable Subscribers and Service Satellite Subscribers, credit
will be given to Affiliate, however, on that portion of the Service which is
affected by any interruption during any month equal to the product of (x) the
Fees which would be due for such month assuming no interruption of Service
during such month, multiplied by (y) a fraction, the numerator of which is the
total number of hours of interruption of the Service during such month and the
denominator of which is the total number of hours of the Service which would
have been provided during such month absent such interruption(s), provided,
however, that such credit shall be given to Affiliate only if Affiliate shall
pass on proportionate credit to its Service Cable Subscribers and Service
Satellite Subscribers, as the case may be.
11. NOTICES:
Any notice or report given under this Agreement shall be in writing,
shall be sent postage prepaid by registered or certified mail return receipt
requested or by hand or messenger delivery, or by Federal Express or similar
overnight delivery service, or by facsimile transmission, to the other party, at
the following address (unless either party at any time or times designates
another address for itself by notifying the other party thereof by certified
mail, in which case all notices to such party thereafter shall be given at its
most recently so designated address):
24
<PAGE>
To Network:
3242 Beverly Boulevard
Beverly Hills, California 90210
Facsimile Number: (310) 246-4065
Attention: Programming Distribution
cc: Associate General Counsel
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
To Affiliate:
Terrace Tower II
5619 DTC Parkway.
Englewood, Colorado 80111
Facsimile Number: (303)488-3219
Attention: President
cc: Vice President, Programming
cc: Corporate Counsel -
Business Affairs
cc: Vice President, Pay-Per-View
Notice or report given by personal delivery shall be deemed given on
delivery. Notice or report given by mail shall be deemed given on the earlier to
occur of actual receipt thereof or on the fifth day following mailing thereof in
accordance with the notice requirements of this Section 11. Notice or report
given by Federal Express or similar overnight delivery service shall be deemed
given on the next business day following delivery of the notice or report to
such service with instructions for overnight delivery. Notice or report given by
facsimile transmission, if receipt is electronically confirmed, shall be deemed
given on the day of transmission if a business day, or on the next business day
after the day of transmission if not transmitted on a business day.
12. CONFIDENTIALITY: PRESS RELEASES:
Neither Affiliate nor Network shall disclose (whether orally or in
writing, or by press release or otherwise) to, any third party (other than each
party's respective officers, directors, and employees, in their capacity as
such, and their respective auditors or attorneys; provided, however, that the
disclosing party agrees to be responsible for any breach of the provisions of
this Section 12 by such officers, directors or employees, auditors or
attorneys), any information with respect to the terms and provisions of this
Agreement, any information contained in any report delivered under the terms of
this Agreement, any information regarding Affiliate's (or a System's)
subscribers (including but not limited to, the number of such subscribers or the
number of Addressable Subscribers) and neither party hereto shall disclose any
information obtained in any inspection and/or audit of the other party's books
and records, except: (i) to the extent necessary (but redacted to the greatest
extent possible) to comply with law or with the
25
<PAGE>
valid order of an administrative agency or a court of competent jurisdiction, in
which event the party making such disclosure shall so notify the other as
promptly as practicable (and, if possible, prior to making such disclosure) and
shall seek confidential treatment of such information; (ii) as part of its
normal reporting or review procedure to its parent company, its auditors or its
attorneys; provided, however, that the disclosing party agrees to be responsible
for any breach of the provisions of this Section 12 by such parent company, its
auditors or attorneys; (iii) in order to enforce its rights or perform its
,obligations pursuant to this Agreement; and (iv) if mutually agreed by
Affiliate and Network, in advance of such disclosure, in writing. In addition,
Network shall not use or disclose information (whether personally identifiable
information or not) to any third party regarding Affiliate's or any affiliate of
Affiliate's Subscribers and shall not engage in any direct mailing or telephone
solicitation, for any purpose, to Subscribers of Affiliate or any affiliate of
Affiliate, unless such Subscriber has previously initiated a communication with
Network; provided, however, that the foregoing sentence shall not apply to
information obtained by Network or an affiliate of Network in connection with
sales of products or services other than the Service. This Section 12 shall
survive the expiration or termination of this Agreement regardless of the reason
for such expiration or termination.
13. MISCELLANEOUS:
(a) Assignment: Binding Effect; Reorganization. This Agreement,
including both its obligations and benefits, shall redound to the benefit of the
respective transferees and successors of the parties, except that neither this
Agreement nor either party's rights or obligations hereunder shall be assigned
or transferred by either party without the prior written consent of the other
party; provided, however, no consent shall be necessary in the event of an
assignment to a successor entity resulting from a merger, acquisition or
consolidation by either party or assignment to an entity under common control,
controlled by or in control of either party. Notwithstanding the foregoing,
Network shall give Affiliate written notice of a change in the control or
ownership of the Service or Network not later than the five (5) days after such
change in control or ownership occurs provided, however, that Network shall use
reasonable efforts to give Affiliate thirty (30) days notice in advance of any
such change in control or ownership. In the event of any such change in the
ownership or control of Network or the Service, this Agreement may, in the sole
and absolute discretion of Affiliate, be terminated. For purposes of this
paragraph, the term "control" means the power to direct the management and
policies of an entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; provided, however, that no transfer
of ownership or management of Network or the Service to any direct descendent of
Hugh Hefner, either from Hugh Hefner or from another direct descendent of Hugh
Hefner, shall be deemed to be a change o(euro) control hereunder. In addition to
the foregoing, upon one hundred twenty (120) days' prior written notice to
Affiliate, Network may assign this Agreement or any portion of its rights or
obligations hereunder without Affiliate's consent, provided that, as a result of
such assignment, the Service shall no longer generally be identified as a
"Playboy" Service by or through the use of the Marks therein and the Service
shall no longer include any "Playboy-identified" programming. Upon receipt of
such notice, Affiliate may elect to terminate this Agreement, at any time
thereafter, upon, ninety (90)
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<PAGE>
days' prior written notice to Network (or its assignee), to be effective on the
date contained in Affiliate's notice.
(b) Service Combinations. In the event that the Service is merged
with; or Network acquires control of, or Network is acquired by or merges with,
or control of Network is acquired by, or the Service is acquired by, any other
programming service or the owner thereof, if Affiliate has (at the time of such
merger or acquisition) an affiliation agreement with any such other service or
entity, Affiliate shall have the option to choose to continue carriage of the
Service and of such other service, as the case may be, under either this
Agreement or under such other affiliation agreement. If Affiliate does not have
an affiliation agreement with such other service or entity, Affiliate shall have
the option to elect to have this Agreement continue to apply to the service
after such merger or acquisition, or to any surviving service after such merger
or acquisition.
(c) Entire Agreement; Amendments: Waivers. This Agreement contains
the entire understanding of the parties and supersedes and abrogates all
contemporaneous and prior understandings of the parties, whether written or
oral, relating to the subject matter hereof. This Agreement may not be modified
except in writing executed by both parties hereto. Any waiver of any provision
of, or right included in, this Agreement must be in writing and signed by the
party whose rights are being waived and no waiver by either Affiliate or Network
of any breach of any provision hereof shall be or be deemed to be a waiver of
any preceding or subsequent breach of the same or any other provision of this
Agreement.
(d) Governing Law. The obligations of Affiliate and Network under
this Agreement are subject to all applicable federal, state and local laws,
rules and regulations (including, but not limited to the Communications Act of
1934, as the same may be amended from time to time, and the rules and
regulations of the FCC promulgated thereunder) and this Agreement and all
matters or issues collateral thereto shall be governed by the laws of the State
of New York (except with respect to issues regarding perpetuity, which shall be
governed by the laws of the State of Colorado), without regard to choice of law
rules.
(e) Relationship. Neither Affiliate nor Network shall be, or hold
itself out as, the agent of the other under this Agreement. No subscriber of
Affiliate shall be deemed to have any privity of contract or direct contractual
or other relationship with Network by virtue of this Agreement or Network's
delivery of the service to Affiliate hereunder. Likewise, no supplier of
advertising or programming or anything else included in the service by Network
shall be deemed to have any privity of contract or direct contractual or other
relationship with Affiliate by virtue of this Agreement or Affiliate's carriage
of the Service hereunder. Nothing contained herein shall be deemed to create,
and the parties do not intend to create, any relationship of partners, joint
venturers or agents, as between Affiliate and Network, and neither party is
authorized to or shall act toward third parties or the public in any manner
which would indicate any such relationship with the other. Network disclaims any
present or future right, interest or estate in or to the transmission facilities
of Affiliate and any affiliate of the Affiliate and the parents, subsidiaries,
partnerships or joint venturers controlling the Systems on which
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<PAGE>
the Service is transmitted, such disclaimer being to acknowledge that neither
Affiliate nor the transmission facilities of the Systems (nor the owners
thereof) are common carriers.
