<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from .................... to ....................
COMMISSION FILE NUMBER 1-6813
PLAYBOY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2258830
(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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 751-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, par value $0.01 per share........New York Stock Exchange
Pacific Stock Exchange
Class B Common Stock, par value $0.01 per share........New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of Class A Common Stock, par value $0.01 per share,
held by nonaffiliates (based upon the closing sale price on the New York Stock
Exchange) on August 31, 1996 was $17,548,713.
As of August 31, 1996, there were 4,748,954 shares of Class A Common Stock, par
value $0.01 per share and 15,560,087 shares of Class B Common Stock, par value
$0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- --------- -------------------
Annual Report to Shareholders for the Part I, Item 1, to the extent
fiscal year ended June 30, 1996 indicated under such item
Part II, Item 5, to the
extent indicated under
such item, and Items 6-8
Notice of Annual Meeting of Stockholders Part III, Items 10-13, to
and Proxy Statement (to be filed) relating the extent described
to the Annual Meeting of Stockholders to be therein
held in November 1996
<PAGE>
PLAYBOY ENTERPRISES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 18
Item 3. Legal Proceedings................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............... 19
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters......................................................... 22
Item 6. Selected Financial Data........................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 22
Item 8. Financial Statements and Supplementary Data....................... 22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure........................................ 22
PART III
Item 10. Directors and Executive Officers of the Registrant................ 23
Item 11. Executive Compensation............................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 23
Item 13. Certain Relationships and Related Transactions.................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 23
</TABLE>
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PART I
Item 1. Business
- ----------------
Playboy Enterprises, Inc. was organized in 1953 to publish Playboy
magazine. The term "Company" means Playboy Enterprises, Inc., together with its
subsidiaries, unless the context otherwise requires. Since its inception, the
Company has expanded its publishing operations and has engaged in entertainment
businesses that are related to the content and style of Playboy magazine.
Additionally, the Company licenses its trademarks for use on various consumer
products and operates a direct marketing business.
The Company's businesses are classified into four industry segments:
Publishing, Entertainment, Product Marketing and Catalog. The net revenues,
income (loss) from continuing operations before income taxes and cumulative
effect of change in accounting principle, and identifiable assets of each
industry segment are set forth in the section "Financial Information Relating to
Industry Segments" on page 24 of the Company's fiscal 1996 Annual Report to
Shareholders ("fiscal 1996 Annual Report") and are incorporated herein by
reference.
The Company's trademarks are vital to the success and future growth of all
of the Company's businesses. The trademarks, which are renewable periodically
and which can be renewed indefinitely, include Playboy, Playmate, Rabbit Head
Design, Sarah Coventry, Critics' Choice Video, Collectors' Choice Music and
AdulTVision.
PUBLISHING GROUP
The Company's Publishing Group operations include the publication of
Playboy magazine, and Playboy-related businesses, which include newsstand
specials and calendars, overseas editions of Playboy magazine, and new media
businesses.
The revenues and operating income of the Publishing Group were as follows
for the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Revenues Operating Income
---------------------- ----------------------
Years Ended June 30, Years Ended June 30,
---------------------- ----------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Playboy Magazine................... $105.3 $104.4 $104.0 $ 3.6 $ 7.1 $ 3.5
Playboy-related Businesses......... 27.6 22.9 19.4 10.3 7.6 5.2
------ ------ ------ ----- ----- -----
SUBTOTAL......................... 132.9 127.3 123.4 13.9 14.7 8.7
Administrative Expenses and Other.. - - - (4.7) (4.0) (5.0)
------ ------ ------ ----- ----- -----
TOTAL............................ $132.9 $127.3 $123.4 $ 9.2 $10.7 $ 3.7
====== ====== ====== ===== ===== =====
</TABLE>
Playboy Magazine
Founded by Hugh M. Hefner in 1953, Playboy magazine is the best-selling
men's magazine in the world. Worldwide monthly circulation, which includes
overseas editions, is approximately 4.5 million copies. Approximately 3.3
million copies of the U.S. edition are sold monthly. According to Spring 1996
data published by Mediamark Research, Inc. ("MRI"), in the United States Playboy
magazine is read by approximately one in every seven men aged 18 to 34.
Playboy magazine is a general-interest magazine for men and offers a
balanced variety of features. It has gained a loyal customer base and a
reputation for excellence by providing quality entertainment and informative
articles on current issues and trends. Each issue of Playboy magazine includes
an in-depth, candid interview with a well-known, thought-provoking personality.
Over the magazine's 43-year history, exclusive interviews have included
prominent public figures, business leaders, entertainers, authors and sports
figures. The magazine also regularly publishes the works of leading journalists,
authors and other prominent individuals. It has long been known for its graphic
excellence and features, and publishes the works of top artists and
photographers. Playboy magazine also features lifestyle and service articles on
consumer products, fashion, automobiles and consumer electronics and covers the
worlds of sports and entertainment. It is also renowned for its pictorials of
beautiful women and frequently features celebrities on its cover and in
exclusive pictorials.
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The net circulation revenues of the U.S. edition of Playboy magazine for
the years ended June 30, 1996, 1995 and 1994 were $73.8 million, $73.4 million
and $72.3 million, respectively. Net circulation revenues are gross revenues
less provisions for newsstand returns and unpaid subscriptions and subscription
agency commissions. Circulation revenue comparisons may be materially impacted
with respect to any fiscal year which includes one or more issues of unusually
high public interest.
According to the Audit Bureau of Circulations ("ABC"), an independent audit
agency, Playboy magazine's circulation rate base (the total newsstand and
subscription circulation guaranteed to advertisers) at June 30, 1996 was larger
than Newsweek and Cosmopolitan, and also greater than the combined circulation
rate bases of Rolling Stone, Esquire and GQ, which have substantial adult male
audiences. Playboy magazine's rate base compares to that of other selected
publications as noted in the following table.
<TABLE>
<CAPTION>
Selected U.S. Consumer Publications Rate Base (1) Ranking (2)
------------------------------------- ------------- -----------
<S> <C> <C>
Reader's Digest....................................... 15.00.......... 1
TV Guide.............................................. 13.00.......... 2
National Geographic................................... 8.70.......... 3
Time.................................................. 4.00.......... 10
PLAYBOY............................................... 3.15.......... 12
People................................................ 3.15.......... 12
Sports Illustrated.................................... 3.15.......... 12
Newsweek.............................................. 3.10.......... 15
Cosmopolitan.......................................... 2.25.......... 20
Rolling Stone......................................... 1.25.......... 42
Business Week......................................... 0.87.......... 78
Esquire............................................... 0.65..........111
GQ.................................................... 0.65..........111
</TABLE>
__________
(1) Represents rate base at June 30, 1996 (in millions) as reported by
ABC.
(2) Based on rate base at June 30, 1996 as reported by ABC.
Effective with the January 1996 issue, the Company reduced the rate base 7%
to 3.15 million in response to the extraordinary increases in paper and postage
prices in order to enable the Company to manage circulation more profitably,
while maintaining the magazine's circulation leadership as one of the best-
selling men's magazines. From fiscal 1987 until the January 1996 issue, the U.S.
edition of Playboy magazine reported a circulation rate base of 3.40 million,
which it met or exceeded in most of the six-month periods it was averaged over
in each fiscal year, and did not meet the rate base by less than 5% in the other
periods, including the six-month period leading up to the rate base reduction.
Playboy magazine has historically generated over two-thirds of its revenues
from subscription and newsstand circulation, with the remainder from
advertising. Subscription copies as a percentage of total copies sold were
approximately 80% for the year ended June 30, 1996. The Company believes that
managing Playboy's circulation to be primarily subscription driven, like most
major magazines, provides a stable and desirable circulation base, which is also
attractive to advertisers. According to the MRI data previously mentioned, the
median age of male Playboy subscribers is 32, with a median annual household
income of $41,200.
The price of a one-year subscription ranges from $19.97 to $34.96,
depending on the source of the subscription and the length of time the
subscription has been held. The Company continually tests a variety of
subscription pricing strategies. The Company attracts new subscribers to the
magazine through its own direct mail and television advertising campaigns and
through agent-operated direct mail campaigns.
The Company recognizes revenues from magazine subscriptions over the terms
of the subscriptions. Subscription copies of the magazine are delivered through
the U.S. Postal Service as second class mail. The Company attempts to contain
these costs through presorting and other methods. The Company experienced a
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postal rate increase of 14% during the second half of fiscal 1995. The Company
also derives meaningful income from the rental of Playboy magazine's subscriber
list, which consists of the subscriber's name, address and other information
maintained by the Company.
Distribution of the magazine to newsstands and other retail outlets is
accomplished through Warner Publisher Services, a national distributor that
maintains a network of approximately 300 wholesale distributors. Copies of the
magazine are shipped in bulk to the wholesalers, who are responsible for local
retail distribution. The Company receives a substantial cash advance from its
national distributor at the time each issue goes on sale. The Company
recognizes revenues from newsstand sales based on estimated copy sales at the
time each issue goes on sale, and adjusts for actual sales upon settlement with
its national distributor. These revenue adjustments generally are not material.
Retailers return unsold copies to the wholesalers who count and then shred the
returned magazines and report the returns via affidavit. The Company then
settles with its national distributor based on the number of magazines that
actually were sold compared to the number that initially were projected to sell.
The number of issues sold on newsstands varies from month to month, depending in
part on the cover, the pictorials and the editorial features.
The last increase in the basic U.S. newsstand cover price (to $4.95; $5.95
for holiday issues), was completed in fiscal 1993. Based on test results, the
Company increased the Canadian cover price to $5.95 in fiscal 1995 ($6.95 for
holiday issues). (The Canadian cover prices are in Canadian dollars). No
newsstand price increases are planned for copies sold in the U.S. or Canada in
fiscal 1997.
Advertising by category for fiscal 1996 was as follows:
<TABLE>
<CAPTION>
Advertising Category % of Ad Pages
-------------------- -------------
<S> <C>
Retail/Direct Mail............ 25%
Tobacco....................... 24
Beer/Wine/Liquor.............. 19
Toiletries/Cosmetics.......... 9
Automotive.................... 8
Jewelry/Optical/Photo......... 3
Drugs/Remedies................ 3
Apparel/Footwear/Accessories.. 3
Entertainment................. 2
All Other..................... 4
---
100%
===
</TABLE>
Playboy magazine targets a wide range of advertisers and continues to focus
on securing new advertisers from underdeveloped categories. The Company
utilizes information from its database of approximately 10 million names,
including Playboy magazine subscribers, catalog customers and pay television
viewers, to create a Playboy marketing system, which offers advertisers new ways
to reach Playboy readers. In fiscal 1996 the Company implemented a national
trade campaign, Growing Up, I never thought I'd be in Playboy, which features
top executives from some of the magazine's most recognizable advertisers talking
about the power and appeal of the magazine and the Playboy brand. The thrust of
the campaign is to reinforce the mainstream, upscale nature of the publication
and its readership to the advertising community, specifically targeting the
fashion, fragrance and consumer electronics categories.
In fiscal 1994, Playboy's advertising pages decreased by 10% from the prior
year to 595 pages, while advertising revenues declined by 8%, reflecting the
effect of a 5% cost per thousand ("CPM") increase in advertising rates effective
with the January 1994 issue. Net advertising income decreased by 15%.
In fiscal 1995, Playboy's advertising pages remained stable compared to the
prior year at 595 pages, while advertising revenues declined by 1% based on
higher frequency discounts, special pricing and a change in the mix of
advertising pages sold. Net advertising income increased by 8%.
5
<PAGE>
In fiscal 1996, Playboy's advertising pages decreased 4% from the prior
year to 569 pages, while advertising revenues declined by 1% primarily due to
the effect of a 2% CPM increase in advertising rates effective with the January
1996 issue. Net advertising income increased by 5%. Advertising sales for the
fiscal 1997 first quarter issues of the magazine are closed, and the Company
expects to report an 18% decrease in the number of advertising pages and a 19%
decline in revenues compared to the fiscal 1996 first quarter. The Company plans
to implement a 5% CPM increase in advertising rates effective with the January
1997 issue.
In August of 1996, the Food and Drug Administration announced a regulation
which prohibits the publication of tobacco advertisements containing drawings,
colors, or pictures. The regulation does not apply to a publication, including a
magazine, which is demonstrated to be an "adult publication," which is defined
as a publication (i) whose readers younger than 18 years of age constitute 15%
or less of the total readership as measured by competent and reliable survey
evidence; and (ii) that is read by fewer than two million persons younger than
18 years of age as measured by competent and reliable survey evidence. Based on
information available to the Company on its readership the Company believes that
Playboy magazine qualifies as an "adult publication" and that the regulation is
not applicable to the magazine.
The Company publishes the U.S. edition of Playboy magazine in 15
advertising editions: eight regional, two state, four metro and one upper income
zip-coded edition. All contain the same editorial material but provide
targeting opportunities for advertisers. The net advertising revenues of the
U.S. edition of Playboy magazine for the years ended June 30, 1996, 1995 and
1994 were $27.4 million, $27.6 million and $28.0 million, respectively. Net
advertising revenues are gross revenues less advertising agency commissions,
frequency and cash discounts and rebates. Levels of advertising revenues may be
affected by, among other things, general economic activity and governmental
regulation of advertising content.
The Playboy Jazz Festival provides advertisers sponsorship and advertising
opportunities through the festival program, free community concerts, and a
national public radio broadcast. The Company has produced this music event on
an annual basis in Los Angeles at the Hollywood Bowl since 1979.
Playboy magazine and newsstand specials are printed at Quad/Graphics, Inc.,
located in Wisconsin. The actual print run varies each month and is determined
with input from the Company's national distributor. Paper is the principal raw
material used in the production of Playboy magazine. The Company uses a variety
of types of high-quality coated paper that is purchased from a number of
suppliers. Manufacturing costs for the year ended June 30, 1996 increased 26%
compared to the prior year principally due to higher paper prices which began
impacting the Company in the second half of fiscal 1995. For the year ended
June 30, 1996, average paper prices were 46%, or $7.9 million, higher than the
prior year. In an effort to mitigate the effect of this increase, in fiscal
1996 the Company lowered the advertising rate base as previously discussed.
Paper prices have begun to decline, and the Company expects average paper prices
to be lower in fiscal 1997 beginning in the second quarter compared to fiscal
1996.
Magazine publishing companies face intense competition for both readers and
advertising. Magazines primarily aimed at men are Playboy magazine's principal
competitors. In addition, other types of media that carry advertising, such as
newspapers, radio and television, compete for advertising revenues with Playboy
magazine.
From time to time, Playboy magazine, and certain of its distribution
outlets and advertisers, have been the target of certain groups who seek to
limit its availability because of its content. In its 43-year history, the
Company has never sold a product that has been judged to be obscene or illegal
in any U.S. jurisdiction.
The National Defense Authorization Act of 1997 was signed into law in
September 1996. One section of that legislation that began as the Military Honor
and Decency Act (the "Military Act") bans the sale or rental of sexually
oriented written or videotaped material on property under the jurisdiction of
the Department of Defense. The Company believes that the Military Act's
prohibitions on the sale of sexually oriented material are, among other things,
unconstitutional and intends to challenge it in court. The Military Act, if
applicable to the Company's products and enforceable, would prohibit the sale of
Playboy magazine, newsstand specials and videos at commissaries, PX's and ship
stores, and based on preliminary estimates, such impact on the Company's
profitability would be immaterial for the last six months of fiscal 1996.
6
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Playboy-related Businesses
The Publishing Group has also created media extensions, taking advantage of
the magazine's reputation for quality and its libraries of art, photography and
editorial text. These products include photo newsstand specials and calendars,
which are primarily sold in newsstand outlets and use both original photographs
and photographs from the Company's library. In fiscal 1994, 16 specials were
published. The group increased the number of specials published to 18 in fiscal
1995. In fiscal 1996, the Company published 21 specials, and expects to publish
21 specials in fiscal 1997. The Company began implementing programs in fiscal
1995 to help to offset some of the previously mentioned higher paper prices,
including increasing the newsstand cover price to $6.95 in most of the country,
which was completely rolled out in fiscal 1996.
The Company licenses the right to publish 15 overseas editions of Playboy
magazine in the following countries: Australia, Brazil, the Czech Republic,
France, Germany, Greece, Italy, Japan, Mexico, Netherlands, Poland, Russia,
South Africa, Spain and Taiwan. In fiscal 1996, the Company re-launched an
edition of the magazine in Taiwan. The Polish edition is the first in which the
Company has had an equity interest, which was increased from 45% to 90% in March
1996. Combined average circulation of the overseas editions is approximately
1.2 million copies monthly. Local publishing licensees tailor their overseas
editions by mixing the work of their national writers and artists with editorial
and pictorial material from the U.S. edition. The Company monitors the content
of the overseas editions so that they retain the distinctive style, look and
quality of the U.S. edition, while meeting the needs of their respective
markets. The terms of the license agreements for Playboy magazine's overseas
editions vary, but in general are for terms of three or five years and carry a
guaranteed minimum royalty as well as a formula for computing earned royalties
in excess of the minimum. Royalty computations are generally based on both
circulation and advertising revenues. In fiscal 1996, the three largest-selling
editions -- Brazil, Germany and Japan -- accounted for approximately 55% of the
total licensing revenues from overseas editions.
In fiscal 1995, the Company launched a home page on the World Wide Web
which became one of the Internet's top-visited destination sites, currently
averaging 4.6 million "hits" per day according to unaudited information from
Nielsen I/PRO. Taking full advantage of the technological capabilities of the
medium, the Web site contains popular editorial features from Playboy magazine,
such as excerpts of Playboy Interviews, articles and Playboy Advisor columns,
and select photos from Playmate pictorials. In fiscal 1996, the Company began
generating revenues from the sale of advertising on the free site, which
resulted in the site generating a profit in fiscal 1996. Late in fiscal 1996
the Company added a digital version of the Company's Playboy catalog to the
site, called the Playboy Store, which offers, at 20% less than through the mail,
branded merchandise such as clothing and accessories for men and women, Playboy
CD-ROM and home video titles, and back issues of the magazine. Playboy on-line
also promotes Playboy Television's monthly programming schedule, sells Playboy
magazine subscriptions, and makes available the Company's financial information.
The Company is currently testing a pay site which will be offered on a
subscription and pay-per-visit basis and will offer a wide range of current as
well as historical Playboy editorial on-line, as well as various interactive
features. The free and pay sites combined will offer the Company four sources
of revenue: advertising, shopping, subscription and pay-per-visit.
The Company also enters into partnerships with companies to create
multimedia products. In fiscal 1994, the Publishing Group introduced several
new media products utilizing photographs, artwork and text from the Company's
library as source material. These releases were The Playboy Electronic
Datebook, a daily planner on PC diskette produced with Sierra On-Line Inc., and
The Playboy Interview: Three Decades, a CD-ROM title containing the complete
text of more than 350 in-depth Playboy Interviews produced with IBM's Multimedia
Publishing Studio. The Women of Playboy Multimedia Screen Saver produced with
Sony Imagesoft was released in fiscal 1995, and is a utility software that
allows users to develop customized screen savers by mixing Playboy images and
video with special effects and audio files. The Company released three
additional CD-ROM titles in fiscal 1996: Pamela Anderson: Playmate Portfolio,
the first of a series showcasing celebrity Playmates produced with Anomaly;
PlanIt Playboy, a personal information manager also produced with Anomaly; and
Personalities & Profiles: The Playboy Interview Collection, an updated version
of a CD-ROM released in fiscal 1994 produced with IBM Multimedia Studio. With
the Corel Corporation, the Company expects to release in fall 1996 The Art of
Playboy CD-ROM, showcasing images from the Company's extensive art collection.
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The Publishing Group also generates revenues from various ancillary media
businesses which include 900-number Playboy-related audiotext services, Playboy
Collectible Trading Cards and books.