(f) *****.
(g) Severability. The invalidity under applicable law of any
provision of this Agreement shall not affect the validity of any other provision
of this Agreement, and in the event that any provision hereof is determined to
be invalid or otherwise illegal, this Agreement shall remain effective and shall
be construed in accordance with its terms as if the invalid or illegal provision
were not contained herein; provided however, that both parties shall negotiate
in good faith with respect to an equitable modification of the provision, or
application thereof, held to be invalid and provisions logically related
thereto. Notwithstanding the foregoing, if any legislation is enacted, or
administrative ruling, or court decree or order or stipulated settlement is
issued which materially deprives Affiliate of the overall net economic benefits
of this Agreement with respect to the cable exhibition of the service, and if
the parties fail to reach an agreement after good faith negotiation, Affiliate
shall have the right to terminate this Agreement upon thirty (30) days' prior
written notice to Network.
(h) No Inference Against Author. Network and Affiliate each
acknowledge that this Agreement was fully negotiated by the parties and,
therefore, no provision of this Agreement shall be interpreted against any party
because such party or its legal representative drafted such provision.
(i) No Third Party Beneficiaries. The provisions of this Agreement
are for the exclusive benefit of the parties hereto and their permitted assigns,
and no third party shall be a beneficiary of, or have any rights by virtue of,
this Agreement.
(j) Headings. The titles and headings of the sections in this
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement.
(k) Non-recourse. Notwithstanding anything contained in this
Agreement to the contrary, it is expressly understood and agreed by the parties
hereto that each and every representation, warranty, covenant undertaking and
agreement made in this Agreement on the part of any of the parties to this
Agreement was not made nor intended to be made as a personal representation,
warranty, covenant, undertaking, or agreement on the part of any incorporator,
stockholder, director, officer, partner, employee or agent, past, present or
future, or any of them, and any recourse, whether in common law, in equity, by
statute or otherwise, against any of them is hereby forever waived and released.
The parties hereto have executed this Agreement as of the date first
above written.
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<PAGE>
AFFILIATE: NETWORK:
SATELLITE SERVICES, INC. PLAYBOY ENTERTAINMENT GROUP,
a Delaware corporation INC., a Delaware corporation
By: /s/ Jedd Palmer By: /s/ Michael K. Fleming
JEDD PALMER MICHAEL K. FLEMING
Title: Vice President, Programming Title: S.R. V.P. - General Mgr.
PLAYBOY TELEVISION
PLAYBOY ENTERTAINMENT GROUP
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<PAGE>
SCHEDULE 1
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
SYSTEMS
TCI OWNED AND MANAGED
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Maricopa Maricopa (Rio Verde) Maricopa Arizona
Scottsdale Scottsdale Maricopa Arizona
North Scottsdale Maricopa Arizona
Shadow Mountain Maricopa Arizona
Maricopa Maricopa Arizona
Alameda Alameda Alameda California
Alameda Nas Alameda California
Brentwood Contra Costa East Contra Costa East California
Brentwood Contra Costa East California
Chino Pomona Los Angeles California
Chino San Bernardino
South California
Carbon Canyon San Bernardino
South California
Chino Hills San Bernardino
South California
Cupertino Cupertino Santa Clara West California
Los Altos Santa Clara West California
Santa Clara Santa Clara West California
Davis Davis Yolo California
Yolo Yolo California
Foster City Foster City San Mateo California
Hillsborough San Mateo California
Hacienda Heights La Puente Los Angeles California
Pico River Los Angeles California
Baldwin Park Los Angeles California
Hayward Hayward Alameda California
Alameda Alameda California
San Leandro Alameda California
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
San Lorenzo Alameda California
Lakeview/Nuevo Perris Riverside West California
Lakeview/Nuevo Riverside West California
Los Angeles Los Angeles Los Angeles California
Martinez Contra Costa North Contra Costa East California
Contra Costa South Contra Costa East California
Lafayette North Contra Costa East California
Lafayette South Contra Costa East California
Martinez Contra Costa East California
North Orinda Contra Costa East California
Pleasant Hill Contra Costa East California
Walnut Creek Contra Costa East California
Moraga Contra Costa East California
South Orinda Contra Costa East California
Danville Contra Costa East California
Clyde Contra Costa East California
Concord Naval Contra Costa East California
Weapons Station
Moreno Valley Moreno Valley Riverside West California
Palo Alto Palo Alto Santa Clara West California
Atherton San Mateo California
East Palo Alto San Mateo California
Menlo Park San Mateo California
Stanford Santa Clara West California
Perris Perris Riverside West California
San Jose San Jose Santa Clara West California
Campbell Santa Clara West California
Santa Clara County Santa Clara West California
Cupertino Santa Clara West California
Los Gatos Santa Clara West California
Scotts Valley Santa Cruz Santa Cruz California
Santa Cruz County Santa Cruz California
Scotts Valley Santa Cruz California
South Whittier South Whittier Los Angeles California
Sunnyvale Sunnyvale Santa Clara West California
Tracy Tracy San Joaquin California
San Joaquin San Joaquin California
Vacaville Vacaville Solano West California
Solano Solano West California
Walnut Creek Walnut Creek Contra Costa East California
Contra Costa Contra Costa East California
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Woodcrest Woodcrest Riverside West California
Castle Rock Castle Rock Douglas Colorado
Acres Green Douglas Colorado
The Pinery Douglas Colorado
Franktown Douglas Colorado
Parker Douglas Colorado
Perry Park Douglas Colorado
Sedalia Douglas Colorado
Louviers Douglas Colorado
Roxborough Village Douglas Colorado
Denver Metroplex Arvada Jefferson/Adams Colorado
Jefferson North Jefferson Colorado
Westminster Jefferson/Adams Colorado
Aurora Adams Colorado
Fitzsimmons Army Med Adams Colorado
Aurora Arapahoe Colorado
Commerce City Adams Colorado
Englewood Arapahoe Colorado
Broadway Estates Arapahoe Colorado
Arapahoe Arapahoe Colorado
Greenwood Village Arapahoe Colorado
Sheridan Arapahoe Colorado
Cherry Hills Village Arapahoe Colorado
Federal Heights Adams Colorado
Adams Adams Colorado
Buckley AFB Denver Colorado
Holly Hills Arapahoe Colorado
Lakewood Jefferson Colorado
Golden Jefferson Colorado
Jefferson South (Lakewood) Jefferson Colorado
Douglas Douglas Colorado
Adams County SMATVS Adams Colorado
Chapparal Subdivision Arapahoe Colorado
Hollywood Hollywood Broward Florida
Miami Opa Locka Dade Florida
Miami Dade Florida
Carpentersville Algonquin Kane/McHenry Illinois
Crystal Lake McHenry Illinois
West Dundee Kane Illinois
Lake in the Hills McHenry Illinois
East Dundee Kane Illinois
Cary McHenry Illinois
Fox River Grove McHenry Illinois
Carpentersville Kane Illinois
Lakewood McHenry Illinois
Oakwood Hills McHenry Illinois
McHenry McHenry Illinois
Sleepy Hollow Kane Illinois
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Huntley McHenry Illinois
Kane Kane Illinois
Lakemoor McHenry Illinois
Wauconda Lake Illinois
Galesburg Galesburg Knox Illinois
East Galesburg Knox Illinois
Knoxville Knox Illinois
Knox Knox Illinois
Mendota Mendota La Salle Illinois
Monmouth Monmouth Warren Illinois
Warren Warren Illinois
Hammond Hammond Lake Indiana
East Chicago Lake Indiana
Bossier City Bossier City Bossier Louisiana
Bossier Bossier Louisiana
Barksdale AFB Bossier Louisiana
Haughton Bossier Louisiana
Fillmore Bossier Louisiana
Princeton Bossier Louisiana
Baltimore Baltimore Baltimore Maryland
Berlin Berlin Worcester Maryland
Worcester Worcester Maryland
Ocean City Ocean City Worcester Maryland
Sussex Sussex Maryland
Fenwick Island Sussex Maryland
Grand Rapids Grand Rapids Kent Michigan
East Grand Rapids Kent Michigan
Grand Rapids Township Kent Michigan
Ada Kent Michigan
Cascade Kent Michigan
Lowell Kent Michigan
Grandville Grandville Kent Michigan
Georgetown Ottawa Michigan
Byron Kent Michigan
Dorr Allegan Michigan
Jamestown Ottawa Michigan
Lake Orion Independence Oakland Michigan
Clarkston Oakland Michigan
Lake Orion Oakland Michigan
Orion Oakland Michigan
Rochester Auburn Hills Oakland Michigan
Rochester Hills Oakland Michigan
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Oakland Oakland Michigan
Rochester Oakland Michigan
Troy Oakland Michigan
Royal Oak Royal Oak Oakland Michigan
Berkley Oakland Michigan
Clawson Oakland Michigan
Ferndale Oakland Michigan
Huntington Woods Oakland Michigan
Pleasant Ridge Oakland Michigan
Troy Oakland Michigan
Walker Walker Kent Michigan
Alpine Kent Michigan
Plainfield Kent Michigan
Cannon Kent Michigan
Sparta Kent Michigan
Wright Ottawa Michigan