Other Publications
In fiscal 1989, the Company purchased a 20% interest in duPont Publishing,
Inc. ("duPont"), publisher of duPont Registry, A Buyers Gallery of Fine
Automobiles and, beginning in July 1995, duPont Registry, A Buyers Gallery of
Fine Homes. During fiscal 1993, the Company renegotiated certain provisions of
the purchase agreement, under which it now has an option to acquire the
remaining 80% interest in duPont at a price based on fair market value as of
December 31, 1999, and receives management fees. This investment is accounted
for on the equity method and the Company's proportionate share of duPont's net
income or loss is included in nonoperating income or expense.
ENTERTAINMENT GROUP
The Company's Entertainment Group operations include the production and
marketing of programming through Playboy Television, other domestic pay
television, domestic home video and international television and home video
markets as well as the co-production of feature-length movies.
The revenues and operating income (loss) of the Entertainment Group were as
follows for the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
REVENUES
Playboy Television:
Cable Pay-Per-View........................... $ 14.3 $ 11.9 $ 9.0
Cable Monthly Subscription................... 6.9 7.0 7.4
Satellite Direct-to-Home and Other........... 18.1 10.0 6.5
------ ------ ------
Total Playboy Television........................ 39.3 28.9 22.9
Domestic Home Video............................. 9.4 9.5 7.0
International Television and Home Video......... 11.9 11.2 9.9
------ ------ ------
Total Playboy Businesses........................ 60.6 49.6 39.8
AdulTVision..................................... 1.9 - -
Movies and Other................................ 2.3 2.1 0.3
------ ------ ------
Total Revenues............................. $ 64.8 $ 51.7 $ 40.1
====== ====== ======
OPERATING INCOME (LOSS)
Profit Contribution Before Programming Expense.. $ 30.5 $ 21.1 $ 10.9
Programming Expense............................. (21.3) (20.1) (18.2)
------ ------ ------
Total Operating Income (Loss).............. $ 9.2 $ 1.0 $ (7.3)
====== ====== ======
</TABLE>
Programming
The Entertainment Group develops, produces and distributes programming for
Playboy Television, other domestic pay television, domestic home video and
international television and home video markets. Its productions include
feature-length films, magazine-format shows, dramatic series, game shows, a
hosted series with reenactments of erotic situations, and anthologies of sexy
short stories and erotic vignettes as well as music and other specials.
The Company is investing aggressively in Playboy-style, original quality
programming to support the planned expansion of its businesses. The Company
invested $25.5 million, $21.3 million and $17.2 million in entertainment
programming in fiscal 1996, 1995 and 1994, respectively. These amounts, which
include expenditures for Playboy-branded programming, AdulTVision and feature-
length films, resulted in 120, 86 and 71 hours of original programming being
produced in fiscal 1996, 1995 and 1994, respectively. In fiscal 1997, the
Company expects to invest approximately $29.0 million in Company-produced and
licensed programming, which would result in approximately 150 hours of original
programming being produced. These amounts could vary based on the timing of
completion of productions. The increases in investments in entertainment
programming in fiscal 1996 and 1995 were primarily due to the initial production
of more movies, for which, because of the strong demand for this genre of
programming, the Company is able to presell distribution rights to and earn a
8
<PAGE>
faster rate of return. The increase in investments planned for fiscal 1997 is
due in part to the co-production agreement recently announced between the
Company and Zalman King Entertainment, Inc. ("Zalman King"). The Company and
Zalman King will co-produce 18 new episodes of the popular cable television
series Red Shoe Diaries, which will be co-financed by the Company and Showtime
Networks Inc. ("Showtime"). The agreement grants the Company international
distribution rights to the new episodes of Red Shoe Diaries, plus 48 episodes
previously aired on Showtime. The agreement also provides for the Company and
Zalman King to co-produce up to six feature-length films over the next three
years.
The following tables list the series still in distribution, each containing
26 episodes, and movies produced by the Company (except three of the Playboy
Films which were produced in association with Motion Picture Corporation of
America ("MPCA")) and certain information related to each:
<TABLE>
<CAPTION>
FISCAL YEAR
TITLE OF SERIES FIRST SOLD LENGTH OF EPISODES GENRE
- --------------- ----------- ------------------ -----
<S> <C> <C>
Playboy Late Night
Series I.................................. 1990 60 minutes magazine-format
Series II................................. 1991 30 minutes magazine-format
Series III................................ 1992 30 minutes magazine-format
Series IV................................. 1995 30 minutes magazine-format
Inside Out.................................. 1991 30 minutes anthology
Eden........................................ 1993 30 minutes dramatic series
Playboy's Secret Confessions and Fantasies.. 1993 30 minutes hosted series
Playboy's Love & Sex Test................... 1992 30 minutes game show
Erotic Fantasies............................ 1994 30 minutes anthology
Women: Stories of Passion................... 1996 30 minutes anthology
NUMBER
MOVIES FISCAL YEAR OF RELEASES
- ------ ----------- -----------
<S> <C> <C>
Playboy Films............................... 1995 Three
1996 Four
The Eros Collection......................... 1995 Six
1996 Twelve
</TABLE>
In fiscal 1996, the Company completed production of a new series, Women:
Stories of Passion ("Women"), a 30-minute erotic anthology written, produced and
directed by women. The Company's series are marketed internationally and air
domestically on the Company's pay television service, Playboy Television.
Additionally, some episodes have been released as Playboy Home Video titles or
have been licensed to other networks. In fiscal 1994, the Company licensed its
anthology of short stories, Inside Out, to Viewer's Choice and in fiscal 1996,
licensed episodes of the Women series to Showtime, with an option to license
additional episodes in fiscal 1997.
In fiscal 1995, the Company, under a co-production and distribution
agreement with MPCA, began releasing made-for-TV movies in the $1 million to $2
million range. Three movies were released in fiscal 1995, two of which,
Temptress and Playback, were produced by the Company and one, Cover Me, was
produced by MPCA. The following four additional movies were released in fiscal
1996: Ringer and Beneficiary, which were produced by the Company, and The Glass
Cage and Midnight Blue, both produced by MPCA. All of these films have aired or
will be aired on Playboy Television in the future, and certain of the
international television rights have been sold and are continuing to be sold in
additional markets. The Company and MPCA are equal profit participants in all of
the movies. Also in fiscal 1995, the Company created and began marketing a new
line of small-budget non-Playboy branded movies under the label The Eros
Collection. These movies are released internationally through home video and
television and air on Playboy Television. In fiscal 1996, the Company and Orion
Home Video ("Orion") signed an agreement to release both our Playboy Films and
The Eros Collection films in the domestic home video market. Orion will assume
North American sales, marketing and distribution responsibility for the video,
laser disc, CD-ROM and Digital Video Disc releases of movies produced under both
labels.
The Company's Playboy-branded programming is available in the United States
through Playboy Television, and internationally through networks and foreign
broadcasters. Playboy Television is offered on cable and through the satellite
direct-to-home ("DTH") market on a pay-per-view and monthly subscription basis.
In the fourth quarter of fiscal 1995, the first overseas Playboy Television
channel was launched in the United
9
<PAGE>
Kingdom, and a second was launched in Japan in the second quarter of fiscal
1996. The Company also distributes programming on videocassettes and laser
discs which are sold or rented through retail outlets and sold through direct
mail in domestic and foreign markets.
The Company's Playboy-branded programming for television and home video
features stylized eroticism in a variety of entertaining formats for men and
women, with an emphasis on programming for couples. The programming does not
contain depictions of explicit sex or scenes that link sexuality with violence,
and is consistent with the level of taste and quality established by Playboy
magazine.
Playboy Television
When the Company introduced its national pay cable network, Playboy
Television, in 1982 it was available only through monthly subscriptions. In
December 1989, the Company began to focus on the then-emerging pay-per-view
market by promoting the pay-per-view option in addition to the monthly
subscription option. Pay-per-view services are available in cable systems that
are equipped with addressable hardware that allows cable subscribers to order
specific programs. In recent years, Playboy Television has added viewers
through the DTH business, which is the fastest-growing segment of the pay
television business.
In May 1994, the Company expanded Playboy Television from a ten-hour per
night schedule to 24-hour availability. This change has enabled the Company to
increase revenues through maximum utilization of its transponder on Hughes
Communications' Galaxy V satellite by offering more blocks of programming to the
consumer. At June 30, 1996, 3.9 million, or 35%, of the 11.3 million cable
addressable households to which Playboy Television was available had around-the-
clock access to the channel.
The performance of Playboy Television in individual cable systems varies
based principally on the ordering technology and the quantity and quality of
marketing done by affiliated cable systems ("Cable Affiliates").
Pay-per-view permits customers to purchase only as much of the Company's
programming as they wish and only when they desire to watch the programming.
Pay-per-view also permits customers to control the viewing of the programming
within their households. In addition, the relatively low price of an evening of
pay-per-view programming is very competitive with many other forms of
entertainment. Individual cable system operators determine the retail price of
the pay-per-view service, although most range from $3.95 to $6.95 for a block of
programming. Fee structures vary, but generally the Company receives
approximately 40% of the retail price.
The number of monthly subscribers has declined, as expected. As of June
30, 1996, Playboy Television had approximately 192,000 monthly subscribing
households, down from 201,000 at June 30, 1995 and 205,000 at June 30, 1994.
Individual Cable Affiliates determine the retail price of the monthly
subscription service, although most range from $5 to $13, largely dependent on
the number of premium services to which a household subscribes. Fee structures
vary, but generally the Company receives approximately 35% of the retail price.
The following table illustrates certain information regarding cable
households in general, and Playboy Television (in thousands):
<TABLE>
<CAPTION>
CABLE HOUSEHOLDS(A) PLAYBOY TELEVISION
--------------------------------- --------------------------------
TOTAL CABLE ADDRESSABLE PAY-PER-VIEW MONTHLY
HOUSEHOLDS CABLE HOUSEHOLDS HOMES(B) SUBSCRIBERS(C)
----------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
June 30, 1994 58,450 21,700 9,600 205
June 30, 1995 60,350 23,450 10,600 201
June 30, 1996 62,850 26,400 11,300 192
Compound Annual Growth
Rate (1994-1996) 3.7% 10.3% 8.5% (3.2)%
</TABLE>
- --------
(a) Source: Estimated by the Company based on information reported in 1996 by
Paul Kagan Associates, Inc. for December 31 of each respective year. Kagan
projects less than a 1% and 9% average annual increases in total cable
households and total addressable cable households, respectively, through
calendar 1999.
10
<PAGE>
(b) Represents the number of addressable cable homes to which Playboy Television
was available as of the end of the fiscal year.
(c) Represents the number of cable monthly subscribers to Playboy Television in
the last month of the fiscal year.
Most cable service in the United States is distributed through large
multiple system operators ("MSOs"). At June 30, 1996, the Company had
arrangements with 16 of the nation's 20 largest MSOs. These 16 MSOs, through
Cable Affiliates, controlled access to (i) approximately 49.1 million, or 78%,
of the 62.9 million total cable households, and (ii) approximately 13.6 million,
or 52%, of the 26.4 million addressable cable households. Once arrangements are
made with an MSO, the Company is able to negotiate channel space for Playboy
Television with the Cable Affiliates controlled by that MSO, and acceptance by
Cable Affiliates provides the basis for expanding the Company's access to
individual cable households. The Cable Affiliates of these 16 MSOs that are not
yet carrying Playboy Television represent a potential market of an estimated 2.9
million additional cable addressable homes. Four of these 16 MSOs served
approximately 8.3 million, or 73%, of the 11.3 million addressable cable
households to which Playboy Television was available on June 30, 1996.
At June 30, 1996, the cable systems in which Playboy Television was offered
included approximately 21.9 million cable households. Of these households, 11.6
million could purchase Playboy Television on a monthly subscription basis, 4.9
million could purchase only on a pay-per-view basis and 6.5 million could
purchase the programming on either basis.
Management believes that the growth in cable access for the Company's
domestic pay television business has slowed in recent years due to the effects
of cable reregulation by the Federal Communications Commission ("FCC"),
including the "going-forward rules" announced in fiscal 1995 which provide cable
operators with incentives to add basic services. As cable operators have
utilized available channel space to comply with "must-carry" provisions,
mandated retransmission consent agreements and "leased access" provisions,
competition for channel space has increased. Additionally, the delay of new
technology, primarily digital set-top converters which would dramatically
increase channel capacity, has contributed to the slowdown. Management believes
that growth will continue to be affected in the near term as the cable
television industry responds to the FCC's rules and subsequent modifications,
and develops new technology. Management believes that the Telecommunications
Act of 1996 (the "Act") discussed below has also slowed the growth in cable
access. However, as addressable technology becomes more widely available, the
Company believes that ultimately its pay television networks will be available
to the vast majority of cable homes.
In February 1996, Congress passed the Act, and President Clinton signed it
into law. Certain provisions of the Act are directed exclusively at cable
programming in general and adult cable programming in particular. In some cable
systems, audio or momentary bits of video of premium or pay-per-view channels
may accidentally become available to non-subscribing cable customers. This is
called "bleeding." The practical effect of Section 505 of the Act would be to
require cable systems to employ scrambling or blocking technology in every
household in every cable system that offers adult programming, whether or not
customers request it or need it, to prevent any possibility of bleeding. In the
alternative, Section 505 provides that a cable operator that does not employ
scrambling or blocking technology must restrict the period during which the
programming is transmitted. Penalties for violation of the Act are significant
and include fines and imprisonment. The Company believes that Section 505 is
unconstitutional and unnecessary but fully supports Section 504 of the Act,
which mandates that cable operators place full audio and video blocks on any
channel, at no charge, at a customer's request. On February 26, 1996, one of the
Company's subsidiaries filed a civil suit challenging Section 505. Fifteen
organizations representing a wide range of influential media, civil liberties
and entertainment organizations filed friend of the court briefs supporting the
Company's litigation. On March 7, 1996, the Company was granted a Temporary
Restraining Order ("TRO") staying the implementation and enforcement of Section
505. In granting the TRO, the court found that the Company had demonstrated it
is likely to succeed on the merits of its claim that Section 505 is
unconstitutional. The TRO will remain in place until a special three-judge panel
in the United States District Court for the District of Delaware decides the
Company's motion for a preliminary injunction. The Company believes that if
Section 505 were to be enforced, the Company's revenues attributable to its
domestic pay television services could be materially adversely affected due to
reduced cable carriage and/or reduced buy rates.
11
<PAGE>
Growth in the pay-per-view market is expected to result in part from cable
systems upgrades, utilizing fiber-optic, compression technologies or other
bandwidth expansion methods that provide cable operators additional channel
capacity. When implemented, compression technology, where employed, will
dramatically increase channel capacity to as many as 500 channels. Industry
analysts expect a large percentage of this additional channel capacity to be
dedicated to pay-per-view programming. The timing and extent of these
developments and their impact on the Company cannot yet be determined.
Playboy Television's cable programming is delivered primarily through a
communications satellite transponder. Playboy Television's current transponder
lease, effective January 1, 1993, contains protections typical in the industry
against transponder failure, including access to spare transponders on the same
satellite as well as transponders on another satellite currently in operation.
Access to the transponder may be denied under certain narrowly defined
circumstances relating to violations of law or threats to revoke the license of
the satellite owner to operate the satellite based on programming content.
However, the Company has the right to challenge any such denial and believes
that the transponder will continue to be available to it through the end of the
expected life of the satellite (currently estimated to be in 2004). The
Company's current lease term expires October 30, 2001.
The Company also provides Playboy Television via encrypted signal, on both
a pay-per-view and subscription basis, to home satellite dish viewers. As of
June 30, 1996, 1995 and 1994, Playboy Television was available on a monthly
subscription and/or pay-per-view basis to approximately 4,867,000, 3,282,000 and
1,926,000 DTH viewers, respectively. At the end of fiscal 1994, Playboy
Television became one of the first networks to be launched on DirecTV, the first
commercial digital broadcast satellite service. This service provides
exceptional improvements in program delivery and consumer interface to
households equipped with Digital Satellite System receiving units, consisting of
an 18-inch satellite antenna, a digital receiver box and a remote control.
Playboy Television expanded from 10-hour to 24-hour programming on DirecTV in
August 1995. Playboy Television was added to a second digital broadcast
satellite service, PrimeStar, at the end of fiscal 1995, and to a third,
AlphaStar, in July 1996. As a result, Playboy Television is the only adult
service available on all three of these U.S. satellite businesses. The
significant growth in the DTH market has provided the Company with an expanded
customer base that has historically shown higher buy rates than through
traditional cable markets.
Effective April 1, 1986, the Company terminated its agreement with the
former distributor of its pay television service. The termination agreement
provided for the assignment to the Company of all distribution contracts with
cable system operators and others that carried the Company's pay television
service. As of April 30, 1996, the Company is no longer obligated to make
monthly royalty payments, equal to 5% of North American pay television revenues
(including cable and DTH), that the Company had paid under the termination
agreement since 1986. Profit contribution of Playboy Television and operating
performance of the Entertainment Group will be favorably impacted by the
termination of such royalty payments.
While the Company's television programming is unique, its Playboy
Television products compete with other services, including those offering adult-
oriented programming, for cable channel space and viewer spending. Competition
among pay cable services involves pricing to both consumers and Cable
Affiliates, viewer perceived value and effectiveness of programming
distribution. In fiscal 1996, the Company launched a flanker channel,
AdulTVision, to drive distribution of Playboy Television. The new channel also
allows the Company to more effectively appeal to the complete range of adult
audiences.
The Company's ability to operate profitably and expand its pay television
business is dependent in part on the impact of Section 505 of the Act if it were
to be enforced, and the continued access to and acceptance by cable systems in
the United States. The Company believes that if Section 505 were to be
enforced, the Company's revenues attributable to its domestic pay television
services could be materially adversely affected due to reduced cable carriage
and/or reduced buy rates. Additionally, from time to time, certain groups have
sought to exclude the Company's programming from local pay television
distribution because of the adult-oriented content of the programming.
Management does not believe that any such attempts will materially affect the
Company's access to cable systems, but the nature and impact of any such
limitations in the future cannot be determined.
12
<PAGE>
Domestic Home Video
The Company also distributes its original programming domestically via
videocassettes and laser discs that are sold or rented in video stores, music
and other retail outlets and through direct mail, including two of the Company's
catalogs. Playboy Home Video is one of the largest-selling brands of
nontheatrically released special-interest videos in the U.S. Playboy Home Video
surpassed all other sales labels, including Walt Disney Home Video, as Billboard
magazine's "Top Video Sales Label" for calendar year 1995. The format of Playboy
Home Videos is consistent with the style, quality and focus of Playboy magazine.
During fiscal 1994 the Company released 14 new Playboy Home Video titles,
in addition to the release of three "For Couples Only" titles that previously
had been released exclusively through The Sharper Image. The Company released
14 new Playboy Home Video titles in fiscal 1995, including the release of The
Best of Pamela Anderson in June 1995, which became the first Playboy Home Video
title ever to reach the number one spot on Billboard magazine's weekly Top Video
Sales Chart ("Sales Chart"), a position that it maintained for 12 weeks in
fiscal 1996. Additionally, three other fiscal 1995 releases were in the top
five on the Sales Chart. In addition, in fiscal 1995 the Company released four
other titles including a documentary and a workout video.
In fiscal 1996, the Company released 14 new Playboy Home Video titles,
including The Best of Anna Nicole Smith which reached the number two spot on the
Sales Chart. Eight of the 14 new titles entered the top five on the Sales Chart
in fiscal 1996. The Company plans to release 13 Playboy Home Video titles in
fiscal 1997.
In fiscal 1995, two new product lines were launched, The Eros Collection, a
small-budget Company-produced line of movies, and a direct-response continuity
series with Warner Music Enterprises, Inc. to attract new customers and
encourage regular purchases of Playboy titles. In fiscal 1996, Time Life Inc.
replaced Warner Music Enterprises, Inc., both divisions of Time Warner Inc., as
the distributor of this series.
The Company's Playboy Home Video products have been distributed in the U.S.
and Canada by Uni Distribution Corp. ("Uni"), an MCA Entertainment Group
company, whereby, until the fourth quarter of fiscal 1995, the Company was
responsible for manufacturing the video product and for certain marketing and
sales functions. The Company's new release titles are still distributed in this
manner, however, in the fourth quarter of fiscal 1995 the Company entered into a
three-year distribution agreement with Uni related to backlist titles (titles in
release for longer than a year). The Company now receives an annual guarantee
for the backlist titles, subject to certain earn-out provisions in the final
year, and manufacturing and marketing is the responsibility of Uni.