Talmadge Ottawa Michigan
Grand Rapids Kent Michigan
Grand Rapids Township Kent Michigan
Wyoming Wyoming Kent Michigan
Kentwood Kent Michigan
Gaines Kent Michigan
Bellevue Bellevue Sarpy Nebraska
Offutt AFB Sarpy Nebraska
Sarpy Sarpy Nebraska
La Vista La Vista Sarpy Nebraska
Ralston Douglas Nebraska
Papillon Sarpy Nebraska
Douglas Douglas Nebraska
Omaha Douglas Nebraska
Gallup Gallup McKinley New Mexico
Gamerco McKinley New Mexico
Brookhaven Brookhaven Suffolk New York
Patchogue Suffolk New York
Bellport Suffolk New York
Lake Grove Suffolk New York
Poquott Suffolk New York
Mamaroneck Mamaroneck (Town) Westchester New York
Mamaroneck (Village) Westchester New York
Larchmont Westchester New York
Bristow Bristow Creek Oklahoma
Claremore Claremore Rogers Oklahoma
Drumright Drumright Creek Oklahoma
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Tulsa Sand Springs Tulsa Oklahoma
Tulsa Tulsa Oklahoma
Broken Arrow Tulsa Oklahoma
Owasso Tulsa Oklahoma
Glenpool Tulsa Oklahoma
Sapulpa Creek Oklahoma
Jenks Tulsa Oklahoma
Creek Creek Oklahoma
Kiefer Creek Oklahoma
Catoosa Rogers Oklahoma
Tulsa Tulsa Oklahoma
Rogers Rogers Oklahoma
Wagoner Wagoner Oklahoma
Osage Osage Oklahoma
Rolling Hills Wagoner Oklahoma
Abilene Abilene Taylor Texas
Tye Taylor Texas
Dyess AFB Taylor Texas
Taylor Taylor Texas
Jacksonville Jacksonville Cherokee Texas
Cherokee Cherokee Texas
Tyler Tyler Smith Texas
Smith Smith Texas
Whitehouse Smith Texas
CAGUAS CABLE SYSTEMS
Caguas Caguas n/a Puerto Rico
Cayey Cayey-Cidra n/a Puerto Rico
Barranquitas Barranquitas n/a Puerto Rico
Humacao Humacao n/a Puerto Rico
LENFEST COMMUNICATIONS
Sellersville Bedminster Bucks Pennsylvania
Blooming Glen Bucks Pennsylvania
Chalfont Bucks Pennsylvania
Colmar Montgomery Pennsylvania
Dublin Bucks Pennsylvania
Earlington Montgomery Pennsylvania
East Greenville Montgomery Pennsylvania
Elroy Montgomery Pennsylvania
Fountainville Bucks Pennsylvania
Franconia Montgomery Pennsylvania
Green Lane Montgomery Pennsylvania
Hatfield Montgomery Pennsylvania
Harleysville Montgomery Pennsylvania
Hilltown Bucks Pennsylvania
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
Lansdale Montgomery Pennsylvania
Line Lexington Montgomery Pennsylvania
Lederach Montgomery Pennsylvania
Mainland Montgomery Pennsylvania
Milford Square Bucks Pennsylvania
Penasburg Montgomery Pennsylvania
Perkasie Bucks Pennsylvania
Perkiomenville Montgomery Pennsylvania
Pipersville Bucks Pennsylvania
Plumsteadville Bucks Pennsylvania
Quakertown Bucks Pennsylvania
Richlandtown Bucks Pennsylvania
Salford Montgomery Pennsylvania
Salfordville Montgomery Pennsylvania
Sellersville Bucks Pennsylvania
Schwensksville Montgomery Pennsylvania
Silverdale Bucks Pennsylvania
Skippack Montgomery Pennsylvania
Souderton Montgomery Pennsylvania
Spinnerstown Bucks Pennsylvania
Spring Mount Montgomery Pennsylvania
Sumneytown Montgomery Pennsylvania
Telford Bucks Pennsylvania
Telford Montgomery Pennsylvania
Trumbauersville Bucks Pennsylvania
Tylersport Montgomery Pennsylvania
Woxall Montgomery Pennsylvania
Zieglersville Montgomery Pennsylvania
Perkaskie Borough Bucks Pennsylvania
Sellersville Borough Bucks Pennsylvania
West Rockhill Township Bucks Pennsylvania
East Rockbill Township Bucks Pennsylvania
Telford Borough Montgomery Pennsylvania
Souderton Borough Montgomery Pennsylvania
Hatfield Borough Montgomery Pennsylvania
Hatfield Township Montgomery Pennsylvania
Franconia Township Montgomery Pennsylvania
Quakertown Borough Bucks Pennsylvania
Richland Township Bucks Pennsylvania
Milford Township Bucks Pennsylvania
Richlandtown Borough Bucks Pennsylvania
Trumbauersville Borough Bucks Pennsylvania
Silverdale Borough Bucks Pennsylvania
Lower Salford Township Montgomery Pennsylvania
Salford Township Montgomery Pennsylvania
Upper Salford Township Montgomery Pennsylvania
Lower Frederick Township Montgomery Pennsylvania
Green Lane Borough Montgomery Pennsylvania
Marlborough Township Montgomery Pennsylvania
Bedminster Township Bucks Pennsylvania
Dublin Borough Bucks Pennsylvania
Upper Frederick Township Montgomery Pennsylvania
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
US CABLE OF NORTHERN INDIANA
Griffith Cedar Lake Lake Indiana
Crook Co. Uninc. Cook Illinois
Crown Point Lake Indiana
Dyer Lake Indiana
Ford Heights Cook Illinois
Glenwood Cook Illinois
Griffith Lake Indiana
Highland Lake Indiana
Hobart Lake Indiana
Lake Co. Uninc. Lake Indiana
Lake Station Lake Indiana
Lowell Lake Indiana
Lynwood Cook Illinois
Merrillville Lake Indiana
Munster Lake Indiana
New Chicago Lake Indiana
Porter Co. Uninc. Porter Indiana
St. John Lake Indiana
Schererville Lake Indiana
Whiting Lake Indiana
Will Co. Uninc. Will Illinois
US CABLE OF LAKE COUNTY
North Chicago North Chicago Lake Illinois
Antioch Lake Illinois
Fox Lake Lake Illinois
Green Oaks Lake Illinois
Gurnee Lake Illinois
Knollwood & Shields Lake Illinois
Lake Bluff Lake Illinois
Lake Forest Lake Illinois
Lake Villa Lake Illinois
Libertyville Township Lake Illinois
Lindenhurst Lake Illinois
Park City Lake Illinois
Third Lake Lake Illinois
Venetian Village Lake Illinois
Wadsworth Lake Illinois
Waukegan Lake Illinois
Winthrop Harbor Lake Illinois
Zion Lake Illinois
COLUMBIA ASSOCIATES
Beaverton Beaverton Washington Oregon
Tigard Washington Oregon
Lake Osweg Clackamas Oregon
Hillsboro Washington Oregon
Washington Co. Uninc. Washington Oregon
<PAGE>
HEADEND NAME FRANCHISE NAME COUNTY STATE
- ------------ -------------- ------ -----
King City Washington Oregon
Cornelius Washington Oregon
Tualatin Washington Oregon
Sherwood Washington Oregon
Rivergrove Clackamas Oregon
North Plains Washington Oregon
Banks Washington Oregon
Durham Washington Oregon
Wilsonville Washington Oregon
Aloha Washington Oregon
Wash Co-La Washington Oregon
Gaston Washington Oregon
Clackamas Co. Uninc. Clackamas Oregon
<PAGE>
EXHIBIT A
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
System Qualifications
I. Affiliate represents and warrants the following regarding each System listed
on Schedule I hereof:
1. that (a) either Tele-Communications, Inc. or Liberty Media
Corporation (Tele-Communications, Inc. and Liberty Media Corporation shall be
hereinafter referred to as "TCI"; any reference to TCI herein shall be deemed to
be a reference to either Tele-Communications, Inc. or Liberty Media Corporation,
or both, as is necessary to qualify the greatest number of television
distribution facilities hereunder) or its nominee owns, directly or indirectly,
at least a twenty-five percent (25%) interest in the general manager of the
System pursuant to a valid written agreement in full force and effect; or (b)
TCI or its nominee owns, directly or indirectly, a ten percent (10%) interest in
such System or owns an interest or obligation by which TCI, directly or
indirectly, owns a right (whether conditional or not) to convert into or
acquire, directly or indirectly, an interest equal to at least the required
interest. An "indirect" ownership is an interest resulting from ownership
through any series of ownership interests, including corporations, partnerships,
joint ventures or other forms of business organizations; an indirect interest
shall be quantified in amount by a series of percentage multiplications
commencing with TCI's direct interest and multiplying that by the next most
proximate percentage interest and, then, multiplying in turn each succeeding
ownership interest in the order of their progression away from TCI by the result
of the immediately preceding multiplication until the most distant percentage
interest is multiplied;
2. that Affiliate or an agent has been authorized, pursuant to a
valid written agreement in full force and effect, to make and execute decisions
on behalf of each such System with respect to the Service, including but not
limited to billing and collection of fees, selection of programming and
Affiliate continues throughout the Term to exercise such authority with respect
to matters affecting the distribution of the Service by such System;
3. That either a franchise or license is not required or a valid
franchise or license is in effect through the Term of this Agreement or the
franchisee or licensee has held a valid cable television franchise or license
and continues to operate in the franchise or license area under a claim of right
or is otherwise lawfully operating or franchisee or licensee has held a valid
cable franchise or license and is continuing to operate while diligently
pursuing, in good faith, its available judicial remedies. For the
<PAGE>
above purposes, in the event a franchise or license expires before the end of
the Term, such franchise or license shall be deemed valid for so long as
franchisee or licensee is negotiating in good faith with the franchising or
licensing authority for a franchise or license renewal;
4. that, except as permitted under this Agreement, Affiliate is not
subdistributing and will not in the future subdistribute, nor does it claim to
be authorized to subdistribute, the Service through any cable television system
which does not satisfy the requirements set forth above.