The Company distributes its video programming via laser discs through an
agreement with Image Entertainment, Inc. ("Image") under which Image will
release all of the Company's videocassettes on laser discs. This agreement
gives the Company control over certain aspects of the selling and marketing of
its laser discs.
International Television and Home Video
The Company also markets its programming to foreign broadcasters and pay
television services. As appropriate, typically the licensees then customize,
dub or subtitle the programming to meet the needs of individual markets. At the
end of fiscal 1996, the Company's programming was available in 135 countries, an
increase of 30 countries compared to June 30, 1995. In countries that can
support a Playboy programming tier, the Company has expanded its existing
foreign network relationships by entering into exclusive multiyear multiproduct
output agreements with overseas pay television distributors. These agreements
enable the Company to have an ongoing branded presence in international markets
and generate higher and more consistent revenues than selling programs on a
show-by-show basis.
As previously mentioned, in the fourth quarter of fiscal 1995 the Company
launched the first international Playboy Television channel in the United
Kingdom in a joint-venture agreement with Flextech plc, an entertainment company
that is majority owned by a subsidiary of Tele-Communications, Inc., and British
Sky Broadcasting Ltd. The Company owns 19% of the channel, retaining an option
to acquire additional equity, and will receive license fees for programming and
the use of the Playboy brand name.
13
<PAGE>
During the second quarter of fiscal 1996, a second international Playboy
Television channel was launched in Japan in partnership with Tohokushinsha Film
Corp. in which the Company owns less than a 20% interest. Additionally, the
Company entered into a long term output agreement under which it will provide
700 hours of programming over the first five years of the venture and will
receive a brand royalty for the use of its logo and trademark.
As the Company's overseas networks grow, the Company intends to produce
programming specifically targeted to the local markets in order to maximize the
appeal of Playboy Television among the Company's new customers. Through separate
distribution agreements, the Company also distributes its U.S. home video
products to 48 countries in South America, Europe, Australia, Asia and Africa.
These products are based on the videos produced for the U.S. market, with
dubbing or subtitling into the local language where necessary.
AdulTVision
In July 1995, the Company launched a second pay television channel,
AdulTVision, as a flanker channel to Playboy Television to drive distribution of
the Playboy channel. The new channel also allows the Company to more
effectively appeal to the complete range of adult audiences. AdulTVision is
principally offered on a pay-per-view basis and is primarily sold in combination
with Playboy Television through cable operators, and to the direct-to-home
market. At June 30, 1996, the channel was available in approximately 4.5
million cable and satellite homes. The channel reported an operating loss for
fiscal 1996 but the Company expects that it will be profitable in fiscal 1997.
AdulTVision's programming is available through a full-service distribution
agreement with a third-party provider until June 1998. Under the terms of this
agreement, uplink, encoding, access to a transponder and other services are
provided. Management believes that upon expiration of the current agreement it
will be able to continue with its current provider or locate another transponder
for the transmission of AdulTVision.
PRODUCT MARKETING GROUP
The Product Marketing Group licenses the Playboy name, Rabbit Head Design
and other trademarks and artwork owned by the Company for the worldwide
manufacture, sale and distribution of a variety of consumer products.
The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
REVENUES $ 7.1 $ 6.8 $ 7.0
===== ===== =====
OPERATING INCOME $ 3.7 $ 3.4 $ 2.5
===== ===== =====
</TABLE>
The Product Marketing Group works with licensees to develop, market and
distribute high-quality, branded merchandise. The Company's licensed product
lines consist primarily of men's clothing, accessories, watches, jewelry,
fragrances, small leather goods, stationery, eyewear, home fashions, condoms and
cigars. These products are marketed principally in countries in Asia, primarily
through retail outlets, including department and specialty stores, and through
retail mail order catalogs by licensees under exclusive license agreements that
authorize the manufacture, sale and distribution of products in a designated
territory.
Royalties are based on a fixed or variable percentage of the licensee's
total net sales, in many cases against a guaranteed minimum. In fiscal 1996,
approximately 75% of the royalties earned from licensing the Company's
trademarks were derived from licensees in Asia, 10% from each of Europe and the
United States, and the remainder from other territories.
14
<PAGE>
The Company maintains control of the design and quality specifications of
its licensed products to ensure that products are consistent with the quality of
the Playboy image. To project a consistent image for Playboy-brand products
throughout the world, the Company discontinued certain domestic products and
low-end distribution in fiscal 1994, and, in fiscal 1995, launched a global
advertising campaign and brand strategy to integrate all of the marketing
efforts of the product licensees and to control the brand more effectively.
To capitalize on its international name recognition, the Company is
increasing its overseas product marketing activities and is dedicating
additional resources to develop its licensing business in South America and
Europe. During fiscal 1996, the Company's Hong Kong-based apparel licensee
continued to expand by increasing the number of freestanding Playboy shops and
Playboy boutiques within department stores in China. To more effectively
control sales and distribution in mainland China, this licensee has set up five
new distribution and sales offices throughout the country and is expected to
complete construction of a new factory in early calendar 1997.
Special Editions, Ltd. ("Special Editions") primarily licenses art-related
products based on the Company's extensive collection of artwork, many of which
were commissioned as illustrations for Playboy magazine and for use in the
Company's other businesses. These include posters, limited-edition prints, art
watches, art ties, clocks and collectibles. Prominent artists represented have
included Salvador Dali, Keith Haring, Leroy Neiman, Patrick Nagel, Alberto
Vargas, Ed Paschke, Andy Warhol, Bas Van Reek, Karl Wirsum and Roger Brown. In
an effort to increase product distribution and improve profitability of the art-
related products, Special Editions is continuing to shift its marketing approach
from direct sales to licensing.
Additionally, the Company owns all of the trademarks and service marks of
Sarah Coventry, Inc., which it licenses primarily domestically. Costume jewelry
and watches are the principal product lines distributed by Sarah Coventry
licensees.
To protect the success and potential future growth of the Company's product
marketing and other businesses, the Company actively defends its trademarks
throughout the world and monitors the marketplace for counterfeit products.
Consequently, it initiates legal proceedings from time to time to prevent
unauthorized use of the trademarks. In fiscal 1995, the Company developed and
commenced use of a hologram on Playboy packaging as a mark of authenticity.
While the trademarks differentiate the Company's products, the marketing of
apparel and jewelry is an intensely competitive business that is extremely
sensitive to shifts in consumer buying habits and fashion trends, as well as
changes in the retail sales environment.
CATALOG GROUP
The Company's Catalog Group operations include the direct marketing of
products through three catalogs: Critics' Choice Video, Collectors' Choice
Music and Playboy.
The revenues and operating income of the Catalog Group were as follows for
the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
REVENUES $71.7 $61.4 $48.5
===== ===== =====
OPERATING INCOME $ 5.2 $ 5.2 $ 4.1
===== ===== =====
</TABLE>
The Critics' Choice Video catalog, one of the largest-circulation catalogs
of prerecorded videocassettes, is published quarterly and features more than
2,000 video titles, including movies from all of the major film studios and
hundreds of special-interest videos. The Company purchased the remaining 20%
interest in Critics' Choice Video, Inc. effective July 1, 1993, for $3.0
million, which consisted of $1.5 million in cash and one-year promissory notes
totaling $1.5 million, which were paid July 1, 1994. Critics' Choice Video's
rapid growth has been aided by the overall growth in the video sell-through
market and the Company's emphasis on superior customer service.
15
<PAGE>
In fiscal 1994, the Company launched a new catalog, Collectors' Choice
Music, which currently offers more than 1,500 titles from all music genres on
CDs and cassettes. Since the catalog's inception, the Company has successfully
increased the circulation and product offerings of the catalog, resulting in a
50% increase in fiscal 1996 revenues compared to the prior year. The
Collectors' Choice Music catalog is published three times annually.
In a continuing effort to provide superior customer service, the Critics'
Choice Video and Collectors' Choice Music catalogs operate telephone search
lines through which customers can inquire about the availability of any film or
musical recording, including those not in the catalogs. This service not only
provides immediate assistance to the customer, but information on the interests
of the customers. Also, in fiscal 1996, the Company produced, under its own
labels, eight exclusive video releases for Critics' Choice Video and 14
exclusive music releases for Collectors' Choice Music, resulting in unique
merchandise and higher margin products.
Playboy catalog products include Playboy-brand fashions, watches and gifts,
Playboy Home Video titles, Playboy collectibles, such as calendars, back issues
and newsstand specials, and CD-ROM products. The Playboy catalog is published
three times annually. To expand the reach of the catalog's products, in April
1996 an on-line version of the Playboy catalog, called the Playboy Store, was
added to the Company's World Wide Web site offering the same products as the
printed versions.
In fiscal 1995 and 1996, all three of the Company's catalogs were impacted
by higher expenses related to paper price and postage rate increases. The
Group's incremental profit as a result of higher revenues was sufficient to
absorb these higher expenses, despite higher circulation from all three
catalogs. The Company plans to continue to increase circulation for all three
catalogs in fiscal 1997 but anticipates that paper costs will be lower compared
to fiscal 1996 as paper prices have begun to decline, and the Critics' Choice
Video and Collectors' Choice Music catalogs have changed to a different type of
paper, similar in quality, but lower in price.
In fiscal 1998, the catalog operations will move from its current facility
to a larger facility, under terms of a build-to-suit lease, to meet additional
space requirements resulting from growth in the business. The new facility will
be built in fiscal 1997 in the same Chicago suburb and will be the second
expansion in five years. The catalog facility houses fulfillment, customer
service and administrative operations.
The catalog business is subject to competition from other catalogs and
distributors and retail outlets selling similar merchandise. The Company
acquired certain of the assets of two competing videocassette catalogs in fiscal
1992, and is interested in reviewing other potential catalog acquisitions and
joint ventures to publish catalogs that would offer products, especially
entertainment software, that would appeal to customers who buy the Company's
other merchandise. In the second quarter of fiscal 1996 the Critics' Choice
Video catalog implemented a competitive pricing strategy in reaction to lower
response rates in the two prior quarters which the Company believes were due in
part to competition from mass marketers which offer popular videos at deeply-
discounted prices. Based on the success of this competitive pricing strategy in
fiscal 1996, the Company plans to continue this strategy in fiscal 1997. By the
end of calendar 1997, the Company plans to launch on-line versions of both the
Critics' Choice Video and Collectors' Choice Music catalogs to sites on the
World Wide Web which will offer the products that are included in the printed
versions.
CASINO GAMING
In fiscal 1996 the Company announced plans to re-enter the casino gaming
business. The Company's image, international appeal and successful history in
casino gaming makes this a logical extension into the fast growing field of
adult entertainment. In June 1995 the Company, with a consortium of Greek
investors, bid for an exclusive casino gaming license on the island of Rhodes,
Greece and in November 1995 the Greek government officially notified the
Company's consortium that it had won the competitive bid for this license. The
Company's consortium expects to complete negotiations with the government for
its contract to operate the casino in calendar 1996 and expects the casino to
open in calendar 1997. The Company will receive licensing royalties on revenues
of the hotel/casino and owns less than 20% of its equity. The Company is
continuing to explore other casino gaming opportunities with a strategy to form
joint-ventures with strong local partners, in which the Company would receive
license fees for the use of the Playboy name and trademarks and consider taking
equity positions.
16
<PAGE>
SEASONALITY
- -----------
The Company's businesses are generally not seasonal in nature. However,
second quarter revenues and operating income are typically impacted by higher
newsstand cover prices of holiday issues. This, coupled with higher sales of
subscriptions of Playboy magazine, also results in an increase in accounts
receivable.
PROMOTIONAL AND OTHER ACTIVITIES
- --------------------------------
The Company believes that its sales of products and services are enhanced
by the public recognition of Playboy as a lifestyle. To establish such public
recognition, the Company, among other activities, acquired in 1971, a mansion in
Holmby Hills, California known as the "Playboy Mansion" where the Company's
founder, Hugh M. Hefner, lives. The Playboy Mansion is used for various
corporate activities, including serving as a valuable location for video
production and magazine photography, business meetings, enhancing the Company's
image, charitable functions and a wide variety of promotional and marketing
purposes. The Playboy Mansion generates substantial publicity and recognition
which increase public awareness of the Company and its products and services.
As indicated in Item 13, Mr. Hefner pays rent to the Company for that portion of
the Playboy Mansion used exclusively for his and his family's residence as well
as the value of meals and other benefits received by him, his family and
personal guests. The Playboy Mansion is included in the Company's financial
statements as of June 30, 1996 at a cost, including all improvements and after
accumulated depreciation, of approximately $2,910,000 and the operating expenses
(including depreciation, taxes and security), net of rent received from Mr.
Hefner were approximately $3,940,000, $3,865,000 and $3,950,000 for the years
ended June 30, 1996, 1995 and 1994, respectively.
Through the Playboy Foundation, the Company supports not-for-profit
organizations and projects concerned with issues historically of importance to
Playboy magazine and its readers, including anti-censorship efforts, civil
rights, AIDS education, prevention and research, and reproductive freedom. The
Playboy Foundation provides financial support to many of these organizations and
also donates public service advertising space in Playboy magazine and in-kind
printing and design services.
EMPLOYEES
- ---------
At August 31, 1996, the Company employed 636 full-time employees compared
to 593 at August 31, 1995. No employees are represented by collective
bargaining agreements. The Company believes it maintains a satisfactory
relationship with its employees.
17
<PAGE>
Item 2. Properties
- -------------------
The Company leases office space at the following locations:
The Company is lessee under an initial fifteen-year lease effective
September 1, 1989 of approximately 100,000 square feet of corporate headquarters
space located at 680 North Lake Shore Drive, Chicago, Illinois. The Company's
base rental is increased two percent per year until the tenth year of the term,
after which the rent will be further adjusted to reflect the then-existing
market conditions. As of June 30, 1996, the base rental was approximately
$1,105,000. The Company was granted a rent abatement for the first two years of
the lease. However, rent expense is being charged to operations on a straight-
line basis over the term of the lease. Additionally, the lease requires the
Company to pay its proportionate share of the building's real estate taxes and
operating expenses. The majority of this space is used by all of the Company's
operating groups, primarily Publishing. In August of 1996, the Company
renegotiated this lease on more favorable terms, including a lower base rent
which will result in savings of approximately $2.0 million over the initial term
of the lease, combined with the Company obtaining certain expansion options in
the building. Further, the lease term was extended three years to 2007, with a
renewal option for an additional five years.
The Company's Publishing Group headquarters in New York City consists of
approximately 50,000 square feet of space in the Crown Building, 730 Fifth
Avenue, Manhattan. The Crown Building lease expires in 2004, has an average
annual base rental expense of approximately $1,380,000, and is subject to
periodic increases to reflect rising real estate taxes and operating expenses.
The Company was granted a rent abatement under this lease; however, rent expense
is being charged to operations on a straight-line basis over the term of the
lease. A limited amount of this space is utilized by the Entertainment and
Product Marketing Groups and executive and administrative personnel.
The Company's principal Entertainment Group offices are located at 9242
Beverly Boulevard, Beverly Hills, California ("Beverly Building"). The Company
holds a lease for approximately 40,000 square feet in the Beverly Building
through March 2002, with an average annual base rental expense of approximately
$1,550,000 per year, which is subject to annual increases calculated on a
formula involving tax and operating expense increases. The Company was granted
a partial rent abatement for the first two years of the lease. However, rent
expense is being charged to operations on a straight-line basis over the term of
the lease. Additionally, a limited amount of space is utilized by the
Publishing Group and executive and administrative personnel.
The Company leases space for its operations facilities at the following
locations:
In fiscal 1993, the Company entered into a five-year lease, which includes
a purchase option, for a 64,000 square foot warehouse facility in Itasca,
Illinois, which is used by its Catalog Group for order fulfillment and related
activities for its operations. The warehouse also houses a portion of the
Company's data processing operation and serves as a storage facility for the
entire Company. The average annual base rental expense under this lease is
approximately $300,000. Additionally, the lease requires the Company to pay the
building's real estate taxes and operating expenses. Due to the growth of the
catalog business, in fiscal 1998 the Company will be leasing a larger facility
in the same Chicago suburb to replace the existing facility.
The Company's West Coast photography studio was relocated in March 1994 to
Santa Monica, California, under terms of a ten-year lease, which commenced
January 1, 1994. The lease is for approximately 9,800 square feet of space,
with an average annual base rental expense of approximately $180,000. The
Company was granted a rent abatement under this lease; however, rent expense is
being charged to operations on a straight-line basis over the term of the lease.
Additionally, the lease requires the Company to pay its proportionate share of
the building's real estate taxes and operating expenses.
In June 1995, the Company entered into a two-year lease effective July 1,
1995 for a motion picture production facility to be used by its Entertainment
Group located in Los Angeles, California. The lease is for 11,600 square feet,
with an annual base rental expense of approximately $105,000.
The Company owns a Holmby Hills, California mansion property comprised of 5-1/2
acres. See "Promotional and Other Activities" under Item 1.
18
<PAGE>
Item 3. Legal Proceedings
- --------------------------
The Company is from time to time a defendant in suits for defamation and
violation of rights of privacy, many of which allege substantial or unspecified
damages, which are vigorously defended by the Company. The Company is presently
engaged in other litigation, most of which is generally incidental to the normal
conduct of its business and which is either immaterial in amount, expected to be
covered by the Company's insurance carriers, reserved against, or which
management believes to be without merit. Management believes that its reserves
are adequate and that no such action will have a material adverse impact on the
Company's financial condition. However, there can be no assurance that the
Company's ultimate liability will not exceed its reserves. See Note R of Notes
to Consolidated Financial Statements.
On August 14, 1990, a purported class action for unspecified damages was
filed by a stockholder in the Circuit Court of Cook County, Illinois, on behalf
of an alleged class composed of those persons who are owners of shares of the
common stock of the Company. The suit names as defendants the Company and the
following present and former directors: Christie Hefner, Hugh M. Hefner, William
A. Emerson, John R. Purcell, Robert Kamerschen, Mark H. McCormack, Richard S.
Rosenzweig and Sol Rosenthal. During the third quarter of fiscal 1991, the
plaintiffs agreed to dismiss the action against one of the Company's former
directors, Mark H. McCormack. The suit alleges that the individual defendants
violated their fiduciary duty to the class by approving the Company's stock
recapitalization plan, which became effective on June 7, 1990. The suit also
requests that the recapitalization plan be reversed. The Company and most of the
individual defendants have been served and have filed an answer denying all
substantive complaint allegations. In February 1995, the Court granted the
Company's motion for summary judgment and the case was dismissed. Plaintiffs
filed an appeal. In March 1996, the Illinois Appellate Court affirmed summary
judgment in favor of the Company and the other named defendants and the case was
dismissed. In accordance with the Company's bylaws and Delaware law, the Company
agreed with all individual defendants to advance the fees and costs they might
incur prior to the final disposition of the case, on the condition that such
individuals shall repay the amounts advanced if it were finally determined that
any respective individual were not entitled under Delaware law to be indemnified
by the Company for such expenses.
On February 26, 1996, Playboy Entertainment Group, Inc., a subsidiary of the
Company, filed a civil suit challenging Section 505 of The Telecommunications
Act of 1996 ("the Act") which was passed by Congress and signed into law in
February 1996. Fifteen organizations representing a wide range of influential
media, civil liberties and entertainment organizations filed friend of the court
briefs supporting the Company's litigation. The Company believes that Section
505 is unconstitutional and unnecessary but fully supports Section 504 of the
Act, which mandates that cable operators place full audio and video blocks on
any channel, at no charge, at a customer's request. Certain provisions of the
Act are directed exclusively at cable programming in general and adult cable
programming in particular. In some cable systems, audio or momentary bits of
video of premium or pay-per-view channels may accidentally become available to
non-subscribing cable customers. This is called "bleeding." The practical effect
of Section 505 of the Act would be to require cable systems to employ scrambling
or blocking technology in every household in every cable system that offers
adult programming, whether or not customers request it or need it, to prevent
any possibility of bleeding. In the alternative, Section 505 provides that a
cable operator that does not employ scrambling or blocking technology must
restrict the period during which the programming is transmitted. Penalties for
violation of the Act are significant and include fines and imprisonment. The
suit names as defendants The United States of America, The United States
Department of Justice, Attorney General Janet Reno and the Federal
Communications Commission. On March 7, 1996, the Company was granted a Temporary
Restraining Order ("TRO") staying the implementation and enforcement of Section
505. In granting the TRO, the court found that the Company had demonstrated it
is likely to succeed on the merits of its claim that Section 505 is
unconstitutional. The TRO will remain in place until a special three-judge panel
in the United States District Court for the District of Delaware decides the
Company's motion for a preliminary injunction.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
19
<PAGE>
EXECUTIVE OFFICERS
- ------------------
The following table sets forth information with respect to the Company's
executive officers:
Name, Age and Position Business Experience During Past 5 Years
- ---------------------- ---------------------------------------
Hugh M. Hefner, 70 Founded the Company in 1953. Has been
Chairman Emeritus and Chairman Emeritus and Editor-in-Chief
Editor-in-Chief since November 1988. From October 1976 to
November 1988 served as Chairman of the
Board and Chief Executive Officer, and
before that served as Chairman, President
and Chief Executive Officer.
Christie Hefner, 43 Appointed to present position in November
Chairman of the Board 1988. From September 1986 to November
and Chief Executive Officer 1988 served as Vice Chairman of the
Board, President and Chief Operating
Officer. From February 1984 to September
1986 served as President and Chief
Operating Officer; had been President
since April 1982. From January 1978 to
April 1982 was a Corporate Vice
President. She joined the Company in 1975
as Special Assistant to the Chairman of
the Board.
Richard S. Rosenzweig, 61 Appointed to present position in November
Executive Vice President 1988. From May 1982 to November 1988
served as Executive Vice President,
Office of the Chairman. From July 1980 to
May 1982 served as Executive Vice
President, Corporate Affairs. From
January 1977 to June 1980 he was
Executive Vice President for West Coast
Operations. His other positions with the
Company have included Executive Vice
President, Publications Group, and
Associate Publisher, Playboy magazine. He
has been with the Company since 1958.
Howard Shapiro, 49 Appointed to present position in May
Executive Vice President, 1996. From September 1989 to May 1996,
Law and Administration, served as Executive Vice President, Law
General Counsel and Secretary and Administration and General Counsel.
From May 1985 to September 1989 served as
Senior Vice President, Law and
Administration and General Counsel. From
July 1984 to May 1985 served as Senior
Vice President and General Counsel. From
September 1983 to July 1984 served as
Vice President and General Counsel. From
May 1981 to September 1983 served as
Corporate Counsel. From June 1978 to May
1981 served as Division Counsel. From
November 1973 to June 1978 served as
Staff Counsel.
Anthony J. Lynn, 44 Appointed to present position in June
Executive Vice President and 1992. From 1991 to 1992 served as
President, Entertainment Group President of international television
distribution and worldwide pay
television at MGM-Pathe Communications
Co., where he was Executive Vice
President since 1987.
Rebecca S. Maskey, 48 Appointed to present position in April
Senior Vice President, 1993. From April 1993 to June 1995 also
Finance served as Treasurer. From January 1990 to
April 1993 served as Vice President,
Financial Services and Treasurer. From
August 1988 to January 1990 served as
Vice President and Treasurer. From
January 1987 to August 1988 served as
Treasurer. From January 1985 to January
1987 served as Assistant Treasurer.
20
<PAGE>
Name, Age and Position Business Experience During Past 5 Years
- ---------------------- ---------------------------------------
Herbert M. Laney, 51 Appointed to present position in September 1995.
Senior Vice President From June 1993 to September 1995 served as
and President, Catalog Group President, Catalog Group. From August 1990
to June 1993 served as Senior Vice President,
Catalog Group. From June 1988 to August 1990
served as Senior Vice President, Direct
Marketing.
Martha O. Lindeman, 45 Appointed to present position in March 1992.
Vice President, Corporate From 1986 to 1992 served as Manager of
Communications and Communications at the Tribune Company, a leading
Investor Relations information and entertainment company.
21
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The stock price information, as reported in the New York Stock Exchange
Composite Listing, set forth in Note S of Notes to Consolidated Financial
Statements in the fiscal 1996 Annual Report is incorporated herein by reference.
The registrant's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of August 31, 1996, there were 8,445 and 9,004
record holders of Class A Common Stock and Class B Common Stock, respectively.
There were no cash dividends declared during either of the two fiscal years in
the period ended June 30, 1996. The Company's revolving credit agreement
prohibits the payment of cash dividends.
Item 6. Selected Financial Data
The net revenues, income (loss) from continuing operations before
extraordinary item and cumulative effect of change in accounting principle,
total assets, long-term financing obligations, income (loss) from continuing
operations before extraordinary item and cumulative effect of change in
accounting principle per common share and cash dividends declared per common
share for each of the five fiscal years in the period ended June 30, 1996, set
forth under the caption "Selected Financial and Operating Data" on page 23 of
the fiscal 1996 Annual Report are incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 25 - 31
of the fiscal 1996 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and
report of independent accountants set forth on pages 32 - 43 of the fiscal 1996
Annual Report are incorporated herein by reference:
Consolidated Statements of Operations - Years ended June 30, 1996, 1995 and
1994.
Consolidated Balance Sheets - June 30, 1996 and 1995.
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended June 30, 1996, 1995 and
1994.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Report of Management.
The supplementary data regarding quarterly results of operations set forth
in Note S of Notes to Consolidated Financial Statements on pages 41 and 42 of
the fiscal 1996 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
22
<PAGE>
PART III
Information required by Items 10, 11, 12 and 13 is contained in the
registrant's Notice of Annual Meeting of Stockholders and Proxy Statement (to be
filed) relating to the Annual Meeting of Stockholders to be held in November
1996, which will be filed within 120 days after the close of the registrant's
fiscal year ended June 30, 1996, and is incorporated herein by reference.
Information regarding executive officers is contained on pages 20 and 21 of this
Form 10-K Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) Certain Documents Filed as Part of the Form 10-K
Financial Statements of the registrant and report of independent
accountants following as set forth under Item 8 of this Form 10-K Report
and which have been incorporated by reference from pages 32 - 43 of the
fiscal 1996 Annual Report:
Consolidated Statements of Operations - Years ended June 30, 1996,
1995 and 1994
Consolidated Balance Sheets - June 30, 1996 and 1995
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended June 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants*
Report of Management
The supplementary data regarding quarterly results of operations as
set forth in Note S of Notes to Consolidated Financial Statements on
pages 41 and 42 of the fiscal 1996 Annual Report and which have been
incorporated by reference.
Financial Statement Schedule of the registrant not included in the fiscal 1996
Annual Report but filed herewith:
Page
----
Schedule II - Valuation and Qualifying Accounts 34
* The report of the registrant's independent accountants with respect to
the Financial Statement Schedule appears on page 33 of this Form 10-K
Report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth
quarter of fiscal 1996
(c) Exhibits
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 from the Company's annual report on Form 10-K
for the year ended June 30, 1995 (the "1995 Form 10-K"))
3.2 Restated bylaws of the Company (incorporated by reference to Exhibit
3.2 from the Company's annual report on Form 10-K for the year ended
June 30, 1994 (the "1994 Form 10-K"))
10.1 Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for Non-Qualified
Stock Options which may be granted under the Plan
c Form of Incentive Stock Option Agreement for Incentive Stock
Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted Stock issued
under the Plan
23
<PAGE>
(incorporated by reference to Exhibits 4.2, 4.3, 4.4 and 4.5 from the
Registration Statement No. 33-58145 on Form S-8 dated March 20, 1995)
10.2 Playboy Enterprises, Inc. Employee Stock Purchase Plan (incorporated
by reference to Exhibit 4.4 from the Registration Statement No. 333-06843
on Form S-8 dated June 26, 1996)
10.3 Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises, Inc. and
Quad/Graphics, Inc. regarding printing of Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
(items (a) and (b) incorporated by reference to Exhibits 10.3(a) and (b),
respectively, from the 1995 Form 10-K)
c First Amendment dated August 15, 1996 to May 15, 1990 agreement
10.4 Playboy Magazine Distribution Agreement dated as of June 6, 1994
between Playboy Enterprises, Inc. and Warner Publisher Services, Inc.
(incorporated by reference to Exhibit 10.9 from the 1994 Form 10-K)
10.5 Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication Data Services, Inc.
and Playboy Enterprises, Inc. (incorporated by reference to
Exhibit 10.12(a) from the Company's annual report on Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K"))
b Amendment dated as of June 1, 1988 to said Fulfillment Agreement
(incorporated by reference to Exhibit 10.12(b) from the Company's
annual report on Form 10-K for the year ended June 30, 1993 (the
"1993 Form 10-K"))
c Amendment dated as of July 1, 1990 to said Fulfillment Agreement
(incorporated by reference to Exhibit 10.12(c) from the Company's
annual report on Form 10-K for the year ended June 30, 1991 (the
"1991 Form 10-K"))
d Amendment dated as of July 1, 1996 to said Fulfillment Agreement
10.6 Transponder Lease Agreement dated as of December 31, 1992 between Playboy
Entertainment Group, Inc. and General Electric Capital Corporation
(incorporated by reference to Exhibit 10.3 from the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1992 (the "Second
Quarter 1993 Form 10-Q"))
10.7 Distribution License to Exploit Home Video Rights effective October 1,
1991 between Playboy Video Enterprises, Inc. and Uni Distribution Corp.
(incorporated by reference to Exhibit 10.16 from the 1991 Form 10-K)
10.8 Distribution Agreement dated as of March 24, 1995 between Playboy
Entertainment Group, Inc. and Uni Distribution Corp. regarding licensing
and sale of domestic home video product (incorporated by reference to
Exhibit 10.8 from the 1995 Form 10-K)
10.9 Agreements effective November 1, 1995 between Playboy Entertainment
Group, Inc., Continental Shelf 16 Limited, Precis (1378) Limited and
Playboy TV/Benelux Limited regarding the establishment of a Playboy TV
pay television service in the United Kingdom
10.10 Agreements between Playboy Entertainment Group, Inc. and Tohokushinsha
Film Corporation
a Memorandum of Agreement and Amendment dated July 31, 1995
regarding the establishment of a Playboy TV pay television
service in Japan
b Amendment to July 31, 1995 agreement dated March 26, 1996
10.11 Deal Memorandum dated June 22, 1995 between Playboy Networks Worldwide
and TVN regarding distribution and services related to the AdulTVision
pay television service
10.12 Distribution Agreement dated June 27, 1996 between Playboy Entertainment
Group, Inc. and Orion Home Video regarding the distribution of certain
home video programs and product
10.13 Affiliation Agreement between Playboy Entertainment Group, Inc. and
DirecTV
a Agreement dated November 15, 1993 regarding the satellite
distribution of Playboy Television
b First Amendment to November 15, 1993 agreement dated as of April
19, 1994
c Second Amendment to November 15, 1993 agreement dated as of July
26, 1995
10.14 Affiliation Agreement dated February 29, 1996 between Playboy
Entertainment Group, Inc. and PrimeStar Partners, L.P. regarding the
satellite distribution of Playboy Television
10.15 Warner Home Video/Critics' Choice Direct Marketing License Agreements
a Agreement dated February 22, 1994 regarding purchase of Turner
product
b Agreement dated February 22, 1994 regarding purchase of non-
Turner product
(items (a) and (b) incorporated by reference to Exhibits 10.10 and
10.11, respectively, from the 1995 Form 10-K)
c Agreement dated June 28, 1996 regarding purchase of Turner and
non-Turner product
10.16 Product License Agreements between Playboy Enterprises, Inc. and Chaifa
Investment, Limited
a Agreement dated September 26, 1989 related to the Hong Kong
territory
b Agreement dated March 4, 1991 related to the People's Republic of
China territory
24
<PAGE>
c Amendment dated July 21, 1992 related to the March 4, 1991
agreement
d Amendment dated August 17, 1993 related to the agreements dated
September 26, 1989 and March 4, 1991
e Amendment dated January 23, 1996 related to the agreements dated
September 26, 1989 and March 4, 1991
10.17 Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by and among
Playboy Enterprises, Inc., Harris Trust and Savings Bank and
LaSalle National Bank
b First Amendment to February 10, 1995 Credit Agreement dated as of
March 31, 1995
(items (a) and (b) incorporated by reference to Exhibits 10.12(a) and
(b), respectively, from the 1995 Form 10-K)
c Second Amendment to February 10, 1995 Credit Agreement dated as
of March 5, 1996
10.18 Playboy Mansion West Lease Agreement, as amended, between Playboy
Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease
b Agreement of lease
(items (a) and (b) incorporated by reference to Exhibits 10.3(a) and
(b), respectively, from the 1991 Form 10-K)
10.19 Los Angeles Office Lease Documents
a Office lease dated as of July 25, 1991 between Playboy
Enterprises, Inc. and Beverly Mercedes Place, Ltd. (incorporated
by reference to Exhibit 10.6(c) from the 1991 Form 10-K)
b Amendment to July 25, 1991 lease dated June 26, 1996
c Amendment to July 25, 1991 lease dated September 12, 1996
10.20 Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between Playboy
Enterprises, Inc. and LaSalle National Bank as Trustee under
Trust No. 112912 (incorporated by reference to Exhibit 10.7(a)
from the 1993 Form 10-K)
b First Amendment to April 7, 1988 lease dated October 26, 1989
(incorporated by reference to Exhibit 10.15(b) from the 1995 Form
10-K)
c Second Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the Second
Quarter 1993 Form 10-Q)
d Third Amendment to April 7, 1988 lease dated August 30, 1993
(incorporated by reference to Exhibit 10.15(d) from the 1995 Form
10-K)
e Fourth Amendment to April 7, 1988 lease dated August 6, 1996
10.21 New York Office Lease Agreement dated August 11, 1992 between Playboy
Enterprises, Inc. and Lexington Building Co. (incorporated by
reference to Exhibit 10.9(b) from the 1992 Form 10-K)
10.22 Itasca Warehouse Lease Agreement dated as of October 20, 1992 between
Teachers' Retirement System of the State of Illinois and Playboy
Enterprises, Inc. (incorporated by reference to Exhibit 10.4 from the
Second Quarter 1993 Form 10-Q)
10.23 Itasca Warehouse Lease Agreement dated as of September 6, 1996 between
Centerpoint Properties Corporation and Playboy Enterprises, Inc.
10.24 Selected Company Remunerative Plans
a Executive Car Lease Program dated June 11, 1993 (incorporated by
reference to Exhibit 10.18(a) from the 1995 Form 10-K)
b Administrative Statement for the Executive Car Lease Program
dated March 1, 1992 (incorporated by reference to Exhibit 10.2(b)
from the 1992 Form 10-K)
c Executive Protection Program dated March 1, 1990 (incorporated by
reference to Exhibit 10.18(c) from the 1995 Form 10-K)
d Deferred Compensation Plan for Employees effective October 1,
1992
e Deferred Compensation Plan for Nonemployee Directors effective
October 1, 1992
(items (d) and (e) incorporated by reference to Exhibits 10.2(g) and
(h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for Employees
effective December 31, 1993 (incorporated by reference to Exhibit
10.1(f) from the 1994 Form 10-K)
g Second Amendment to Deferred Compensation Plan for Employees
effective April 1, 1996
h First Amendment to Deferred Compensation Plan for Nonemployee
Directors effective April 1, 1996
10.25 Selected Employment, Termination and Other Agreements
a Playboy Enterprises, Inc. 1989 Stock Option Plan, as amended, For
Key Employees (the "1989 Option Plan")(incorporated by reference
to Exhibit 10.4 (mm) from the 1991 Form 10-K)
b Playboy Enterprises, Inc. 1989 Stock Option Agreement
25
<PAGE>
c Letter dated July 18, 1990 pursuant to the June 7, 1990
recapitalization regarding adjustment of options
(items (b) and (c) incorporated by reference to Exhibits 10.19(c) and
(d), respectively, from the 1995 Form 10-K)
d Consent and Amendment regarding the 1989 Option Plan
e Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan
for Non-Employee Directors, as amended
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option
Agreement for Non-Employee Directors
(items (d), (e) and (f) incorporated by reference to Exhibits
10.4(aa), (rr) and (nn), respectively, from the 1991 Form 10-K)
g Playboy Enterprises, Inc. Severance Agreement (incorporated by
reference to Exhibit 10.4(vv) from the 1991 Form 10-K)
h Employment Agreement dated May 21, 1992 between Playboy
Enterprises, Inc. and Anthony J. Lynn (incorporated by reference
to Exhibit 10.4(bbb) from the 1992 Form 10-K)
i Amendment dated August 15, 1996 regarding the Employment
Agreement dated May 21, 1992 between Playboy Enterprises, Inc.
and Anthony J. Lynn
j Letter Agreement dated February 26, 1993 regarding Special
Incentive Compensation Plan for Herb Laney
k Memorandum dated May 1, 1996 regarding extension of Special
Incentive Compensation Plan for Herb Laney dated February 26,
1993
11 Computation of Net Income (Loss) Per Share
13 Annual Report to Security Holders
Herewith filed as an exhibit only with respect to the parts
incorporated by reference in this Form 10-K. The report, except
for portions expressly incorporated by reference, is furnished
for the information of the Commission only and is not to be
deemed "filed" as part of the filing.
21 Parent and Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
(d) Financial Statement Schedules
Not applicable
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
September 20, 1996 By /s/Rebecca S. Maskey
-------------------------
Rebecca S. Maskey
Senior Vice President,
Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Christie Hefner September 20, 1996
- -------------------------------------
Christie Hefner
Chairman of the Board,
Chief Executive Officer and Director
/s/Richard S. Rosenzweig September 26, 1996
- -------------------------------------
Richard S. Rosenzweig
Executive Vice President and Director
/s/Dennis S. Bookshester September 27, 1996
- -------------------------------------
Dennis S. Bookshester
Director
/s/David I. Chemerow September 24, 1996
- -------------------------------------
David I. Chemerow
Director
/s/Robert Kamerschen September 27, 1996
- -------------------------------------
Robert Kamerschen
Director
/s/Sol Rosenthal September 23, 1996
- -------------------------------------
Sol Rosenthal
Director
/s/Sir Brian Wolfson September 24, 1996
- -------------------------------------
Sir Brian Wolfson
Director
/s/Rebecca S. Maskey September 20, 1996
- -------------------------------------
Rebecca S. Maskey
Senior Vice President,
Finance
27
<PAGE>
All agreements listed below may have additional exhibits which are not attached.
All such exhibits are available upon request, provided the requesting party
shall pay a fee for copies of such exhibits, which fee shall be limited to the
Company's reasonable expenses incurred in furnishing these documents.
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 from the
1995 Form 10-K)
3.2 Restated bylaws of the Company (incorporated by
reference to Exhibit 3.2 from the 1994 Form 10-K)
10.1 Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for
Non-Qualified Stock Options which may be granted
under the Plan
c Form of Incentive Stock Option Agreement for
Incentive Stock Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted
Stock issued under the Plan
(incorporated by reference to Exhibits 4.2, 4.3, 4.4 and
4.5 from the Registration Statement No. 33-58145 on Form
S-8 dated March 20, 1995)
10.2 Playboy Enterprises, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.4 from the
Registration Statement No. 333-06843 on Form S-8 dated
June 26, 1996)
10.3 Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises,
Inc. and Quad/Graphics, Inc. regarding printing of
Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
(items (a) and (b) incorporated by reference to Exhibits
10.3(a) and (b), respectively, from the 1995 Form 10-K)
*c First Amendment dated August 15, 1996 to May 15, 1990
agreement
10.4 Playboy Magazine Distribution Agreement dated as of June 6,
1994 between Playboy Enterprises, Inc. and Warner Publisher
Services, Inc. (incorporated by reference to Exhibit 10.9
from the 1994 Form 10-K)
10.5 Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication Data
Services, Inc. and Playboy Enterprises, Inc.