II. In the event TCI's direct or indirect equity interest in a System or in the
entity managing such System decreases, and provided TCI's interest does not
decrease to zero, such System shall continue to qualify under Paragraph I
hereof, provided however, (i) at the time of diminution of TCI's interest in the
System, TCI reasonably expects that its interest will return to the necessary
level, and (ii) TCI's interest in such System does in fact increase to the level
required under Paragraph I hereof within eighteen (18) months of the decrease.
III. In the event Affiliate, or any of the entities which owns or manages
Systems which qualify hereunder, effects a corporate separation, reorganization
or restructuring (including, but not limited to, by a distribution of stock, or
other assets or rights, to its shareholders, partners or joint venturers), the
Systems of the entity resulting from such transaction (including all interim and
supporting entities) and/or all of such resulting entities, in the aggregate,
will continue to qualify under Paragraph I hereof, so as to continue to qualify
to distribute the Service under the terms and conditions hereof, as if such
separation, reorganization or other restructuring had not occurred.
<PAGE>
EXHIBIT B-1
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
PROGRAM SCHEDULE
See Attached.
<PAGE>
EXHIBIT B-1
[FEBRUARY PLAYBOY AT NIGHT PROGRAM SCHEDULE]
<PAGE>
EXHIBIT B-2
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
STANDARDS AND PRACTICES
Playboy Television is a targeted, differentiated pay-per-view television
network featuring stylized eroticism and a variety of entertainment programs for
men and women.
The service's programming ranges from sensuous imagery to unusual candid
interviews; lifestyle information; news, music and dance with a sensual flair;
and fast-paced, off-beat comedy.
Original programming, both produced and acquired, is the mainstay of
Playboy Television. The remainder of the line-up consists of acquired motion
pictures. As a rule, Playboy Television does not accept motion pictures shot on
videotape.
Playboy Television does not produce programming with scenes depicting
violent behavior. As a matter of policy, Playboy Television limits the
acquisition of programs and films that contain violent scenes our policy is to
limit such elements and to avoid completely any scenes which link sexuality and
eroticism with violence, directly or indirectly. As a result of these
guidelines, Playboy Television is less violent than programming that can be seen
on HBO, Cinemax, Showtime, The Movie Channel, Viewer's Choice and Request
Television.
Nudity is not restricted on Playboy Television and includes both male and
female full-frontal nude scenes. The extreme sexual explicitness associated with
the majority of adult films is forbidden or strictly edited. Graphic close-ups
of genitals are forbidden. There is no rape, sadism, sadomasochism, bondage,
incest, bestiality or child pornography.
Playboy Television licenses both non-rated and MPAA films. Some explicit
(non-rated) adult films are aired with strict editing to the standards stated
herein. Because of the nature of our service, strong or explicit language is
included in Playboy Television programming.
Playboy Television's broadcast standards and practices code is designed to
present programming consistent with the level of taste and quality established
by Playboy over its more than 35 years as an internationally recognized media
and entertainment company.
<PAGE>
EXHIBIT C
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
TECHNICAL SPECIFICATIONS
GENERAL
1.1 All specifications are to be adhered to anywhere in the contiguous 48 United
States. This specification uses a 5 meter reference antenna which is peaked at
the center of the orbital box. It is the responsibility of the Network to
provide center of the box times on a monthly basis.
1.2 The specification is divided into space segment and total system. Total
system is defined as the additional noise contribution by the originating studio
and transport facility to the input to the uplink.
1.3 System availability based on total system 99.998% per year calculated on a
monthly basis excluding sun outage. The system shall be declared unavailable
under the following:
A. Loss of video
B. Loss of audio
C. Video signal to noise <45db
D. Audio signal to noise <45db
1.4 This specification is for analog service. A specification for digital system
will be added at a later date when equipment is developed.
VIDEO SPECIFICATIONS
Parameter Space Segment Total System
2.1 Frequency response: .25db box .5db box
2.2 Signal to Noise Ratio:
Definition: 1v p/p vid to RMS
noise, 4.2 Mhz weighted. 52db 50.3db
2.3 Chrominance/luminance delay: <20 ns <50ns
<PAGE>
Parameter Space Segment Total System
2.4 2T K Factor: <2% <3%
2.5 Differential Gain: <.2db <.45db
2.6 Differential Phase: +/-1(degree) <+/-2(degree)
2.7 Insertion gain/loss: <2 IRE <4 IRE
2.8 Video formats, waveforms,
timing shall adhere to latest
FCC requirements. All other
parameters not specified shall
conform to NTSC Engineering
Report #7.
AUDIO SPECIFICATIONS
Parameter Space Segment Total System
3.1 Frequency Response: <.5db box <1db box
3.2 Video/Audio Sync: <10 m/sec <20 m/sec
3.3 Signal to Noise Ratio:
Definition: RMS test tone to RMS
noise with 15Khz weighting. This
parameter to be measured with
program video or full field color
bar test pattern. >56db >55db
3.4 Distortion: At l0db above TT
distortion shall not exceed 3%.
Distortion shall be measured at 1004Hz. <.5% at TT <.7% at TT
3.5 Wow and Flutter: <.1%rms
3.6 Crosstalk: >65db >65db
3.7 Insertion gain/loss: <.5db <1d
<PAGE>
EXHIBIT D
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
[DATE]
Satellite Services Inc.
5619 DTC Parkway, Suite 915
Englewood, CO 80111
RE: CHILDREN'S TELEVISION REGULATION CERTIFICATION
Dear ______________:
Please be advised that Playboy Entertainment Group, Inc. produces neither
"commercial matter" nor "children's programming" as those terms are used in 47
U.S.C. Section 303a and C.F.R. Section 76.225; neither does it produce
programming designed to service children's educational and informational needs
as contemplated by 47 U.S.C. Section 303b and applied regulations.
Please let me know if Satellite Services Inc. or its affiliates needs additional
information from Playboy Entertainment Group, Inc. to satisfy compliance with
the Act.
Sincerely,
Playboy Entertainment Group, Inc.
By: _________________________
Name: _________________________
Title: _________________________
<PAGE>
EXHIBIT E
To Affiliation Agreement By and Between
Playboy Entertainment Group, Inc. and
Satellite Services, Inc.
Dated February 10, 1993
LIST OF AGREEMENTS EXCLUDED
FROM THE OPERATION OF SECTION 13 (f)
1. *****
2. *****
3. *****
4. *****
5. *****
6. *****
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2.2
<SEQUENCE>8
<FILENAME>d65760_ex10-22.txt
<DESCRIPTION>AMENDMENT TO AFFILIATION AGREEMENT
<TEXT>
Exhibit 10.2.2
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omissions have been indicated by asterisks ("*****"), and the omitted text has
been filed separately with the Securities and Exchange Commission.