(incorporated by reference to Exhibit 10.12(a)
from the 1992 Form 10-K)
b Amendment dated as of June 1, 1988 to said Fulfillment
Agreement (incorporated by reference to Exhibit 10.12(b)
from the 1993 Form 10-K)
c Amendment dated as of July 1, 1990 to said Fulfillment
Agreement (incorporated by reference to Exhibit 10.12(c)
from the 1991 Form 10-K)
*d Amendment dated as of July 1, 1996 to said Fulfillment
Agreement
</TABLE>
28
<PAGE>
10.6 Transponder Lease Agreement dated as of December 31, 1992
between Playboy Entertainment Group, Inc. and General
Electric Capital Corporation (incorporated by reference to
Exhibit 10.3 from the Second Quarter 1993 Form 10-Q)
10.7 Distribution License to Exploit Home Video Rights effective
October 1, 1991 between Playboy Video Enterprises, Inc. and
Uni Distribution Corp. (incorporated by reference to Exhibit
10.16 from the 1991 Form 10-K)
10.8 Distribution Agreement dated as of March 24, 1995 between
Playboy Entertainment Group, Inc. and Uni Distribution Corp.
regarding licensing and sale of domestic home video product
(incorporated by reference to Exhibit 10.8 from the 1995
Form 10-K)
*10.9 Agreements effective November 1, 1995 between Playboy
Entertainment Group, Inc., Continental Shelf 16 Limited,
Precis (1378) Limited and Playboy TV/Benelux Limited
regarding the establishment of a Playboy TV pay television
service in the United Kingdom
*10.10 Agreements between Playboy Entertainment Group, Inc. and
Tohokushinsha Film Corporation
a Memorandum of Agreement and Amendment dated July 31,
1995 regarding the establishment of a Playboy TV pay
television service in Japan
b Amendment to July 31, 1995 agreement dated March 26, 1996
*10.11 Deal Memorandum dated June 22, 1995 between Playboy
Networks Worldwide and TVN regarding distribution and
services related to the AdulTVision pay television service
*10.12 Distribution Agreement dated June 27, 1996 between Playboy
Entertainment Group, Inc. and Orion Home Video regarding the
distribution of certain home video programs and product
*10.13 Affiliation Agreement between Playboy Entertainment Group,
Inc. and DirecTV
a Agreement dated November 15, 1993 regarding the satellite
distribution of Playboy Television
b First Amendment to November 15, 1993 agreement dated as of
April 19, 1994
c Second Amendment to November 15, 1993 agreement dated as
of July 26, 1995
*10.14 Affiliation Agreement dated February 29, 1996 between Playboy
Entertainment Group, Inc. and PrimeStar Partners, L.P.
regarding the satellite distribution of Playboy Television
10.15 Warner Home Video/Critics' Choice Direct Marketing License
Agreements
a Agreement dated February 22, 1994 regarding purchase of
Turner product
b Agreement dated February 22, 1994 regarding purchase of non-
Turner product
29
<PAGE>
(items (a) and (b) incorporated by reference to Exhibits
10.10 and 10.11, respectively, from the 1995 Form 10-K)
*c Agreement dated June 28, 1996 regarding purchase of
Turner and non-Turner product
*10.16 Product License Agreements between Playboy Enterprises,
Inc. and Chaifa Investment, Limited
a Agreement dated September 26, 1989 related to the Hong
Kong territory
b Agreement dated March 4, 1991 related to the People's
Republic of China territory
c Amendment dated July 21, 1992 related to the March 4, 1991
agreement
d Amendment dated August 17, 1993 related to the agreements
dated September 26, 1989 and March 4, 1991
e Amendment dated January 23, 1996 related to the agreements
dated September 26, 1989 and March 4, 1991
10.17 Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by and
among Playboy Enterprises, Inc., Harris Trust and Savings
Bank and LaSalle National Bank
b First Amendment to February 10, 1995 Credit Agreement
dated as of March 31, 1995
(items (a) and (b) incorporated by reference to Exhibits
10.12(a) and (b), respectively, from the 1995 Form 10-K)
*c Second Amendment to February 10, 1995 Credit Agreement
dated as of March 5, 1996
10.18 Playboy Mansion West Lease Agreement, as amended, between
Playboy Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease
b Agreement of lease
(items (a) and (b) incorporated by reference to Exhibits
10.3(a) and (b), respectively, from the 1991 Form 10-K)
10.19 Los Angeles Office Lease Documents
a Office Lease dated as of July 25, 1991 between Playboy
Enterprises, Inc. and Beverly Mercedes Place, Ltd. (incorporated
by reference to Exhibit 10.6(c) from the 1991 Form 10-K)
*b Amendment to July 25, 1991 lease dated June 26, 1996
*c Amendment to July 25, 1991 lease dated September 12, 1996
30
<PAGE>
10.20 Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between Playboy
Enterprises, Inc. and LaSalle National Bank as Trustee under
Trust No. 112912 (incorporated by reference to Exhibit 10.7(a)
from the 1993 Form 10-K)
b First Amendment to April 7, 1988 lease dated October 26, 1989
(incorporated by reference to Exhibit 10.15(b) from the 1995
Form 10-K)
c Second Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the Second
Quarter 1993 Form 10-Q)
d Third Amendment to April 7, 1988 lease dated August 30, 1993
(incorporated by reference to Exhibit 10.15(d) from the 1995 Form
10-K)
*e Fourth Amendment to April 7, 1988 lease dated August 6, 1996
10.21 New York Office Lease Agreement dated August 11, 1992 between Playboy
Enterprises, Inc. and Lexington Building Co. (incorporated by
reference to Exhibit 10.9(b) from the 1992 Form 10-K)
10.22 Itasca Warehouse Lease Agreement dated as of October 20, 1992 between
Teachers' Retirement System of the State of Illinois and Playboy
Enterprises, Inc. (incorporated by reference to Exhibit 10.4 from the
Second Quarter 1993 Form 10-Q)
*10.23 Itasca Warehouse Lease Agreement dated as of September 6, 1996 between
Centerpoint Properties Corporation and Playboy Enterprises, Inc.
10.24 Selected Company Remunerative Plans
a Executive Car Lease Program dated June 11, 1993 (incorporated by
reference to Exhibit 10.18(a) from the 1995 Form 10-K)
b Administrative Statement for the Executive Car Lease Program
dated March 1, 1992 (incorporated by reference to Exhibit 10.2(b)
from the 1992 Form 10-K)
c Executive Protection Program dated March 1, 1990 (incorporated by
reference to Exhibit 10.18(c) from the 1995 Form 10-K)
d Deferred Compensation Plan for Employees effective October 1,
1992
e Deferred Compensation Plan for Nonemployee Directors effective
October 1, 1992
(items (d) and (e) incorporated by reference to Exhibits 10.2(g) and
(h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for Employees
effective December 31, 1993 (incorporated by reference to Exhibit
10.1(f) from the 1994 Form 10-K)
*g Second Amendment to Deferred Compensation Plan for Employees
effective April 1, 1996
*h First Amendment to Deferred Compensation Plan for Nonemployee
Directors effective April 1, 1996
31
<PAGE>
10.25 Selected Employment, Termination and Other Agreements
a Playboy Enterprises, Inc. 1989 Stock Option Plan, as amended, For
Key Employees (the "1989 Option Plan")(incorporated by reference
to Exhibit 10.4(mm) from the 1991 Form 10-K)
b Playboy Enterprises, Inc. 1989 Stock Option Agreement
c Letter dated July 18, 1990 pursuant to the June 7, 1990
recapitalization regarding adjustment of options
(items (b) and (c) incorporated by reference to Exhibits 10.19(c) and
(d), respectively, from the 1995 Form 10-K)
d Consent and Amendment regarding the 1989 Option Plan
e Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan
for Non-Employee Directors, as amended
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option
Agreement for Non-Employee Directors
(items (d), (e) and (f) incorporated by reference to Exhibits
10.4(aa), (rr) and (nn), respectively, from the 1991 Form 10-K)
g Playboy Enterprises, Inc. Severance Agreement (incorporated by
reference to Exhibit 10.4(vv) from the 1991 Form 10-K)
h Employment Agreement dated May 21, 1992 between Playboy
Enterprises, Inc. and Anthony J. Lynn (incorporated by reference
to Exhibit 10.4(bbb) from the 1992 Form 10-K)
*i Amendment dated August 15, 1996 regarding the Employment
Agreement dated May 21, 1992 between Playboy Enterprises, Inc.
and Anthony J. Lynn
*j Letter Agreement dated February 26, 1993 regarding Special
Incentive Compensation Plan for Herb Laney
*k Memorandum dated May 1, 1996 regarding extension of Special
Incentive Compensation Plan for Herb Laney dated February 26,
1993
*11 Computation of Net Income (Loss) Per Share
*13 Annual Report to Security Holders
Herewith filed as an exhibit only with respect to the parts
incorporated by reference in this Form 10-K. The report, except for
portions expressly incorporated by reference, is furnished for the
information of the Commission only and is not to be deemed "filed" as
part of the filing.
*21 Parent and Subsidiaries
*23 Consent of Independent Public Accountants
*27 Financial Data Schedule
- -------
* Filed herewith
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Shareholders and Board of Directors
Playboy Enterprises, Inc.
Our report on the consolidated financial statements of Playboy Enterprises,
Inc. and its Subsidiaries has been incorporated by reference in this Form 10-K
from page 43 of the fiscal 1996 Annual Report to Shareholders of Playboy
Enterprises, Inc. and its Subsidiaries. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 23 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 1, 1996
33
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
=============================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------------
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------------------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance deducted in the balance sheet
from the asset to which it applies:
Year ended June 30, 1996:
Allowance for doubtful accounts $ 4,837 $ 504 $ 1,632(a) $ 3,964(b) $ 3,009
======== ======== ======== ======== ========
Allowance for returns $ 20,952 $ -- $ 59,718(c) $ 58,731(d) $ 21,939
======== ======== ======== ======== ========
Year ended June 30, 1995:
Allowance for doubtful accounts (e) $ 3,155 $ 1,709 $ 2,042(a) $ 2,069(b) $ 4,837
======== ======== ======== ======== ========
Allowance for returns $ 18,612 $ -- $ 57,057(c) $ 54,717(d) $ 20,952
======== ======== ======== ======== ========
Year ended June 30, 1994:
Allowance for doubtful accounts (e) $ 2,843 $ 1,294 $ 1,916(a) $ 2,898(b) $ 3,155
======== ======== ======== ======== ========
Allowance for returns $ 21,631 $ -- $ 53,486(c) $ 56,505(d) $ 18,612
======== ======== ======== ======== ========
</TABLE>
Notes:
(a) Represents provisions for unpaid subscriptions charged to net revenues.
Also included in fiscal 1996 amount was $98 related to the consolidation of
the VIPress Poland Sp. z o.o. balance at the acquisition date in March
1996.
(b) Represents uncollectible accounts less recoveries. Also included in fiscal
1994 amount was $66 related to a discount for early payment of a
receivable.
(c) Represents provisions charged to net revenues for estimated returns of
Playboy magazine, other Playboy publications and domestic home video.
(d) Represents settlements on provisions previously recorded.
(e) Certain reclassifications have been made to conform to the fiscal 1996
presentation.
34
<PAGE>
Exhibit 10.3(c)
FIRST AMENDMENT
---------------
THIS FIRST AMENDMENT, dated August 15, 1996, by and between Playboy Enterprises,
Inc. ("Publisher") and Quad/Graphics, Inc. ("Quad/Graphics") hereinafter
referred to as the "Amendment".
RECITALS:
A. Publisher and Quad/Graphics entered into a certain Agreement, dated May 15,
1990, pertaining to the performance of press service, subject to quality,
pricing and schedule, (including four (4) color editorial separations,
stripping, ad handling, cromalins, final films) platemaking or cylinder
engraving, press work (including gravure), binding, mailing and delivery to
common carriers in connection with Publisher's magazine entitled, Playboy
(the "Work"), with Agreement was modified by the addendum dated November 7,
1991, and the letter dated May 25, 1994, such Agreement, as so modified, is
hereinafter collectively referred to as the "Agreement".
B. Publisher and Quad/Graphics are desirous of amending the Agreement as
hereinafter provided.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged by each party, Quad/Graphics and Publisher agree as follows:
1. The Agreement is amended to extend the term of the Agreement by one (1)
year to expire November 1, 1997 (upon completion of production of the
January 1998 issue of Playboy).
2. The Preparatory Price List, dated March 1, 1996, attached hereto as Exhibit
A, will constitute the pricing in effect for preparatory production taking
place on or after the signing date of this Amendment, subject to adjustment
as provided in the Agreement as hereby amended.
The Manufacturing Prices, dated May 30, 1996, and attached hereto as
Exhibit B, will constitute the pricing in effect for print production
taking place on or after the signing date of this Amendment, subject to
adjustment as provided in the Agreement as hereby amended.
The Manufacturing Prices attached hereto as Exhibit B include the 6%
gravure and offset ink increase, effective December 1, 1994, and the 6%
gravure ink increase, effective January 1, 1996.
4. The Paper Requirements, dated September 20, 1995 and attached hereto as
Exhibit C, will constitute the paper requirements in effect at the time of
this Amendment, subject to adjustment as provided in the Agreement.
5. Quad/Graphics will waive its entitlement to and forego the August 1, 1996
price escalation to reflect increases to Quad/Graphics' labor costs.
6. Section 10.05 of the Agreement is amended to guarantee that the Preparatory
and Manufacturing Prices, attached hereto as Exhibits A and B. will remain
firm against increases in labor costs through July 31, 1997. Thereafter,
prices may be adjusted once annually on or after August first to reflect
changes to Quad/Graphics' cost of labor and each such adjustment will not
exceed 85% of the change in the "all items" listing (1982-84=100) of the
Milwaukee, Wisconsin Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W) for the immediately preceding first half of the
calendar year as compared to the first half of the preceding calendar year.
7. Except as modified herein, the Agreement will continue in full force and
effect without change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers effective on the date herein set forth.
Playboy Enterprises Quad/Graphics, Inc.
By:/s/ MARIA DANAE MANDIS By:/s/ ROBERT C. FULLER
------------------------ ------------------------
Name:MARIA DANAE MANDIS Name:ROBERT C. FULLER
------------------- -------------------
Title: VP/ PROD DIRECTOR Title: CHICAGO SUBS MGR.
------------------ ------------------
Date: 8/26/96 Date: 8/26/96
----------------------------- ----------------------
<PAGE>
Exhibit A
<PAGE>
Playboy Enterprises, Inc. - Quad/Graphics, Inc.
First Amendment
Preparatory Price List
(dated March 1, 1996)
<PAGE>
<TABLE>
<CAPTION>
QUAD/GRAPHICS, INC.
1996 PREPARATORY CONTRACT PRICING FOR PLAYBOY ENTERPRISES, INC.
- --------------------------------------------------------------------------------
<S> <C>
Prices are based on producing an 8-3/16" x 10-7/8" page size.
PLAYBOY 1996 (CONTRACT PRICING)
FURNISHED EDIT
(BASED ON 4/C, BUT INCLUDES 2/C OR 3/C ALSO)
ANY FULL PAGE STORIES OR CARTOONS AND ALSO PARTIAL PAGE CARTOONS.
Furnished edit - (RREU negatives)................................. $ 100.00 each
Furnished edit - (RRED positives without Matchprint proof)........ $ 30.00 each
Furnished edit (RRED positives with Matchprint proof)..............$ 70.00 each
B&W TYPE PAGES (FULL PAGE)
Supplied RRED positives (for full page edit)...................... $ 15.00 each
FULL PAGE FURNISHED ADS (2/C, 3/C OR 4/C)
Supplied RREU negatives........................................... $ 135.00 each
Supplied RRED negatives........................................... $ 175.00 each
Supplied RRED positives........................................... $ 100.00 each
FULL PAGE B&W ADS
Supplied RREU negatives........................................... $ 27.00 each
Supplied RRED positives........................................... $ 15.00 each
PARTIAL PAGE ADS (BASED UPON B&W EDIT FILM. IF EDIT HAS SCANS, TINTS, K.O.'S,
HANDWORK, ETC. WILL BE BILLED PER THE ATTACHED PRICE LIST)
B&W ad (supplied RREU negatives).................................. $ 30.00 each
2/C, 3/C or 4/C ad supplied as RREU negatives (price based on one
ad)............................................................... $ 155.00 each
2/C, 3/C or 4/C ad supplied as RREU negatives (price based on two
ads).............................................................. $ 225.00 each
PICK UP ADS (PARTIAL OR FULL PAGE)
Pick up B&W ad.................................................... $ 25.00 each
Pick up 2/C, 3/C or 4/C ad........................................ $ 45.00 each
- --------------------------------------------------------------------------------
Quad/Imaging March 1, 1996 Page 1
</TABLE>
4
<PAGE>
QUAD/GRAPHICS, INC.
1996 PREPARATORY CONTRACT PRICING FOR PLAYBOY ENTERPRISES, INC.
- --------------------------------------------------------------------------------
PLAYBOY SPECIALS
BASE 4/C PAGE
(8-3/16" X 10-7/8")
BASE PAGE:
(081) Base 4/C page............................................... $575.00 page
Price includes ripping type and line art from a supplied disk, all random
4/C separations, color correction and touching up of skin blemishes or
scratches as noted on each transparency, processing high resolution images
into the desktop page file, outputting film, a composite Matchprint proof,
color correction and retouching as noted on the first proof, reripping a
page file, reprocessing high resolution images into the desktop page file,
outputting a second set of final film and a second composite Matchprint
proof and two blueline proofs.
You can determine the additional cost of items not specified in the estimate
such as silhouettes, drop shadows, versions, color corrections after the second
proof show and author alterations per the attached price list.
Your price estimate is based on the specifications and printed samples
(September/October 1993 Lingerie book, November/December 1993 Lingerie book,
Playboy's Video Playmates, Playboy's Satin, Leather & Lace supplement and the
1993 Centerfold Sensations) that you have provided.
You can help meet the estimated price and complete your project on time by
providing the following:
. Macintosh based QuarkXPress page files created as single pages to be
processed and output as final film.
. Page files containing all type and line art (colored, tinted and built to
butt), EPS files and square finish windows in position with low
resolution images resident on the page.
. Thermal proofs or laser proofs of designed pages containing trim marks,
call outs for color breaks and tint values and low resolution files
showing image position, size, cropping and angling.
. A list of all CTs and fonts used in the document along with a list of the
fonts, software and version used to create EPS files.
- -------------------------------------------------------------------------------
Quad/Imaging March l, 1996 Page 2
<PAGE>
QUAD/GRAPHICS, INC.
1996 PREPARATORY CONTRACT PRICE LIST FOR PLAYBOY ENTERPRISES, INC.
- --------------------------------------------------------------------------------
Prices are based on producing an 8-3/16" x 10-7/8" page size.
PLAYBOY 1996 (CONTRACT PRICE LIST)
COLOR SEPARATION
Price includes a random color proof and either positives
or negatives. Each subject will be scanned for a comparable
representation of the original transparency or to the written
instructions on the transparency within scanner limitations. Scans that
are, in our judgement, extremely difficult to reproduce will require
handwork. COLOR CORRECTION IS ADDITIONAL.
<TABLE>
<CAPTION>
<C> <S> <C>
(356) B & W separation........................................... $ 30.00 each
Four color separation
(301) 5" x 7".................................................... $ 90.00 each
(302) 9" x 12"................................................... $ 125.00 each
(303) 14" x 20".................................................. $ 190.00 each
DESKTOP PAGE PROCESSING
(036) Trap color................................................. $ 15.00 each
(297) Black & white line scan.................................... $ 12.00 each
(134) Page processing, per color, (outputting film additional)... $ 12.00 each
(489) Digital file output (per color)............................ $ 12.00 each
(073) Output film (per color).................................... $ 12.00 each
ELECTRONIC SYSTEM
(496) Electronic page assembly, color correction, swatch matching,
retouching, special effects, rotation, extensive resizing,
alteration of desktop page files........................... $ 200.00 hour
CONVENTIONAL FILM ASSEMBLY
(052) Color break mask........................................... $ 12.00 each
(053) Tint screen (per value, per color)......................... $ 15.00 each
(057) Reverse type............................................... $ 30.00 page
(059) Knock out mask............................................. $ 30.00 each
(032) Cadograph windows and rules................................ $ 15.00 page
(069) Dupe film (per color, per item) does not include strips.... $ 12.00 each
(054) Contact film (per color, per item) does not include strips. $ 12.00 each
(061) Strip film element......................................... $ 6.00 film
(168) Pick up with inspection (per color, per item).............. $ 4.00 film
(021) Handwork (per hour)........................................ $ 55.00 hour
(066) Final film (per color)..................................... $ 12.00 each
(031) Ad inspection.............................................. $ 25.00 ad
* Ad inspection includes checking the screen ruling and angle of films,
inspecting films for holes and scratches, checking each film to the
furnished proof, checking total density of the proof and noting any
potential problems. Proofs are additional.
PROOFING
(065) Position proof (blueline).................................. $ 3.00 each
(023) Black & white proof (Velox or LOP)......................... $ 10.00 each
(025) Matchprint proof........................................... $ 50.00 each
</TABLE>
- --------------------------------------------------------------------------------
Quad/Imaging March l, 1996 Page 3
<PAGE>
EXHIBIT B
Playboy Enterprises, Inc. - Quad/Graphics, Inc.
First Amendment
Manufacturing Price List
(dated May 30, 1996)
<PAGE>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
OFFSET PRESSWORK DEL. PLATES & RATE
FORM DESCRIPTION AS OUT PLATES MAKEREADY PER/M
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4 Page Flat Cover (4/4) 4's 4 8 $1,400.00 $ 4.15
4 Page Flat Cover (5/5) 4's 4 10 $1,750.00 $ 4.45
4 Page Flat Cover (6/6) 4's 4 12 $2,100.00 $ 4.75
4 Page Flat Cover (7/4) 4's 4 11 $2,400.00 $ 5.05
4 Page Flat Cover (7/5) 4's 4 12 $2,600.00 $ 5.05
4 Page Flat Cover (8/4) 4's 4 12 $2,600.00 $ 5.25
4 Page Flat Cover (8/5) 4's 4 13 $2,800.00 $ 5.25
6 Page Gate Cover (4/4) 6's 2 8 $1,800.00 $10.35
6 Page Gate Cover (5/5) 6's 2 10 $2,250.00 $10.85
6 Page Gate Cover (6/6) 6's 2 12 $2,700.00 $11.35
6 Page Gate Center (4/2) 6's 2 6 $1,400.00 $ 7.25
6 Page Gate Center (4/4) 6's 2 8 $1,800.00 $ 7.25
6 Page Gate Center (5/4) 6's 2 9 $2,050.00 $ 7.75
6 Page Gate Center (5/5) 6's 2 10 $2,250.00 $ 8.00
2 Page Body (1/1) 2's 8 2 $ 500.00 $ 1.65
2 Page Body (2/2) 2's 8 4 $ 700.00 $ 1.65
2 Page Body (4/4) 2's 8 8 $1,400.00 $ 1.80
2 Page Body (5/5) 2's 8 10 $1,700.00 $ 1.95
4 Page Body (1/1) 4's 4 2 $ 500.00 $ 3.16
4 Page Body (2/2) 4's 4 4 $ 700.00 $ 3.16
4 Page Body (4/4) 4's 4 8 $1,400.00 $ 3.43
4 Page Body (5/5) 4's 4 10 $1,700.00 $ 3.73
4 Page Body (6/5) 4's 4 10 $1,850.00 $ 4.20
4 Page Gate Body (1/1) 4's 4 2 $ 500.00 $ 3.16
4 Page Gate Body (2/2) 4's 4 4 $ 700.00 $ 3.16
4 Page Gate Body (4/4) 4's 4 8 $1,400.00 $ 3.43
4 Page Gate Body (5/5) 4's 4 10 $1,700.00 $ 3.73
6 Page Gate Body (4/4+4/4) 6's 4 16 $4,000.00 $ 4.55
8 Page Body (1/1) 8's 2 2 $ 500.00 $ 5.88
8 Page Body (2/2) 8's 2 4 $ 700.00 $ 5.88
8 Page Body (4/4) 8's 2 8 $1,400.00 $ 6.40
8 Page Body (5/5) 8's 2 10 $1,700.00 $ 7.00
8 Page Body (1/1+1/1) 8's 4 4 $ 700.00 $ 3.58
8 Page Body (2/2+2/2) 8's 4 8 $1,400.00 $ 3.58
8 Page Body (4/4+1/1) 8's 4 10 $1,750.00 $ 3.60
8 Page Body (4/4+2/2) 8's 4 12 $2,125.00 $ 3.60
8 Page Body (4/4+4/4) 8's 4 16 $2,800.00 $ 3.60
8 Page Body (5/5+4/4) 8's 4 18 $3,150.00 $ 4.48
8 Page Body (5/5+5/5) 8's 4 20 $3,500.00 $ 4.63
8 Page Gate Body (4/4) 8's 2 8 $2,200.00 $ 7.50
8 Page Gate Body (5/5) 8's 2 10 $2,450.00 $ 8.25
-------------------------------------------------------------------------------------------
</TABLE>
Page 1 Quad/Graphics Inc. May 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- -------------------------------------------------------------------------------
OFFSET PRESSWORK DEL. PLATES & RATE
FORM DESCRIPTION AS OUT PLATES MAKEREADY PER/M
===============================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (1/1+1/1) 12's 2 4 $900.00 $6.70
12 Page Body (2/2+2/2) 12's 2 8 $1,600.00 $6 70
12 Page Body (4/4+1/1) 12's 2 10 $1,950.00 $6.75
12 Page Body (4/4+2/2) 12's 2 12 $2,300.00 $6.75
12 Page Body (4/4+4/4) 12's 2 16 $3,000.00 $6.75
12 Page Body (5/5+4/4) 12's 2 18 $3,350.00 $8.50
12 Page Body (5/5+5/5) 12's 2 20 $3,700.00 $8.80
16 Page Body (1/1) 8's 1 2 $500.00 $11.75
16 Page Body (2/2) 8's 1 4 $700.00 $11.75
16 Page Body (4/4) 8's 1 8 $1,400.00 $12.80
16 Page Body (5/5) 8's 1 10 $1,700.00 $14.00
16 Page Body (1/1+1/1) 8's 2 4 $700.00 $7.15
16 Page Body (2/2+2/2) 8's 2 8 $1,400.00 $7.15
16 Page Body (4/4+1/1) 8's 2 10 $1,750.00 $7.20
16 Page Body (4/4+2/2) 8's 2 12 $2,125.00 $7.20
16 Page Body (4/4+4/4) 8's 2 16 $2,800.00 $7.20
16 Page Body (5/5+4/4) 8's 2 18 $3,150.00 $8.95
16 Page Body (5/5+5/5) 8's 2 20 $3,500.00 $9.25
16 Page Body (1/1+1/1) 16's 2 4 $700.00 $6.70
16 Page Body (2/2+2/2) 16's 2 8 $1,400.00 $6.70
16 Page Body (4/4+1/1) 16's 2 10 $1,750.00 $6.75
16 Page Body (4/4+2/2) 16's 2 12 $2,125.00 $6.75
16 Page Body (4/4+4/4) 16's 2 16 $2,800.00 $6.75
16 Page Body (5/5+4/4) 16's 2 18 $3,150.00 $8.50
16 Page Body (5/5+5/5) 16's 2 20 $3,500.00 $8.80
- --------------------------------------------------------------------------------
</TABLE>
Page 2 Quad/Graphics Inc. May 30, 1996
<PAGE>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- ------------------------------------------------------------------------
OFFSET PRESSWORK DEL. PLATES & RATE
FORM DESCRIPTION AS OUT PLATES MAKEREADY PER/M
========================================================================
32 Page Body (1/1+1/1) 8's 1 4 $700.00 $14.30
32 Page Body (2/2+2/2) 8's 1 8 $1,400.00 $14.30
32 Page Body (4/4+1/1) 8's 1 10 $1,750.00 $14.40
32 Page Body (4/4+2/2) 8's 1 12 $2,125.00 $14.40
32 Page Body (4/4+4/4) 8's 1 16 $2,800.00 $14.40
32 Page Body (5/5+4/4) 8's 1 18 $3,150.00 $17.90
32 Page Body (5/5+5/5) 8's 1 20 $3,500.00 $18.50
32 Page Body (1/1+1/1) 16's 1 4 $700.00 $13.40
32 Page Body (2/2+2/2) 16's 1 8 $1,400.00 $13.40
32 Page Body (4/4+1/1) 16's 1 10 $1,750.00 $13.50
32 Page Body (4/4+2/2) 16's 1 12 $2,125.00 $13.50
32 Page Body (4/4+4/4) 16's 1 16 $2,800.00 $13.50
32 Page Body (5/5+4/4) 16's 1 18 $3,150.00 $17.00
32 Page Body (5/5+5/5) 16's 1 20 $3,500.00 $17.60
- ------------------------------------------------------------------------
Rates are guaranteed for 1,500,000 impressions, replacements will be
invoiced as required thereafter. See below for plate and makeready changes
========================================================================
RATE
OFFSET PRESS SUPPLEMENTAL PRICES MAKEREADY PER/M
========================================================================
Plate Charges, each $75.00 ---
Makeready Changes, each plate $85.00 ---
Rub Off $400.00 $2.05
Perf signature $200.00 $0.50
Multiple delivery charges, per delivery --- $0.45
Press down time, per hour $500.00 ---
- ------------------------------------------------------------------------
Page 3 Quad / Graphics Inc. May 30, 1996
<PAGE>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GRAVURE PRESSWORK DEL. CYLINDERS & RATE
FORM DESCRIPTION AS OUT CYLINDERS MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 12's 4 8 $14,560.00 $ 5.35
12 Page Body (5/5) 12's 4 10 $18,200.00 $ 6.10
16 Page Body (4/4) 16's 4 8 $14,880.00 $ 5.35
16 Page Body (5/5) 16's 4 10 $18,600.00 $ 6.10
20 Page Body (4/4) 20's 2 8 $15,200.00 $10.70
20 Page Body (5/5) 20's 2 10 $19,000.00 $12.20
24 Page Body (4/4) 24's 2 8 $15,520.00 $10.70
24 Page Body (5/5) 24's 2 10 $19,400.00 $12.20
28 Page Body (4/4) 28's 2 8 $15,840.00 $10.70
28 Page Body (5/5) 28's 2 10 $19,800.00 $12.20
32 Page Body (4/4) 32's 2 8 $16,160.00 $10.70
32 Page Body (5/5) 32's 2 10 $20,200.00 $12.20
36 Page Body (4/4) 36's 2 8 $16,480.00 $16.05
36 Page Body (5/5) 36's 2 10 $20,600.00 $18.30
40 Page Body (4/4) 20's 1 8 $16,800.00 $21.40
40 Page Body (5/5) 20's 1 10 $21,000.00 $24.40
48 Page Body (4/4) 16's 2 8 $17,440.00 $16.05
48 Page Body (5/5) 16's 2 10 $21,800.00 $18.30
48 Page Body (4/4) 24's 1 8 $17,440.00 $21.40
48 Page Body (5/5) 24's 1 10 $21,800.00 $24.40
56 Page Body (4/4) 28's 1 8 $18,080.00 $21.40
56 Page Body (5/5) 28's 1 10 $22,600.00 $24.40
60 Page Body (4/4) 20's 2 8 $18,400.00 $32.10
60 Page Body (5/5) 20's 2 10 $23,000.00 $36.60
64 Page Body (4/4) 32's 1 8 $18,720.00 $21.40
64 Page Body (5/5) 32's 1 10 $23,400.00 $24.40
72 Page Body (4/4) 24's 1 8 $19,360.00 $32.10
72 Page Body (5/5) 24's 1 10 $24,200.00 $36.60
72 Page Body (4/4) 12's 1 8 $19,360.00 $34.50
72 Page Body (5/5) 12's 1 10 $24,200.00 $39.00
84 Page Body (4/4) 28's 1 8 $20,320.00 $32.10
84 Page Body (5/5) 28's 1 10 $25,400.00 $36.60
96 Page Body (4/4) 32's 1 8 $21,280.00 $32.10
96 Page Body (5/5) 32's 1 10 $26,600.00 $36.60
96 Page Body (4/4) 16's 1 8 $21,280.00 $34.50
96 Page Body (5/5) 16's 1 10 $26,600.00 $39.00
- --------------------------------------------------------------------------------
</TABLE>
Included in makeready charges are bromides, one set of cylinders with one press
proof and the press makeready.
- --------------------------------------------------------------------------------
Page 4 Quad / Graphics Inc. May 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- --------------------------------------------------------------------------------
RATE
GRAVURE PRESS SUPPLEMENTAL PRICES MAKEREADY PER/M
================================================================================
<S> <C> <C>
Additional bromides, per page, per color $16.50 ---
Cylinder Charges, each $1,200.00 ---
Makeready Changes, each cylinder $300.00 ---
Additional proofs (per side) $1,700.00 ---
Supplemental engraving for type only, each $508.00 ---
Cylinder storage 1st month, each cylinder $200.00 ---
Cylinder storage each additional month, each cylinder $100.00 ---
Press down time, per hour $750.00 ---
================================================================================
COVER BODY
OFFSET INK PRICES RATE RATE
================================================================================
<S> <C> <C>
4/Color pages, per/M $0.356 $0.322
3/Color pages, per/M $0.296 $0.263
2/Color pages, per/M $0.178 $0.145
Black pages, per/M $0.059 $0.059
5/Color (non metallic) pages, per/M $0.533 $0.533
6/Color (non metallic) pages, per/M $0.711 $0.711
7/Color (non metallic) pages, per/M $0.889 $0.889
8/Color (non metallic) pages, per/M $1.067 $1.067
Metallic Color less than 1/2 page, per/M $0.356 $0.356
Varnish $0.592 $0.592
UV Coat covers 1 & 4
Makeready $250.00
Run Rate, per/M $9.00
UV Coat covers of gatefold (one side only)
Makeready $250.00
Run Rate, per/M $13.50
================================================================================
BODY
GRAVURE INK PRICES RATE
================================================================================
<S> <C>
4/Color pages, per/M $0.540
3/Color pages, per/M $0.371
2/Color pages, per/M $0.238
Black pages, per/M $0.106
PMS ink will be invoiced at cost plus 10% ---
- --------------------------------------------------------------------------------
</TABLE>
Page 5 Quad/Graphics Inc. May 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- --------------------------------------------------------------------------------
RATE
PERFECT BINDING MAKEREADY PER/M
================================================================================
<S> <C> <C>
Up to 12 pockets $1,484.00 $32.77
13 pockets $1,566.00 $33.73
14 pockets $1,648.00 $34.69
15 pockets $1,731.00 $35.70
16 pockets $1,813.00 $36.71
17 pockets $1,896.00 $37.77
18 pockets $1,978.00 $38.83
19 pockets $2,060.00 $39.79
20 pockets $2,143.00 $40.96
21 pockets $2,225.00 $42.12
22 pockets $2,308.00 $43.23
23 pockets $2,390.00 $44.34
24 pockets $2,472.00 $45.45
25 pockets $2,555.00 $46.51
26 pockets $2,637.00 $47.57
27 pockets $2,720.00 $48.68
28 pockets $2,802.00 $49.74
29 pockets $2,885.00 $50.85
30 pockets $2,967.00 $51.91
31 pockets $3,049.00 $53.03
32 pockets $3,132.00 $54.09
33 pockets $3,214.00 $55.15
34 pockets $3,297.00 $56.26
35 pockets $3,379.00 $57.32
36 pockets $3,461.00 $58.43
- --------------------------------------------------------------------------------
Rate Per/M includes all costs up through the trimming unit. Makeready
prices are based on (3) machines.
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
RATE
PERFECT BINDING PREMIUMS MAKEREADY PER/M
================================================================================================
<S> <C> <C>
Bind-in and Blow-in cards are counted as pockets --- ---
First pocket change per stop, per machine $82.00 ---
Each additional pocket change per same stop, per machine $41.00 ---
Demographic Insertion (body signatures only) (ink jet required) $300.00 $4.00
Demographic Insertion (cover form only) (ink jet required) $300.00 $3.00
Demographic Insertion (body forms and cover) (ink jet required) $500.00 $6.00
Apply furnished tip-ons $60.00 $3.05
Label Aire/Dot whacker $60.00 $3.05
Handwork, per hour $20.00 ---
Binder holding time, per hour $200.00 ---
- ------------------------------------------------------------------------------------------------
</TABLE>
Page 6 Quad/Graphics Inc. May 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- --------------------------------------------------------------------------------
IN-LINE POLYWRAP & MAILING RATE
WITH ONE COLOR PRE-PRINTED SITMA PLASTIC PER/M
================================================================================
<S> <C>
Up to 12 pockets on perfect binder $42.67
13 pockets on perfect binder $43.08
14 pockets on perfect binder $43.58
15 pockets on perfect binder $44.04
16 pockets on perfect binder $44.49
17 pockets on perfect binder $45.05
18 pockets on perfect binder $45.50
19 pockets on perfect binder $46.06
20 pockets on perfect binder $46.56
21 pockets on perfect binder $47.02
22 pockets on perfect binder $47.62
23 pockets on perfect binder $48.23
24 pockets on perfect binder $48.88
25 pockets on perfect binder $49.49
26 pockets on perfect binder $50.15
27 pockets on perfect binder $50.80
28 pockets on perfect binder $51.41
29 pockets on perfect binder $52.07
30 pockets on perfect binder $52.67
31 pockets on perfect binder $53.33
32 pockets on perfect binder $53.98
33 pockets on perfect binder $54.59
34 pockets on perfect binder $55.25
35 pockets on perfect binder $55.85
36 pockets on perfect binder $56.51
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
RATE
IN-LINE POLYWRAP & MAILING PREMIUMS MAKEREADY PER/M
===========================================================================================================
<S> <C> <C>
Inserts $25.50 $2.05
Pocket changes, each $50.00 ---
Ink jet addressing and formatting upcharge (max 8 lines in one position) --- $2.54
Ink jet "out of pocket" upcharge (per position) $300.00 $5.00
Ink jet code & message or code only $150.00 $3.00
Demographic Insertion $300.00 $5.00
Additional colors and versions on poly film will be invoiced at cost plus 15%
Label Aire/Dot whacker $60.00 $3.05
----------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 Quad/Graphics Inc. May 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PRICE SCHEDULES
- --------------------------------------------------------------------------------
RATE
NEWSSTAND & BULK PACKING MAKEREADY PER/M
================================================================================
<S> <C> <C>
Shrinkwrap in bundles --- $13.40
Newsstand label preparation --- $1.00
Onsert newsstand letter, per bundle $0.08 ---
================================================================================
RATE
OFF-LINE MAILING MAKEREADY PER/M
===============================================================================
<S> <C> <C>
Off-line mail with paper labels $60.00 $34.00
List changes, each $30.60 ---
Insert into supplied envelopes --- $137.70
Insert into quad supplied envelopes --- $211.14
Handwork, per hour $30.00 ---
================================================================================
RATE
PACKING & HANDLING MAKEREADY PER/M
================================================================================
<S> <C> <C>
Off-line Polywrapping base piece $153.00 $32.15
Off-line polywrapping per insert $25.50 $2.05
Bulk in cartons, each (with attached shipping label) $1.30 ---
Bulk on skids, each $15.00 ---
Bulk on skids with sleeves, each $20.00 ---
Tearsheets (based on per hour rate) $30.00 ---
Handle furnished skids, each $15.30 ---
Handling furnished stock, per cwt (as received) $0.45 ---
- --------------------------------------------------------------------------------
</TABLE>
Page 8 Quad/Graphics Inc. May 30, 1996
<PAGE>
EXHIBIT C
Playboy Enterprises, Inc. - Quad/Graphics, Inc.