AMENDMENT
to
Affiliation Agreement between
PLAYBOY ENTERTAINMENT GROUP, INC.
and
SATELLITE SERVICES, INC.
WHEREAS, Playboy Entertainment Group, Inc. ("Playboy") and Satellite Services,
Inc. ("Affiliate") entered into the Affiliation Agreement dated February 10,
1993, as amended (the "Agreement"), under which Playboy licensed the use of its
Playboy programming service to SSI;
WHEREAS, the parties acknowledge and agree that Affiliate was acquired by
Comcast Corporation, and Affiliate's offices now are located at 1500 Market
Street, Philadelphia, Pennsylvania 19102; and
WHEREAS, Playboy and Affiliate now desire to amend the Agreement per this
amendment (the "Amendment").
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Playboy and Affiliate
hereby agree as follows:
1. This Amendment shall become effective upon the date of the last
signature written below (the "Amendment Effective Date").
2. Capitalized terms used in this Amendment, unless otherwise defined
herein, shall have the meanings set forth in the Agreement.
3. Except as expressly modified herein, all terms of the Agreement
shall remain in full force and effect. In the event of a conflict
between the terms and conditions of this Amendment and the
Agreement, the terms of this Amendment shall govern.
4. The parenthetical phrase "(the "Service")" in Section 1(a) shall be
deleted in its entirety and replaced with the parenthetical phrase
"(the "Service," which term "Service" also shall refer to Network's
linear programming service and the SVOD Content, the VOD Content,
and/or the HVOD Content, as applicable)";
5. Section 1(a)(i) shall be amended by adding the following
parenthetical immediately following the phrase "whether now existing
or developed in the future": *****. Furthermore, Distribution
Technology shall not include distribution to personal mobile and
cellular handheld devices (provided that personal mobile and
<PAGE>
cellular handheld devices will not include Short-Range Wireless
Devices, as defined below). *****. 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. A Set-Top Box located at a
Subscriber's premises may be connected through short-range wireless
technology to one or more Set-Top Boxes and/or Display Devices
authorized by Affiliate for use in and around a Subscriber's
premises ("Short-Range Wireless Devices"). *****.
6. Section 1(a)(iii) shall be deleted in its entirety and replaced with
the following: ***** then *****.
7. The second sentence of Section 2(a) of the Agreement is deleted in
its entirety and replaced with the following:
The Initial Term of this Agreement shall commence upon the date of
execution hereof and shall terminate on December 31, 2015, unless
terminated sooner pursuant to the terms of this Agreement.
8. In the first sentence of Section 3(a) of the Agreement, the words
"ten (10) hours per day (initially, from 8:00 p.m. to 6:00 a.m.
prevailing Eastern Time)" shall be replaced with "twenty four (24)
hours per day" and the words "(including but not limited to R-rated
(or R equivalent non-rated) and NC-17 rated (or NC-17 equivalent
non-rated) cable version motion pictures)" shall be deleted.
9. Section 4(c) of the Agreement shall be deleted in its entirety and
replaced with the following:
(c) The Systems, if any, shall carry the Service no less than
twenty-four (24) hours per day; provided, however, that any System
that carries the Service on an analog level of service may carry the
Service less than twenty-four (24) hours per day but not less than
ten (10) hours per day. Other than as specifically permitted in this
Agreement, Affiliate will not insert or remove any material into or
from the Service. Network agrees that Affiliate will have complete
authority to control, to designate and to change the channel(s) over
which the Service is to be carried on each System.
10. The first sentence of Section 4(e) of the Agreement is deleted in
its entirety and replaced with the following:
Each System or other distribution facility or enterprise may offer
the Service, (i) as a Subscription (defined in Section 5(a)(viii)
below) service; and/or (ii) as a Pay-per-view (defined in Section
5(a)(vii) below) service marketed and sold in any of the ways
described in Section 5(a)(vii). The Service may be sold in
combination with other services (e.g., in a package of services or
in a tier); provided that the Service, and/or viewing segments of
the Service as described in Section 5(a)(viii), must always also be
available for sale through each
2
<PAGE>
television distribution facility selling the Service under this
Agreement on a purely a la carte basis.
11. In the last two sentences of Section 4(f) of the Agreement, the
phrase "home taping" shall be replaced by "home taping and/or
digital recording." Additionally, the following shall be added to
the end of the last sentence:
"; or (iii) authorizing Subscribers to use devices and/or
functionality (whether provided by Affiliate or otherwise) that
enables such Subscribers to engage in lawful duplication, digital
recording, and/or playback of the Service or any portions thereof
for non-public viewing of such content."
12. The following language is hereby added as Section 4(h) of the Agreement:
(h) Affiliate shall have the right to make the SVOD Content
available, on an SVOD basis, to any Subscription (as defined in
Section 5(a)(viii)) subscriber either by means of the Distribution
Technology, *****. Network shall be responsible for supplying to
Affiliate: (1) a minimum of ***** of SVOD Content (defined in
Section 5(a)(xiii) below) at any given time to be made available by
means of the Distribution Technology, which shall be refreshed on a
weekly basis such that at least ***** of the SVOD Content offered by
means of the Distribution Technology is changed each month (the
"TV-SVOD Content"); and (2) within *****. The TV-SVOD Content and
***** Content shall be selected by Network in its sole discretion
and may be comprised of different titles, provided that Network
shall make commercially reasonable efforts to accommodate
Affiliate's requests concerning (i) the types of programming to be
included in the SVOD Content (such as the inclusion of Network's
signature programming); (ii) the total amount of SVOD Content that
is made available by Network; and (iii) the amount and extent to
which the Programs comprising the SVOD Content are refreshed. Unless
otherwise notified in writing by Affiliate that Affiliate desires XX
exclusively (meaning Affiliate no longer wants X content), XX.5,
and/or XXX as part of the SVOD content, the SVOD Content will
include only X and XX rated Programs (as such ratings designations
are generally understood in the industry). Network shall at all
times offer to make available to Affiliate any adult content
(regardless of ratings) made available by Network to any other
United States distributor for Service subscribers to view on an SVOD
basis. Notwithstanding anything to the contrary in this Agreement,
Network hereby agrees that Affiliate shall at all times, and at any
time during the Term, have the absolute right to air or offer or to
cease airing or offering any SVOD Content to any individual and/or
System(s). Affiliate, at its own expense, shall obtain and install
equipment necessary to distribute the SVOD Content to such
subscribers from the server in each System's headend. Network, at
its own expense, shall deliver the SVOD Content in compliance with
generally
3
<PAGE>
accepted standards of good practice and according to parameters
specified in the CableLabs Video On Demand Content Specification
Version 1.0 ("CLI 1.0") or future releases thereof, including all
applicable digitally encoded non-video data attributes ("Meta
Data"). Network shall deliver the SVOD Content via either of the
following methods, as selected by Network at its sole option, upon
advance written notice: (i) satellite or program master to the
Comcast Media Center ("CMC") in Denver, Colorado, or (ii) FTP
directly to a point or points designated by Affiliate. The maximum
MPEG 2 encoding data rate shall be 3.75 mbps, provided that Network
agrees that when it becomes commercially feasible or industry
standard to do so, then Network will encode at a maximum rate of
3.375 mbps. Network shall bear all costs in connection with the
encoding of, and the transport to applicable Systems of, the SVOD
Content regardless of the method of delivery (and to the extent
necessary to ensure Network's compliance with the provisions of this
sentence (including if Network elects to deliver unencoded SVOD
Content to the CMC), Network shall enter into an agreement, and/or
maintain any existing agreement, with the CMC concerning the CMC's
services related to such encoding and transport).
13. The following language is hereby added as Section 4(i) of the Agreement:
(i) Affiliate shall have the right to make any VOD Content and HVOD
Content titles offered by Network available to any subscriber on a
VOD basis. Network shall be responsible under this Agreement and
that certain Affiliation Agreement between Spice, Inc. (as
predecessor in interest to Spice) and Affiliate dated November 1,
1992, as amended (the "Spice Agreement") collectively for supplying
to Affiliate a minimum of ***** of VOD Content (defined in Section
5(a)(xiv) below) and a minimum of ***** of HVOD Content (defined in
Section 5(a)(xiv) below) at any given time, which shall be refreshed
on a weekly basis such that at least ***** of the VOD Content and
HVOD Content is changed each month; provided, however, that Network
shall make commercially reasonable efforts to accommodate
Affiliate's requests concerning (i) the types of programming to be
included in the VOD Content and HVOD Content; (ii) the total amount
of VOD Content and HVOD Content that is made available by Network;
and (iii) the amount and extent to which the Programs comprising the
VOD Content and HVOD Content are refreshed. Unless Affiliate
notifies Network in writing that it desires for the VOD Content
and/or HVOD Content to include X rated, XX.5 rated, and/or XXX
Programs, the VOD Content and HVOD Content will include only X and
XX rated Programs (as such ratings designations are generally
understood in the industry). Network shall at all times offer to
make available to Affiliate any adult content made available by
Network to any other United States distributor for subscribers to
view on an VOD basis (including other versions of content provided
to Affiliate with a different editing standard). Notwithstanding
anything to the contrary in this Agreement, Network hereby agrees
that Affiliate shall at all times, and at any time during the Term,
have the absolute right to air or offer or to cease airing or
offering any VOD Content
4
<PAGE>
or HVOD Content to any individual and/or System(s). Affiliate, at
its own expense, shall obtain and install equipment necessary to
distribute the VOD Content and HVOD Content to such subscribers from
the server in each System's headend. Network, at its own expense,
shall deliver the VOD Content and HVOD Content in compliance with
generally accepted standards of good practice and according to
parameters specified in the CableLabs Video On Demand Content
Specification Version 1.0 ("CLI 1.0") or future releases thereof,
including all applicable digitally encoded non-video data attributes
("Meta Data"). Network shall deliver the VOD Content and HVOD
Content via either of the following methods, as selected by Network
at its sole option, upon advance written notice: (i) satellite or
program master to the Comcast Media Center ("CMC") in Denver,
Colorado, or (ii) FTP directly to a point or points designated by
Affiliate. The maximum MPEG 2 encoding data rate shall be 3.75 mbps,
provided that Network agrees that when it becomes commercially
feasible or industry standard to do so, then Network will encode at
a maximum rate of 3.375 mbps. Network shall bear all costs in
connection with the encoding of the VOD Content and HVOD Content
regardless of the method of delivery (and to the extent Network
elects to deliver unencoded VOD Content and HVOD Content to the CMC,
Network shall enter into an agreement with the CMC concerning the
CMC's encoding of such VOD Content and HVOD Content).
14. The following language is hereby added as Section 4(j) of the Agreement:
(j) Network shall be responsible for any and all royalties and/or
other fees payable to any applicable programming licensor(s) for
content included in the VOD Content and HVOD Content (including,
without limitation, residuals or other payments to guilds or unions,
rights for music clearances, including but not limited to Network's
through-to-the-viewer performance rights, synchronization rights,
and mechanical rights, and all other content-related fees, payments,
or obligations arising out of the activities contemplated by this
Agreement), and Affiliate shall have no responsibility or liability
for any such content-related royalties or fees, including any
royalties or fees associated with distribution of the VOD Content or
HVOD Content via VOD, except for fees payable to Network in
accordance with Section 5 of this Agreement. Network acknowledges
that Affiliate may, from time to time, direct Network not to include
as part of the VOD Content or HVOD Content any particular Program
that Affiliate reasonably determines does not meet the intent of the
rating such Program has been given or otherwise may cause Affiliate
business, political, or operational difficulty; provided, however,
that such Program shall count toward Network's satisfaction of its
obligations hereunder to provide the minimum number of hours of VOD
Content and HVOD Content for the period of time during which such
Program was scheduled to be made available as part of the VOD
Content or HVOD Content. The VOD Content and HVOD Content shall not
contain any sponsorships or advertising, except sponsorship or
advertising for the Service permitted under this Agreement or
5
<PAGE>
the Spice Agreement.
15. The second sentence of Section 5(a) of the Agreement is hereby deleted in
its entirety and replaced with the following:
The Fees defined below shall be calculated, stated, and reported
separately for each category of Subscriber.
16. The second sentence of each of Sections 5(a)(i), 5(a)(ii), 5(a)(iii) and
5(a)(iv) of the Agreement, which contain the definitions of, respectively,
"PPV Satellite Fees", "Service Satellite Fees", "PPV Cable Fees" and
"Service Cable Fees", are hereby deleted.
17. Section 5(a)(vi) of the Agreement is deleted in its entirety and replaced
with the following:
(a)(vi) "Fees" means the fees payable by Affiliate to Network, as
described in Section 5(b) below. Fees payable by Affiliate to
Network during a Renewal Term are referred to as Renewal Fees.
18. The following language is hereby added as Section 5(a)(xiii) of the
Agreement:
(a)(xiii) "SVOD" means the authorization of a Subscriber to receive
the SVOD Content, as defined herein. For purposes hereof, the "SVOD
Content" shall mean all content delivered by Network to Affiliate
for delivery to Service Cable Subscribers or Service Satellite
Subscribers on a per-Program basis without charge in connection with
a Subscription service purchased by such subscriber pursuant to this
Agreement. A "Program" shall mean an individual feature film,
direct-to-video programming (including a movie), extended-length
video, live performance or production, or other audio-visual
program; provided, however, that each such Program shall be (i)
professionally produced, commercial free, high quality heterosexual
male- and couple-targeted adult-oriented content intended only for
adult consumers because of its sexual content; and (ii) at least
twenty (20) minutes in duration.
19. The following language is hereby added as Section 5(a)(xiv) of the
Agreement:
(a)(xiv) "VOD" means the authorization of a subscriber to receive
the VOD Content or HVOD Content that is chosen by a subscriber for
display to that subscriber. For purposes hereof, the "VOD Content"
shall mean all content delivered by Network to Affiliate for
delivery to subscribers on a per-Program basis in exchange for a
per-viewing fee. For purposes hereof, the "HVOD Content" shall mean
high-definition content delivered by Network to Affiliate for
delivery to subscribers on a per-Program basis in exchange for a
per-viewing fee.
6
<PAGE>
20. Section 5(b) (including Sections 5(b)(i) through 5(b)(iii)) of the
Agreement is deleted in its entirety and replaced with the following:
(b) Affiliate will pay Network the applicable Revenue Share
Percentage (as defined in Section 5(d)) of Gross Receipts, less the
deductions described in Section 5(f), subject to a monthly minimum
of ***** per Service Cable Subscriber or Service Satellite
Subscriber. When the Service is sold to a Service Cable Subscriber
or Service Satellite Subscriber in combination with other services
for a package charge (as, for example, in a tier or in a package of
a la carte or other services), the Gross Receipts deemed to be
attributable to a Service Cable Subscriber or Service Satellite
Subscriber for the Service shall be equal to the total Gross
Receipts for the tier or package of services sold in combination
with the Service, multiplied by a fraction, the numerator of which
is the a la carte retail charge for the Service otherwise charged
for the pertinent System and the denominator of which is the
numerator plus the aggregate of the a la carte retail charges
otherwise charged by the pertinent System for the other services
included in the tier or package of a la carte or other service. In
addition, if Affiliate provides the Service to multiple dwelling
complexes, including, but not limited to, apartment buildings, on a
bulk-rate basis, the number of Service Satellite Subscribers or
Service Cable Subscribers (as the case may be) attributable to each
such bulk-rate subscriber shall be equal to the total monthly retail
rate charged a complex for the Service divided by the standard
monthly retail rate charged a non-bulk rate Service Satellite
Subscriber or Service Cable Subscriber (as the case may be) for the
Service in the applicable System or by the pertinent Satellite
distributor, as the case may be.
21. Section 5(c) of the Agreement is deleted in its entirety and replaced with
the following:
(c) For each PPV Cable Subscriber and each PPV Satellite Subscriber who
receives and pays for one (1) technically satisfactory viewing of one (1)
viewing segment of the Service, including by means of VOD, Affiliate will
pay Network the Network Share (as defined below) of the Gross Receipts
paid by such PPV Cable Subscriber and each PPV Satellite Subscriber to
Affiliate. "Network Share" shall equal the applicable Revenue Share
Percentage (as defined in Section 5(d)) of the Gross Receipts paid by each
such subscriber (but not less than ***** per PPV Cable Subscriber or PPV
Satellite Subscriber, and ***** for each VOD transaction), except that
such amount paid by each PPV Cable Subscriber or each PPV Satellite
Subscriber (as the case may be) shall be subject to reduction as provided
in Section 5(f) below.