First Amendment
Paper Requirements
(dated September 20, 1995)
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
============================================================================================
<S> <C> <C> <C> <C> <C>
4 Page Flat Cover (4/4) 33.7500 22.750 80 1,293 37.49
4 Page Flat Cover (5/5) 33.7500 22.750 80 1,552 37.69
4 Page Flat Cover (6/6) 33.7500 22.750 80 1,810 38.08
Press Stops, each 33.7500 22.750 80 323 --
Plate Changes, per plate 33.7500 22.750 80 81 --
6 Page Cover (4/4) 24.5000 22.750 80 1,126 51.89
6 Page Cover (5/5) 24.5000 22.750 80 1,314 52.39
6 Page Cover (6/6) 24.5000 22.750 80 1,502 53.38
Press Stops, each 24.5000 22.750 80 188 --
Plate Changes, per plate 24.5000 22.750 80 47 --
6 Page Center (4/2) 23.1875 22.750 60 666 36.71
6 Page Center (4/4) 23.1875 22.750 60 666 36.71
6 Page Center (5/4) 23.1875 22.750 60 800 37.62
6 Page Center (5/5) 23.1875 22.750 60 800 37.62
Press Stops, each 23.1875 22.750 60 133 --
Plate Changes, per plate 23.1875 22.750 60 33 --
2 Page Body (1/1) 33.5000 22.750 50 401 10.55
2 Page Body (2/2) 33.5000 22.750 50 481 10.67
2 Page Body (4/4) 33.5000 22.750 50 641 10.92
Page Body (5/5) 33.5000 22.750 50 802 11.05
Page Body (1/1) 33.5000 22.750 50 401 21.10
4 Page Body (2/2) 33.5000 22.750 50 481 21.35
4 Page Body (4/4) 33.5000 22.750 50 641 21.73
4 Page Body (5/5) 33.5000 22.750 50 802 21.97
4 Page Body (1/1) 33.5000 22.750 38 305 16.03
4 Page Body (2/2) 33.5000 22.750 38 366 16.22
4 Page Body (4/4) 33.5000 22.750 38 487 16.51
4 Page Body (5/5) 33.5000 22.750 38 610 16.69
4 Page Gatefold (1/1) 30.5000 22.750 50 365 19.69
4 Page Gatefold (2/2) 30.5000 22.750 50 438 19.94
4 Page Gatefold (4/4) 30.5000 22.750 50 584 20.19
4 Page Gatefold (5/5) 30.5000 22.750 50 731 20.36
Press Stops, each 30.5000 22.750 50 146 --
Plate Changes, per plate 30.5000 22.750 50 37 --
6 Page Gatefold (4/4)(4/4) 19.1250 22.750 50 825 25.90
Press Stops, each, per web 19.1250 22.750 50 92 --
Plate Changes, per plate 19.1250 22.750 50 23 --
8 Page Body (1/1) 33.5000 22.750 50 401 42.19
8 Page Body (2/2) 33.5000 22.750 50 481 42.70
8 Page Body (4/4) 33.5000 22.750 50 641 43.44
8 Page Body (5/5) 33.5000 22.750 50 802 43.93
8 Page Body (1/1) 33.5000 22.750 38 305 32.07
8 Page Body (2/2) 33.5000 22.750 38 366 32.45
8 Page Body (4/4) 33.5000 22.750 38 487 33.01
8 Page Body (5/5) 33.5000 22.750 38 610 33.39
</TABLE>
Page 1 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
=============================================================================================================
<S> <C> <C> <C> <C> <C>
8 Page Body (1/1+1/1) 33.5000 22.750 50 642 42.82
8 Page Body (2/2+2/2) 33.5000 22.750 50 802 43.31
8 Page Body (4/4+1/1) 33.5000 22.750 50 963 43.56
8 Page Body (4/4+2/2) 33.5000 22.750 50 1,123 43.56
8 Page Body (4/4+4/4) 33.5000 22.750 50 1,284 43.56
8 Page Body (5/5+4/4) 33.5000 22.750 50 1,444 43.69
8 Page Body (5/5+5/5) 33.5000 22.750 50 1,604 44.06
8 Page Body (1/1+1/1) 33.5000 22.750 38 488 32.54
8 Page Body (2/2+2/2) 33.5000 22.750 38 610 32.92
8 Page Body (4/4+1/1) 33.5000 22.750 38 732 33.11
8 Page Body (4/4+2/2) 33.5000 22.750 38 854 33.11
8 Page Body (4/4+4/4) 33.5000 22.750 38 976 33.11
8 Page Body (5/5+4/4) 33.5000 22.750 38 1,097 33.21
8 Page Body (5/5+5/5) 33.5000 22.750 38 1,219 33.48
8 Page Gatefold (4/4) 31.7500 22.750 50 912 42.69
8 Page Gatefold (5/5) 31.7500 22.750 50 1,064 43.33
Press Stops, each 31.7500 22.750 50 152 ---
Plate Changes, per plate 31.7500 22.750 50 38 ---
12 Page Body (1/1+ 33.5000 22.750 38 244 32.54
1/1) 16.7500 22.750 38 122 16.27
12 Page Body (2/2+ 33.5000 22.750 38 305 32.92
2/2) 16.7500 22.750 38 152 16.46
12 Page Body (4/4+ 33.5000 22.750 38 366 33.11
1/1) 16.7500 22.750 38 183 16.55
12 Page Body (4/4+ 33.5000 22.750 38 427 33.11
2/2) 16.7500 22.750 38 213 16.55
12 Page Body (4/4+ 33.5000 22.750 38 488 33.11
4/4) 16.7500 22.750 38 244 16.55
12 Page Body (5/5+ 33.5000 22.750 38 549 33.21
4/4) 16.7500 22.750 38 274 16.60
12 Page Body (5/5+ 33.5000 22.750 38 610 33.48
5/5) 16.7500 22.750 38 305 16.74
16 Page Body (1/1) 33.5000 22.750 38 305 64.14
16 Page Body (2/2) 33.5000 22.750 38 366 64.90
16 Page Body (4/4) 33.5000 22.750 38 487 66.02
16 Page Body (5/5) 33.5000 22.750 38 610 66.78
16 Page Body (1/1+1/1) 33.5000 22.750 38 488 65.08
16 Page Body (2/2+2/2) 33.5000 22.750 38 610 65.84
16 Page Body (4/4+1/1) 33.5000 22.750 38 732 66.21
16 Page Body (4/4+2/2) 33.5000 22.750 38 854 66.21
16 Page Body (4/4+4/4) 33.5000 22.750 38 976 66.21
16 Page Body (5/5+4/4) 33.5000 22.750 38 1,097 66.41
16 Page Body (5/5+5/5) 33.5000 22.750 38 1,219 66.97
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
- ----------------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
========================================================================================
<S> <C> <C> <C> <C> <C>
32 Page Body (1/1+1/1) 33.5000 22.750 38 488 130.16
32 Page Body (2/2+2/2) 33.5000 22.750 38 610 131.67
32 Page Body (4/4+1/1) 33.5000 22.750 38 732 132.42
32 Page Body (4/4+2/2) 33.5000 22.750 38 854 132.42
32 Page Body (4/4+4/4) 33.5000 22.750 38 976 132.42
32 Page Body (5/5+4/4) 33.5000 22.750 38 1,097 132.82
32 Page Body (5/5+5/5) 33.5000 22.750 38 1,219 133.94
Press Stops per web, each 33.5000 22.750 50 160 --
Press Stops per web, each 33.5000 22.750 38 122 --
Plate Changes, per plate 33.5000 22.750 50 40 --
Plate Changes, per plate 33.5000 22.750 38 30 --
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
4 Page Flat Cover (4/4) 33.7500 22.750 100 1,616 46.86
4 Page Flat Cover (5/5) 33.7500 22.750 100 1,940 47.11
4 Page Flat Cover (6/6) 33.7500 22.750 100 2,263 47.61
Press Stops, each 33.7500 22.750 100 404 --
Plate Changes, per plate 33.7500 22.750 100 102 --
6 Page Cover (4/4) 24.5000 22.750 100 1,408 64.87
6 Page Cover (5/5) 24.5000 22.750 100 1,643 65.49
6 Page Cover (6/6) 24.5000 22.750 100 1,877 66.72
Press Stops, each 24.5000 22.750 100 235 --
Plate Changes, per plate 24.5000 22.750 100 59 --
6 Page Center (4/2) 23.1875 22.750 80 888 48.95
6 Page Center (4/4) 23.1875 22.750 80 888 49.48
6 Page Center (5/4) 23.1875 22.750 80 1,066 50.16
6 Page Center (5/5) 23.1875 22.750 80 1,066 50.16
Press Stops, each 23.1875 22.750 80 178 --
Plate Changes, per plate 23.1875 22.750 80 44 --
2 Page Body (1/1) 33.5000 22.750 80 642 16.89
2 Page Body (2/2) 33.5000 22.750 80 770 17.08
2 Page Body (4/4) 33.5000 22.750 80 1,026 17.48
2 Page Body (5/5) 33.5000 22.750 80 1,284 17.68
2 Page Body (1/1) 33.5000 22.750 60 481 12.67
2 Page Body (2/2) 33.5000 22.750 60 578 12.81
2 Page Body (4/4) 33.5000 22.750 60 769 13.11
2 Page Body (5/5) 33.5000 22.750 60 963 13.26
4 Page Body (1/1) 33.5000 22.750 60 481 25.32
4 Page Body (2/2) 33.5000 22.750 60 578 25.62
4 Page Body (4/4) 33.5000 22.750 60 769 26.07
4 Page Body (5/5) 33.5000 22.750 60 963 26.36
4 Page Body (1/1) 33.5000 22.750 40 321 16.88
4 Page Body (2/2) 33.5000 22.750 40 385 17.08
4 Page Body (4/4) 33.5000 22.750 40 513 17.38
4 Page Body (5/5) 33.5000 22.750 40 642 17.57
4 Page Gatefold (1/1) 30.5000 22.750 80 584 31.50
4 Page Gatefold (2/2) 30.5000 22.750 80 701 31.91
4 Page Gatefold (4/4) 30.5000 22.750 80 935 32.30
4 Page Gatefold (5/5) 30.5000 22.750 80 1,170 32.57
Press Stops, each 30.5000 22.750 80 234 --
Plate Changes, per plate 30.5000 22.750 80 58 --
6 Page Gatefold (4/4)(4/4) 19.1250 22.750 80 1,320 41.44
Press Stops, each, per web 19.1250 22.750 80 147 --
Plate Changes, per plate 19.1250 22.750 80 37 --
8 Page Body (1/1) 33.5000 22.750 60 481 50.63
8 Page Body (2/2) 33.5000 22.750 60 578 51.24
8 Page Body (4/4) 33.5000 22.750 60 769 52.12
8 Page Body (5/5) 33.5000 22.750 60 963 52.72
- --------------------------------------------------------------------------------
</TABLE>
Page 4 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
8 Page Body (1/1) 33.5000 22.750 36 289 30.38
8 Page Body (2/2) 33.5000 22.750 36 347 30.74
8 Page Body (4/5) 33.5000 22.750 36 462 31.27
8 Page Body (5/5) 33.5000 22.750 36 578 31.63
8 Page Body (1/1+1/1) 33.5000 22.750 60 770 51.38
8 Page Body (2/2+2/2) 33.5000 22.750 60 963 51.98
8 Page Body (4/4+1/1) 33.5000 22.750 60 1,155 52.27
8 Page Body (4/4+2/2) 33.5000 22 750 60 1,348 52.27
8 Page Body (4/4+4/4) 33.5000 22 750 60 1,540 52.27
8 Page Body (5/5+4/4) 33.5000 22.750 60 1,733 52.43
8 Page Body (5/5+5/5) 33.5000 22.750 60 1,925 52.87
8 Page Body (1/1+1/1) 33.5000 22.750 36 462 30.83
8 Page Body (2/2+2/2) 33.5000 22.750 36 578 31.19
8 Page Body (4/4+1/1) 33.5000 22.750 36 693 31.36
8 Page Body (4/4+2/2) 33.5000 22.750 36 809 31.36
8 Page Body (4/4+4/4) 33.5000 22.750 36 924 31.36
8 Page Body (5/5+4/4) 33.5000 22.750 36 1,040 31.46
8 Page Body (5/5+5/5) 33.5000 22.750 36 1,155 31.72
8 Page Gatefold (4/4) 31.7500 22.750 60 1,095 51.23
8 Page Gatefold (5/5) 31.7500 22.750 60 1,277 51.99
Press Stops, each 31.7500 22.750 60 182 --
Plate Changes, per plate 31.7500 22.750 60 46 --
12 Page Body (1/1+ 33.5000 22.750 36 231 30.83
1/1) 16.7500 22.750 36 116 15.41
12 Page Body (2/2+ 33.5000 22.750 36 289 31.19
2/2) 16.7500 22.750 36 144 15.59
12 Page Body (4/4+ 33.5000 22.750 36 347 31.36
1/1) 16.7500 22.750 36 173 15.68
12 Page Body (4/4+ 33.5000 22.750 36 404 31.36
2/2) 16.7500 22.750 36 202 15.68
12 Page Body (4/4+ 33.5000 22.750 36 462 31.36
4/4) 16.7500 22.750 36 231 15.68
12 Page Body (5/5+ 33.5000 22.750 36 520 31.46
4/4) 16.7500 22.750 36 260 15.73
12 Page Body (5/5+ 33.5000 22.750 36 578 31.72
5/5) 16.7500 22.750 36 289 15.86
16 Page Body (1/1) 33.5000 22.750 36 289 60.76
16 Page Body (2/2) 33.5000 22.750 36 347 61.48
16 Page Body (4/4) 33.5000 22.750 36 462 62.55
16 Page Body (5/5) 33.5000 22.750 36 578 63.27
- --------------------------------------------------------------------------------
</TABLE>
Page 5 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
8 1/8" x 10 7/8" Book Size ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
==============================================================================
<S> <C> <C> <C> <C> <C>
16 Page Body (1/1+1/1) 33.5000 22.750 36 462 61.65
16 Page Body (2/2+2/2) 33.5000 22.750 36 578 62.37
16 Page Body (4/4+1/1) 33.5000 22.750 36 693 62.73
16 Page Body (4/4+2/2) 33.5000 22.750 36 809 62.73
16 Page Body (4/4+4/4) 33.5000 22.750 36 924 62.73
16 Page Body (5/5+4/4) 33.5000 22.750 36 1,040 62.92
16 Page Body (5/5+5/5) 33.5000 22.750 36 1,155 63.44
32 Page Body (1/1+1/1) 33.5000 22.750 36 462 123.31
32 Page Body (2/2+2/2) 33.5000 22.750 36 578 124.74
32 Page Body (4/4+1/1) 33.5000 22.750 36 693 125.45
32 Page Body (4/4+2/2) 33.5000 22.750 36 809 125.45
32 Page Body (4/4+4/4) 33.5000 22.750 36 924 125.45
32 Page Body (5/5+4/4) 33.5000 22.750 36 1,040 125.83
32 Page Body (5/5+5/5) 33.5000 22.750 36 1,155 126.89
Press Stops, per web, each 33.5000 22.750 80 257 --
Press Stops, per web, each 33.5000 22.750 60 193 --
Press Stops, per web, each 33.5000 22.750 36 116 --
Plate Changes, per plate 33.5000 22.750 80 64 --
Plate Changes, per plate 33.5000 22.750 60 48 --
Plate Changes, per plate 33.5000 22.750 36 29 --
- ------------------------------------------------------------------------------
</TABLE>
Page 6 QUAD/GRAPHICS INC. September 20,1995
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
- ------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
==========================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 38 4,481 47.82
12 Page Body (5/5) 66.875 33.500 38 5,377 48.51
16 Page Body (4/4) 89.125 33.500 38 5,971 63.73
16 Page Body (5/5) 89.125 33.500 38 7,166 65.25
20 Page Body (4/4) 55.750 33.500 38 3,735 79.74
20 Page Body (5/5) 55.750 33.500 38 4,482 80.89
24 Page Body (4/4) 66.875 33.500 38 4,481 95.65
24 Page Body (5/5) 66.875 33.500 38 5,377 97.03
28 Page Body (4/4) 78.000 33.500 38 5,226 111.56
28 Page Body (5/5) 78.000 33.500 38 6,271 113.17
32 Page Body (4/4) 89.125 33.500 38 5,971 127.47
32 Page Body (5/5) 89.125 33.500 38 7,166 129.31
36 Page Body (4/4) 66.875 50.250 38 6,721 143.47
36 Page Body (5/5) 66.875 50.250 38 8,065 145.54
40 Page Body (4/4) 55.750 33.500 38 3,735 159.47
40 Page Body (5/5) 55.750 33.500 38 4,482 161.77
48 Page Body (4/4) 89.125 50.250 38 8,957 191.20
48 Page Body (5/5) 89.125 50.250 38 10,748 193.96
48 Page Body (4/4) 66.875 33.500 38 4,481 191.29
48 Page Body (5/5) 66.875 33.500 38 5,377 194.05
56 Page Body (4/4) 78.000 33.500 38 5,226 223.12
56 Page Body (5/5) 78.000 33.500 38 6,271 226.34
60 Page Body (4/4) 55.750 50.250 38 5,603 239.21
60 Page Body (5/5) 55.750 50.250 38 6,723 242.66
64 Page Body (4/4) 89.125 33.500 38 5,971 254.94
64 Page Body (5/5) 89.125 33.500 38 7,166 258.62
72 Page Body (4/4) 66.875 50.250 38 6,721 286.94
72 Page Body (5/5) 66.875 50.250 38 8,065 291.08
84 Page Body (4/4) 78.000 50.250 38 7,839 334.68
84 Page Body (5/5) 78.000 50.250 38 9,407 339.50
96 Page Body (4/4) 89.125 50.250 38 8,957 382.41
96 Page Body (5/5) 89.125 50.250 38 10,748 387.93
Cylinder Changes, per cylinder 55.750 33.500 38 374 --
Cylinder Changes, per cylinder 66.875 33.500 38 448 --
Cylinder Changes, per cylinder 78.000 33.500 38 523 --
Cylinder Changes, per cylinder 89.125 33.500 38 597 --
Cylinder Changes, per cylinder 55.750 50.250 38 560 --
Cylinder Changes, per cylinder 66.875 50.250 38 672 --
Cylinder Changes, per cylinder 78.000 50.250 38 784 --
Cylinder Changes, per cylinder 89.125 50.250 38 896 --
- ------------------------------------------------------------------------------------------
</TABLE>
Page 7 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
======================================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 36 4,245 45.31
12 Page Body (5/5) 66.875 33.500 36 5,094 45.96
16 Page Body (4/4) 89.125 33.500 36 5,657 60.38
16 Page Body (5/5) 89.125 33.500 36 6,789 61.81
20 Page Body (4/4) 55.750 33.500 36 3,539 75.54
20 Page Body (5/5) 55.750 33.500 36 4,246 76.63
24 Page Body (4/4) 66.875 33.500 36 4,245 90.61
24 Page Body (5/5) 66.875 33.500 36 5,094 91.92
28 Page Body (4/4) 78.000 33.500 36 4,951 105.69
28 Page Body (5/5) 78.000 33.500 36 5,941 107.21
32 Page Body (4/4) 89.125 33.500 36 5,657 120.76
32 Page Body (5/5) 89.125 33.500 36 6,789 122.50
36 Page Body (4/4) 66.875 50.250 36 6,367 135.92
36 Page Body (5/5) 66.875 50.250 36 7,641 137.88
40 Page Body (4/4) 55.750 33.500 36 3,539 151.08
40 Page Body (5/5) 55.750 33.500 36 4,246 153.26
48 Page Body (4/4) 89.125 50.250 36 8,486 181.14
48 Page Body (5/5) 89.125 50.250 36 10,183 183.75
48 Page Body (4/4) 66.875 33.500 36 4,245 181.23
48 Page Body (5/5) 66.875 33.500 36 5,094 183.84
56 Page Body (4/4) 78.000 33.500 36 4,951 211.37
56 Page Body (5/5) 78.000 33.500 36 5,941 214.42
60 Page Body (4/4) 55.750 50.250 36 5,308 226.62
60 Page Body (5/5) 55.750 50.250 36 6,370 229.89
64 Page Body (4/4) 89.125 33.500 36 5,657 241.52
64 Page Body (5/5) 89.125 33.500 36 6,789 245.01
72 Page Body (4/4) 66.875 50.250 36 6,367 271.84
72 Page Body (5/5) 66.875 50.250 36 7,641 275.76
84 Page Body (4/4) 78.000 50.250 36 7,426 317.06
84 Page Body (5/5) 78.000 50.250 36 8,912 321.63
96 Page Body (4/4) 89.125 50.250 36 8,486 362.28
96 Page Body (5/5) 89.125 50.250 36 10,183 367.51
Cylinder Changes, per cylinder 55.750 33.500 36 354 ---
Cylinder Changes, per cylinder 66.875 33.500 36 424 ---
Cylinder Changes, per cylinder 78.000 33.500 36 495 ---
Cylinder Changes, per cylinder 89.125 33.500 36 566 ---
Cylinder Changes, per cylinder 55.750 50.250 36 531 ---
Cylinder Changes, per cylinder 66.875 50.250 36 637 ---
Cylinder Changes, per cylinder 78.000 50.250 36 743 ---
Cylinder Changes, per cylinder 89.125 50.250 36 849 ---
</TABLE>
Page 8 QUAD/GRAPHICS INC. September 20, 1995
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
=============================================================================================================
12 Page Body (4/4) 66.875 33.500 45 5,306 56.63
12 Page Body (5/5) 66.875 33.500 45 6,367 57.45
16 Page Body (4/4) 89.125 33.500 45 7,071 75.48
16 Page Body (5/5) 89.125 33.500 45 8,486 77.27
20 Page Body (4/4) 55.750 33.500 45 4,423 94.42
20 Page Body (5/5) 55.750 33.500 45 5,308 95.79
24 Page Body (4/4) 66.875 33.500 45 5,306 113.27
24 Page Body (5/5) 66.875 33.500 45 6,367 114.90
28 Page Body (4/4) 78.000 33.500 45 6,189 132.11
28 Page Body (5/5) 78.000 33.500 45 7,426 134.01
32 Page Body (4/4) 89.125 33.500 45 7,071 150.95
32 Page Body (5/5) 89.125 33.500 45 8,486 153.13
36 Page Body (4/4) 66.875 50.250 45 7,959 169.90
36 Page Body (5/5) 66.875 50.250 45 9,551 172.35
40 Page Body (4/4) 55.750 33.500 45 4,423 188.85
40 Page Body (5/5) 55.750 33.500 45 5,308 191.57
48 Page Body (4/4) 89.125 50.250 45 10,607 226.43
48 Page Body (5/5) 89.125 50.250 45 12,728 229.69
48 Page Body (4/4) 66.875 33.500 45 5,306 226.53
48 Page Body (5/5) 66.875 33.500 45 6,367 229.80
56 Page Body (4/4) 78.000 33.500 45 6,189 264.22
56 Page Body (5/5) 78.000 33.500 45 7,426 268.03
60 Page Body (4/4) 55.750 50.250 45 6,635 283.27
60 Page Body (5/5) 55.750 50.250 45 7,962 287.36
64 Page Body (4/4) 89.125 33.500 45 7,071 301.90
64 Page Body (5/5) 89.125 33.500 45 8,486 306.26
72 Page Body (4/4) 66.875 50.250 45 7,959 339.80
72 Page Body (5/5) 66.875 50.250 45 9,551 344.70
84 Page Body (4/4) 78.000 50.250 45 9,283 396.33
84 Page Body (5/5) 78.000 50.250 45 11,140 402.04
96 Page Body (4/4) 89.125 50.250 45 10,607 452.85
96 Page Body (5/5) 89.125 50.250 45 12,728 459.39
Cylinder Changes, per cylinder 55.750 33.500 45 442 --
Cylinder Changes, per cylinder 66.875 33.500 45 531 --
Cylinder Changes, per cylinder 78.000 33.500 45 619 --
Cylinder Changes, per cylinder 89.125 33.500 45 707 --
Cylinder Changes, per cylinder 55.750 50.250 45 663 --
Cylinder Changes, per cylinder 66.875 50.250 45 796 --
Cylinder Changes, per cylinder 78.000 50.250 45 928 --
Cylinder Changes, per cylinder 89.125 50.250 45 1,061 --
- --------------------------------------------------------------------------------------------------------------
Page 9 QUAD/GRAPHICS INC. September 20, 1995
</TABLE>
<PAGE>
September 9, 1996 [QUAD/GRAPHICS LOGO]
TO: Maria Mandis
FROM: Jackie Luedtke
RE: Revised Paper Requirements
- --------------------------------------------------------------------------------
Please find attached a copy of the revised paper requirements as per your
request. These requirements are to replace Exhibit C which is attached to the
new one year Amendment that was signed between Playboy and Quad/Graphics. I am
sorry for any inconvenience this may have caused you in the interim.