22. Section 5(d) of the Agreement is deleted in its entirety and replaced with
the following:
(d) For purposes hereof, "Revenue Share Percentage" shall mean
*****.
7
<PAGE>
Notwithstanding the foregoing, Revenue Share Percentage shall mean
***** effective upon the first date upon which Affiliate offers both
(A) at least ***** of the TV-SVOD Content in connection with a
subscription to the Service in systems comprising at least ***** of
the basic cable television subscribers within Systems that offer
adult content on a VOD basis (i.e., VOD content that is rated X or a
more explicit editing standard, other than such VOD content that is
included as part of an SVOD offering from a premium service provider
not targeted exclusively to adult audiences (e.g., Cinemax,
Showtime)) (such systems, the "Adult VOD-Enabled Systems"), and the
parties agree that the number of basic television subscribers in the
Adult VOD-Enabled Systems shall be deemed to be *****, and (B) at
least ***** of the VOD Content (including such VOD Content delivered
by Spice Entertainment, Inc. ("Spice") to Affiliate pursuant to the
Spice Agreement) offered, at a minimum, via a branded interface
(i.e., the name "Playboy" or "Spice," but not necessarily using a
logo) in systems comprising at least ***** of the basic cable
television subscribers within the Adult VOD-Enabled Systems ((A) and
(B) together, the "Carriage Incentive Benchmarks"); provided,
however, that if a System offers at least ***** of the TV-SVOD
Content and such System ***** offers at least ***** of the VOD
Content before *****, then the Revenue Share Percentage shall mean
***** upon the first date that Affiliate offers both at least *****
of the TV-SVOD Content and offers at least ***** of the VOD Content
(whether this occurs in a single System or as a combination of two
separate Systems), provided further, however, that if Affiliate
fails to achieve the Carriage Incentive Benchmarks on or before
*****, then the Revenue Share Percentage shall be deemed to be *****
between *****, and Affiliate shall be required to remit to Network
outstanding amounts retroactive to ***** for those Systems that are
not offering at least ***** of the TV-SVOD Content in connection
with a subscription to the Service, or at least ***** of the VOD
Content (including such VOD Content delivered by Spice) as of *****.
23. Section 5(e) of the Agreement is deleted in its entirety and replaced with
the following:
(e) The Fees that are attributable to Gross Receipts based on
Subscription services payable by Affiliate to Network hereunder
shall be due and payable forty-five (45) days after the end of the
calendar month to which they relate. The Fees that are attributable
to Gross Receipts based on PPV or VOD services payable by Affiliate
to Network hereunder shall be due and payable forty-five (45) days
after the last day of the calendar month which includes the last day
of the Reporting Period. The term "Reporting Period" shall mean the
days from the end of each System's or Satellite distributor's prior
monthly reporting period (which date may vary in each System or for
each Satellite distributor from the 20th of the calendar month to
the last day of the calendar month) to the end of the System's or
Satellite distributor's then current
8
<PAGE>
monthly reporting period. Affiliate shall have the right, however,
to make adjustments to any month's payment in an amount equal to the
portion of a previous month's Fees which represent an overpayment or
underpayment.
24. The following is added as a new penultimate sentence to Section 5(f) of
the Agreement: "Gross Receipts attributable to purchases of VOD Content or
HVOD Content shall be equal to the total amount of per-viewing fees billed
by Affiliate to the VOD subscribers for viewing of the VOD Content or HVOD
Content, less any technical credits given by Affiliate to such subscribers
pursuant to this Section. In the event of a substantiated, technological
failure within the transmission system for delivering VOD Content or HVOD
Content to subscribers resulting in the substantial interruption or
termination of an exhibition of a Program, Affiliate may, in its
discretion, offer a technical credit to the subscriber affected thereby
not to exceed the amount charged to the affected subscriber and shall
maintain documentation in support of the granted technical credit."
25. The phrase "PPV Satellite Fees, PPV Cable Fees, Service Satellite Fees and
Service Cable Fees" is deleted in its entirety from Sections 5(g) and 5(h)
and replaced in each instance with the term "Fees".
26. Section 6(a) of the Agreement (including Sections 6(a)(i) through
6(a)(iv)) is deleted in its entirety and replaced with the following:
(a) For all Reporting Periods, Affiliate shall send to Network along
with the payments, if any, due under Section 5 hereof, informational
statements. Each statement shall set forth information necessary to
the calculation of the Fees and Renewal Fees paid, including but not
limited to the following:
i. the total number of PPV purchases for the applicable month;
ii. the average number of Service Cable Subscribers and Service
Satellite Subscribers for the applicable month;
iii. to the extent necessary to determine the Fees payable by
Affiliate, the number of basic cable television subscribers
served by Adult VOD-Enabled Systems, and the number of Adult
VOD-Enabled Systems offering the VOD Content and/or the SVOD
Content in connection with a subscription to the Service for
the applicable month;
iv. Service Satellite Subscribers' usage of individual Programs
comprising the SVOD service for the applicable month, if
available; and
9
<PAGE>
v. the total number of VOD purchases, and the names of the titles
(or other appropriate identifier) for each VOD purchase, for
the applicable month.
27. Sections 7(a) and 7(b) are deleted in their entirety and replaced by the
following: "Deleted without implication."
28. The contact information in Section 7(d) of the Agreement shall be replaced
in its entirety and replaced with "President, Playboy Entertainment Group,
Inc., 2706 Media Center Drive, Los Angeles, CA 90065."
29. In Section 7(e) of the Agreement, in the second sentence, the last part of
the sentence, which begins "Network shall pay to Affiliate ***** of Net
Sales receipts..." shall be deleted, along with the balance of the
paragraph and replaced with "Network shall make available ***** of
commercial time per hour to Affiliate for Affiliate's use." Additionally,
at the end of the revised paragraph, the following language shall be
inserted: "With the exception of the ***** per hour granted above, the
Service shall not contain any advertising, including but not limited to
audio text services, merchandise sales, Internet services and other such
products. Notwithstanding the foregoing, during the "breaks" between
movies and/or other programs, the Service may contain the following audio
text spots: (x) if the break is less than or equal to ***** in length,
audio text spots not exceeding ***** in the aggregate during such break;
and (y) if the break is greater than ***** in length, audio text spots not
exceeding ***** in the aggregate during such break; provided that, in
either case, Network shall not interrupt any programming to air the audio
text spots, and each audio text spot shall be accompanied by a visual (if
not moving video) element. In addition, Network shall be permitted to
refer viewers to Network's and its affiliated companies' websites for
scheduling information regarding the Service and may refer generally to
the websites (e.g., "Visit our website at Playboy.com"); provided that,
such referrals shall not contain any advertising, promotions or sales."
30. The following language shall be added to the end of Section 7(g),
"provided that Network shall not be restricted from making incidental
references to other services affiliated with Network as part of Network's
regular programming."
31. The following language is hereby added as Section 7(i) of the Agreement:
(i) Marketing. Upon the date, if ever, that Affiliate achieves the
Carriage Incentive Benchmarks:
A. ***** Affiliate, not later than ninety (90) days
following the end of a calendar year, written
certification demonstrating Network's compliance with
this Section 7(i)(A) with respect to such calendar year.
B. In addition, Network will, *****. To the extent Playboy
desires to
10
<PAGE>
identify a distributor of the Service (including
Affiliate or any Comcast entity) in any such *****.
C. Network represents and warrants that any advertising and
promotional materials that Network provides and
Network's publication of such advertising and
promotional materials will not (a) create liability for
Affiliate; (b) infringe upon or violate a third party's
intellectual property rights or rights of publicity or
privacy; (c) violate any law, statute, ordinance or
regulation; (d) be defamatory, libelous, illegally
threatening or harassing; (e) contain obscenity,
pornography or otherwise be inflammatory; or (f) in any
way violate this Agreement. Affiliate reserves the right
to require Network to remove or revise any advertising
and promotional materials, as Affiliate deems necessary
or appropriate if, in Affiliate's absolute discretion,
the materials or publication of the materials is likely
to violate any of the representations and warranties in
(a) through (f) above. In the event that Affiliate
exercises the foregoing rights to require Network to
remove any advertising or promotional materials, Network
will, at Affiliate's option, promptly remove such
materials or promptly remedy the defect that prompted
the request for removal.
32. The following language is hereby added as Section 7(j) of the Agreement:
(j) In consideration for the provisions set forth in Section 5(d) of
this Agreement, upon or after the date, if ever, that Affiliate
achieves the Carriage Incentive Benchmarks, then, at Affiliate's
request, Network will *****. The date and time of the party are to
be mutually agreed upon by the parties.
33. The Affiliate contact information at Section 11 of the Agreement is
deleted in its entirety and replaced with the following contact
information:
To Affiliate: Satellite Services, Inc.
c/o Comcast Cable
1500 Market Street
Philadelphia, PA 19102
Attention: Senior VP, Programming
With a copy to:
Comcast Cable
1500 Market Street
Philadelphia, PA 19102
Attention: General Counsel
To Network: Playboy Entertainment Group, Inc.
2706 Media Center Drive
Los Angeles, CA 90065
Attention: President
11
<PAGE>
With a copy to:
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, IL 60611
Attention: General Counsel
34. Section 13(b) of the Agreement is deleted in its entirety and replaced
with the following:
(b) In the event that (i) Network acquires or otherwise obtains
operating control of, any programming service other than the Service
(an "Other Service"), and (ii) such Other Service is merged into, or
otherwise combined with, the Service, in each case so that there is
only one surviving service, then (a) if the Service is the surviving
service, then this Agreement shall remain in full force and effect
and any agreement concerning distribution of the Other Service shall
be terminated and the parties thereto shall be discharged of any
further obligations and/or liabilities thereunder as of the date of
such merger or combination; or (b) if the Other Service is the
surviving service in such merger or combination, (x) if Affiliate
has (at the time of such merger, combination, or acquisition) an
affiliation agreement concerning distribution of the Other Service,
then such affiliation agreement for the Other Service shall remain
in full force and effect, and this Agreement shall be terminated and
the parties hereto shall be discharged of any further obligations
and/or liabilities hereunder as of the date of such merger, or (y)
if Affiliate does not have an affiliation agreement concerning
distribution of the Other Service, then Affiliate shall have the
option to elect to have this Agreement continue to apply to such
Other Service or to negotiate a new agreement to apply to such Other
Service. In the event that Network acquires or otherwise exercises
operating control over an Other Service, and such Other Service is
not merged into, or combined with, the Service, then (A) this
Agreement shall not apply to the distribution of such Other Service,
and (B) Affiliate shall not be entitled, by virtue of such merger or
combination, to distribute the Service under any agreement governing
Affiliate's distribution of such Other Service.
35. The first sentence of Section 13(c) of the Agreement shall be deleted in
its entirety and replaced with the following:
This Agreement, as amended, contains the entire understanding of the
parties and supersedes and abrogates all contemporaneous and prior
understandings of the parties, whether written or oral, relating to
the subject matter hereof, including that certain prior agreement
between Comcast Programming and Playboy Entertainment Group, Inc.
made as of October 1, 1999, as amended, which expired September 30,
2004 (the "Prior Comcast Agreement").
12
<PAGE>
36. The following phrase in the first sentence of ***** shall be deleted:
*****
Additionally, the following sentences are hereby added to the end of Section
13(f) of the Agreement:
Affiliate acknowledges that it is specifically granted the terms of this
Section 13(f) in consideration for the provisions set forth in Section
5(d) of this Agreement. Additionally, Affiliate hereby agrees that, in
consideration for the Fees granted pursuant to this Agreement, as amended,
Affiliate shall *****.
37. The following language is hereby added as Section 13(l) of the Agreement:
(l) No Press Releases. Neither party shall issue any press release,
announcement or statement to the public or any third party regarding
the business relationship of the parties as set forth herein or the
transactions described in this Agreement without the advance written
consent of the other party, except to the extent such disclosure or
statement is required by law.
38. The following language is hereby added as Section 13(m) of the Agreement:
(m) Release of Claims. Network, on behalf of itself, its parent,
subsidiary and other affiliated companies and each of their
respective officers, directors, employees, partners, agents,
shareholders, representatives, successors, predecessors and assigns
(collectively, the "Network Releasing Parties") hereby voluntarily
and forever completely remises, relinquishes, releases and forever
discharges Affiliate, its parent, subsidiary and affiliated
companies and each of their respective present and former officers,
directors, employees, partners, agents, shareholders,
representatives, successors, predecessors and assigns (collectively,
the "Affiliate Released Parties"), of and from any and all claims
(including claims for conversion liability), demands, losses,
penalties, costs, expenses (including, without limitation,
reasonable attorneys' fees), interest, damages, actions, causes of
action and liabilities, whether at law or in equity, whether based
on contract, statute, tort, or strict liability, and whether for
compensatory, special, punitive, statutory or any other damages or
remedies, whether known or unknown, accrued or unaccrued, foreseen
or unforeseen, contingent or non-contingent, direct or indirect,
whether heretofore asserted or not, or arising by assignment,
operation of law or otherwise, that are based on, connected to,
arising out of or related to the payment, alleged failure to pay or
alleged liability for the payment of any Fees, Renewal Fees, license
fees or any other charges or payments whatsoever by Affiliate on
account of the Systems to Network for the Service (including any
feeds or multiplex signals thereof) for the period prior to, and
including, *****. Network shall indemnify, defend, and hold the
Affiliate Released Parties harmless from and against any claim
brought by a Network Releasing
13
<PAGE>
Party, and/or by any person or entity, under any actual or purported
assignment, subrogation or other right of substitution by or under a
Network Releasing Party, against an Affiliate Released Party
relating to the claims released in this Section 13(m), and Network's
indemnification shall be subject to the provisions of Sections 8(h)
herein.
39. Exhibit A shall be deleted in its entirety and replaced with Exhibit A
attached hereto.
40. Exhibit B-1 (Programming Schedule) shall be deleted in its entirety and
replaced with Exhibit B-1 (Programming Schedule) attached hereto.
41. The parties acknowledge that those systems distributing the Service, as of
September 30, 2004, pursuant to that the Prior Comcast Agreement, as
amended, were added to the Agreement as of October 1, 2004.
AGREED TO AND ACCEPTED BY THE PARTIES AS OF THE LAST DATE WRITTEN BELOW.
PLAYBOY ENTERTAINMENT SATELLITE SERVICES, INC.
GROUP, INC.
By: /s/ James F. Griffiths By: /s/ Jennifer T. Gaiski
Name: James F. Griffiths Name: Jennifer T. Gaiski
Title: President Title: Vice President, Programming
Date: 9/26/05 Date: 9/26/05
14
<PAGE>
EXHIBIT A
to
Affiliation Agreement
by and between
Playboy Entertainment Group, Inc.
and
Satellite Services, Inc.
dated as of February 10, 1993, as amended
SYSTEM QUALIFICATIONS
Affiliate represents and warrants that, with respect to each System listed on
Schedule 1 hereto, Comcast Corporation, or any person or entity controlling,
controlled by, or under common control with Affiliate or Comcast Corporation,
now or hereafter (Affiliate, Comcast Corporation and each such person or entity
a "Comcast Entity"), (i) owns or has the right to acquire ownership of, directly
or indirectly, a minimum of ***** of such System; and (ii) with respect to
Systems that are less than ***** owned, has been authorized to execute decisions
on behalf of such System with respect to the Service. In the event Affiliate's
direct or indirect equity interest in a System or in the entity managing such
System decreases below the level required by the immediately preceding sentence,
and provided Affiliate's interest does not decrease to zero, such System shall
continue to qualify for inclusion on Schedule 1 as long as Affiliate's interest
in such System increases to the level required hereunder within eighteen (18)
months of such decrease. In the event Affiliate, or any of the entities that
owns or manages systems or enterprises that qualify hereunder, effects a
corporate separation, reorganization or restructuring (including, without
limitation, by a distribution of stock, or other assets or rights, to its
shareholders, partners or joint venturers), the systems or enterprises of the
entity resulting from such transaction (including all interim and supporting
entities) and/or all of such resulting entities, in the aggregate, will qualify
under the system qualifications set forth herein, so as to continue to qualify
to distribute the Service under the terms and conditions hereof, as if such
separation, reorganization or other restructuring had not occurred.
15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>9
<FILENAME>d65760_ex31-1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christie Hefner, Chairman of the Board, Chief Executive Officer and Director
of Playboy Enterprises, Inc., or the registrant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Playboy Enterprises,
Inc. for the quarter ended September 30, 2005;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 8, 2005 /s/ Christie Hefner
-------------------
Name: Christie Hefner
Title: Chairman of the Board,
Chief Executive Officer and Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>10
<FILENAME>d65760_ex31-2.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Linda G. Havard, Executive Vice President, Finance and Operations, and Chief
Financial Officer of Playboy Enterprises, Inc., or the registrant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Playboy Enterprises,
Inc. for the quarter ended September 30, 2005;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 8, 2005 /s/ Linda Havard
----------------
Name: Linda G. Havard
Title: Executive Vice President,
Finance and Operations,
and Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>11
<FILENAME>d65760_ex32.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
Exhibit 32
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Playboy Enterprises,
Inc. (the "Company") for the quarterly period ended September 30, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
Christie Hefner, as Chief Executive Officer of the Company, and Linda G. Havard,
as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of her knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Christie Hefner
- -------------------
Name: Christie Hefner
Title: Chief Executive Officer
Date: November 8, 2005
/s/ Linda Havard
- ----------------
Name: Linda G. Havard
Title: Chief Financial Officer
Date: November 8, 2005
This certification accompanies the Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18
of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by ss. 906 has been
provided to Playboy Enterprises, Inc. and will be retained by Playboy
Enterprises, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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