Please let me know if I can help with anything else. Thank You.
QUAD/LOMIRA 952 Badger Road, Lomira, Wisconsin 53048-9999 PHONE 414-269-4700
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
=======================================================================================================
<S> <C> <C> <C> <C> <C>
4 Page Flat Cover (4/4) 33.7500 22.750 100 1,616 46.86
4 Page Flat Cover (5/5) 33.7500 22.750 100 1,940 47.11
4 Page Flat Cover (6/6) 33.7500 22.750 100 2,263 47.61
Press Stops, each 33.7500 22.750 100 404 ---
Plate Changes, per plate 33.7500 22.750 100 102 ---
6 Page Cover (4/4) 24.5000 22.750 80 1,126 51.89
6 Page Cover (5/5) 24.5000 22.750 80 1,314 52.39
6 Page Cover (6/6) 24.5000 22.750 80 1,502 53.38
Press Stops, each 24.5000 22.750 80 188 ---
Plate Changes, per plate 24.5000 22.750 80 47 ---
6 Page Center (4/2) 23.1875 22.750 60 666 36.71
6 Page Center (4/4) 23.1875 22.750 60 666 37.11
6 Page Center (5/4) 23.1875 22.750 60 800 37.62
6 Page Center (5/5) 23.1875 22.750 60 800 37.62
Press Stops, each 23.1875 22.750 60 133 ---
Plate Changes, per plate 23.1875 22.750 60 33 ---
2 Page Body (1/1) 33.5000 22.750 50 401 10.55
2 Page Body (2/2) 33.5000 22.750 50 481 10.67
2 Page Body (4/4) 33.5000 22.750 50 641 10.92
2 Page Body (5/5) 33.5000 22.750 50 802 11.05
4 Page Body (1/1) 33.5000 22.750 50 401 21.10
4 Page Body (2/2) 33.5000 22.750 50 481 21.35
4 Page Body (4/4) 33.5000 22.750 50 641 21.73
4 Page Body (5/5) 33.5000 22.750 50 802 21.97
4 Page Body (1/1) 33.5000 22.750 40 321 16.88
4 Page Body (2/2) 33.5000 22.750 40 385 17.08
4 Page Body (4/4) 33.5000 22.750 40 513 17.38
4 Page Body (5/5) 33.5000 22.750 40 642 17.57
4 Page Gatefold (1/1) 30.5000 22.750 60 438 23.63
4 Page Gatefold (2/2) 30.5000 22.750 60 526 23.93
4 Page Gatefold (4/4) 30.5000 22.750 60 701 24.23
4 Page Gatefold (5/5) 30.5000 22.750 60 877 24.43
Press Stops, each 30.5000 22.750 60 175 ---
Plate Changes, per plate 30.5000 22.750 60 44 ---
6 Page Gatefold (4/4)(4/4) 19.1250 22.750 60 990 31.08
Press Stops, each, per web 19.1250 22.750 60 110 ---
Plate Changes, per plate 19.1250 22.750 60 27 ---
8 Page Body (1/1) 33.5000 22.750 50 401 42.19
8 Page Body (2/2) 33.5000 22.750 50 481 42.70
8 Page Body (4/4) 33.5000 22.750 50 641 43.44
8 Page Body (5/5) 33.5000 22.750 50 802 43.93
8 Page Body (1/1) 33.5000 22.750 40 321 33.76
8 Page Body (2/2) 33.5000 22.750 40 385 34.16
8 Page Body (4/4) 33.5000 22.750 40 513 34.75
8 Page Body (5/5) 33.5000 22.750 40 642 35.15
- -------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 Quad / Graphics Inc. September 9, 1996
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8 Page Body (1/1+1/1) 33.5000 22.750 50 642 42.82
8 Page Body (2/2+2/2) 33.5000 22.750 50 802 43.31
8 Page Body (4/4+1/1) 33.5000 22.750 50 963 43.56
8 Page Body (4/4+2/2) 33.5000 22.750 50 1,123 43.56
8 Page Body (4/4+4/4) 33.5000 22.750 50 1,284 43.56
8 Page Body (5/5+4/4) 33.5000 22.750 50 1,444 43.69
8 Page Body (5/5+5/5) 33.5000 22.750 50 1,604 44.06
8 Page Body (1/1+1/1) 33.5000 22.750 40 513 34.25
8 Page Body (2/2+2/2) 33.5000 22.750 40 642 34.65
8 Page Body (4/4+1/1) 33.5000 22.750 40 770 34.85
8 Page Body (4/4+2/2) 33.5000 22.750 40 899 34.85
8 Page Body (4/4+4/4) 33.5000 22.750 40 1,027 34.85
8 Page Body (5/5+4/4) 33.5000 22.750 40 1,155 34.95
8 Page Body (5/5+5/5) 33.5000 22.750 40 1,284 35.25
8 Page Gatefold (4/4) 31.7500 22.750 60 1,095 51.23
8 Page Gatefold (5/5) 31.7500 22.750 60 1,277 51.99
Press Stops, each 31.7500 22.750 60 182 --
Plate Changes, per plate 31.7500 22.750 60 46 --
12 PageBody (1/1+ 33.5000 22.750 40 257 34.25
1/1) 16.7500 22.750 40 128 17.13
12 Page Body (2/2+ 33.5000 22.750 40 321 34.65
2/2) 16.7500 22.750 40 160 17.33
12 Page Body (4/4+ 33.5000 22.750 40 385 34.85
1/1) 16.7500 22.750 40 193 17.42
12 Page Body (4/4+ 33.5000 22 750 40 449 34.85
2/2) 16.7500 22.750 40 225 17.42
12 Page Body (4/4+ 33.5000 22.750 40 513 34.85
4/4) 16.7500 22.750 40 257 17.42
12 Page Body (5/5+ 33.5000 22.750 40 578 34.95
4/4) 16.7500 22.750 40 289 17.48
12 Page Body (5/5+ 33.5000 22.750 40 642 35.25
5/5) 16.7500 22.750 40 321 17.62
16 Page Body (1/1) 33.5000 22.750 40 321 67.51
16 Page Body (2/2) 33.5000 22.750 40 385 68.31
16 Page Body (4/4) 33.5000 22.750 40 513 69.50
16 Page Body (5/5) 33.5000 22.750 40 642 70.30
16 Page Body (1/1+1/1) 33.5000 22.750 40 513 68.51
16 Page Body (2/2+2/2) 33.5000 22.750 40 642 69.30
16 Page Body (4/4+1/1) 33.5000 22.750 40 770 69.70
16 Page Body (4/4+2/2) 33.5000 22 750 40 899 69.70
16 Page Body (4/4+4/4) 33.5000 22.750 40 1,027 69.70
16 Page Body (5/5+4/4) 33.5000 22.750 40 1,155 69.91
16 Page Body (5/5+5/5) 33.5000 22.750 40 1,284 70.49
- ---------------------------------------------------------------------------------------------
</TABLE>
Page 2 Quad / Graphics Inc. September 9, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
- -------------------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
=============================================================================================================
<S> <C> <C> <C> <C> <C>
32 Page Body (1/1+1/1) 33.5000 22.750 40 513 137.01
32 Page Body (2/2+2/2) 33.5000 22.750 40 642 138.60
32 Page Body (4/4+1/1) 33.5000 22.750 40 770 139.39
32 Page Body (4/4+2/2) 33.5000 22.750 40 899 139.39
32 Page Body (4/4+4/4) 33.5000 22.750 40 1,027 139.39
32 Page Body (5/5+4/4) 33.5000 22.750 40 1,155 139.81
32 Page Body (5/5+5/5) 33.5000 22.750 40 1,284 140.99
Press Stops, per web, each 33.5000 22.750 50 160 --
Press Stops, per web, each 33.5000 22.750 40 128 --
Plate Changes, per plate 33.5000 22.750 50 40 --
Plate Changes, per plate 33.5000 22.750 40 32 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 Quad/Graphics Inc. September 9, 1996
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
4 Page Flat Cover (4/4) 33.7500 22.750 100 1,616 46.86
4 Page Flat Cover (5/5) 33.7500 22.750 100 1,940 47.11
4 Page Flat Cover (6/6) 33.7500 22.750 100 2,263 47.61
Press Stops, each 33.7500 22.750 100 404 --
Plate Changes, per plate 33.7500 22.750 100 102 --
6 Page Cover (4/4) 24.5000 22.750 100 1,408 64.87
6 Page Cover (5/5) 24.5000 22.750 100 1,643 65.49
6 Page Cover (6/6) 24.5000 22.750 100 1,877 66.72
Press Stops, each 24.5000 22.750 100 235 --
Plate Changes, per plate 24.5000 22.750 100 59 --
6 Page Center (4/2) 23.1875 22.750 80 888 48.95
6 Page Center (4/4) 23.1875 22.750 80 888 49.48
6 Page Center (5/4) 23.1875 22.750 80 1,066 50.16
6 Page Center (5/5) 23.1875 22.750 80 1,066 50.16
Press Stops, each 23.1875 22.750 80 178 --
Plate Changes, per plate 23.1875 22.750 80 44 --
2 Page Body (1/1) 33.5000 22.750 80 642 16.89
2 Page Body (2/2) 33.5000 22.750 80 770 17.08
2 Page Body (4/4) 33.5000 22.750 80 1,026 17.48
2 Page Body (5/5) 33.5000 22.750 80 1,284 17.68
2 Page Body (1/1) 33.5000 22.750 60 481 12.67
2 Page Body (2/2) 33.5000 22.750 60 578 12.81
2 Page Body (4/4) 33.5000 22.750 60 769 13.11
2 Page Body (5/5) 33.5000 22.750 60 963 13.26
4 Page Body (1/1) 33.5000 22 750 60 481 25.32
4 Page Body (2/2) 33.5000 22.750 60 578 25.62
4 Page Body (4/4) 33.5000 22.750 60 769 26.07
4 Page Body (5/5) 33.5000 22.750 60 963 26.36
4 Page Body (1/1) 33.5000 22.750 40 321 16.88
4 Page Body (2/2) 33.5000 22.750 40 385 17.08
4 Page Body (4/4) 33.5000 22.750 40 513 17.38
4 Page Body (5/5) 33.5000 22.750 40 642 17.57
4 Page Gatefold (1/1) 30.5000 22.750 80 584 31.50
4 Page Gatefold (2/2) 30.5000 22.750 80 701 31.91
4 Page Gatefold (4/4) 30.5000 22.750 80 935 32.30
4 Page Gatefold (5/5) 30.5000 22.750 80 1,170 32.57
Press Stops, each 30.5000 22.750 80 234 --
Plate Changes, per plate 30.5000 22.750 80 58 --
6 Page Gatefold (4/4)(4/4) 19.1250 22.750 80 1,320 41.44
Press Stops, each, per web 19.1250 22.750 80 147 --
Plate Changes, per plate 19.1250 22.750 80 37 --
8 Page Body (1/1) 33.5000 22.750 60 481 50.63
8 Page Body (2/2) 33.5000 22.750 60 578 51.24
8 Page Body (4/4) 33.5000 22.750 60 769 52.12
8 Page Body (5/5) 33.5000 22.750 60 963 52.72
- --------------------------------------------------------------------------------
</TABLE>
Page 4 Quad / Graphics Inc. September 9, 1996
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
8 Page Body (1/1+1/1) 33.5000 22.750 60 770 51.38
8 Page Body (2/2+2/2) 33.5000 22.750 60 963 51.98
8 Page Body (4/4+1/1) 33.5000 22.750 60 1,155 52.27
8 Page Body (4/4+2/2) 33.5000 22.750 60 1,348 52.27
8 Page Body (4/4+4/4) 33.5000 22.750 60 1,540 52.27
8 Page Body (5/5+4/4) 33.5000 22.750 60 1,733 52.43
8 Page Body (5/5+5/5) 33.5000 22.750 60 1,925 52.87
8 Page Gatefold (4/4) 31.7500 22.750 60 1,095 51.23
8 Page Gatefold (5/5) 31.7500 22.750 60 1,277 51.99
Press Stops, each 31.7500 22.750 60 182 --
Plate Changes, per plate 31.7500 22.750 60 46 --
Press Stops, per web, each 33.5000 22.750 80 257 --
Press Stops, per web, each 33.5000 22.750 60 193 --
Plate Changes, per plate 33.5000 22.750 80 64 --
Plate Changes, per plate 33.5000 22.750 60 48 --
- --------------------------------------------------------------------------------
</TABLE>
Page 5 Quad / Graphics Inc. September 9, 1996
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
==========================================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 40 4,716 50.34
12 Page Body (5/5) 66.875 33.500 40 5,660 51.07
16 Page Body (4/4) 89.125 33.500 40 6,286 67.09
16 Page Body (5/5) 89.125 33.500 40 7,543 68.68
20 Page Body (4/4) 55.750 33.500 40 3,932 83.93
20 Page Body (5/5) 55.750 33.500 40 4,718 85.14
24 Page Body (4/4) 66.875 33.500 40 4,716 100.68
24 Page Body (5/5) 66.875 33.500 40 5,660 102.13
28 Page Body (4/4) 78.000 33.500 40 5,501 117.43
28 Page Body (5/5) 78.000 33.500 40 6,601 119.12
32 Page Body (4/4) 89.125 33.500 40 6,286 134.18
32 Page Body (5/5) 89.125 33.500 40 7,543 136.11
36 Page Body (4/4) 66.875 50.250 40 7,075 151.02
36 Page Body (5/5) 66.875 50.250 40 8,490 153.20
40 Page Body (4/4) 55.750 33.500 40 3,932 167.86
40 Page Body (5/5) 55.750 33.500 40 4,718 170.29
48 Page Body (4/4) 89.125 50.250 40 9,428 201.27
48 Page Body (5/5) 89.125 50.250 40 11,314 204.17
48 Page Body (4/4) 66.875 33.500 40 4,716 201.36
48 Page Body (5/5) 66.875 33.500 40 5,660 204.27
56 Page Body (4/4) 78.000 33.500 40 5,501 234.86
56 Page Body (5/5) 78.000 33.500 40 6,601 238.25
60 Page Body (4/4) 55.750 50.250 40 5,898 251.80
60 Page Body (5/5) 55.750 50.250 40 7,077 255.43
64 Page Body (4/4) 89.125 33.500 40 6,286 268.36
64 Page Body (5/5) 89.125 33.500 40 7,543 272.23
72 Page Body (4/4) 66.875 50.250 40 7,075 302.04
72 Page Body (5/5) 66.875 50.250 40 8,490 306.40
84 Page Body (4/4) 78.000 50.250 40 8,252 352.29
84 Page Body (5/5) 78.000 50.250 40 9,902 357.37
96 Page Body (4/4) 89.125 50.250 40 9,428 402.54
96 Page Body (5/5) 89.125 50.250 40 11,314 408.34
Cylinder Changes, per cylinder 55.750 33.500 40 393 ---
Cylinder Changes, per cylinder 66.875 33.500 40 472 ---
Cylinder Changes, per cylinder 78.000 33.500 40 550 ---
Cylinder Changes, per cylinder 89.125 33.500 40 629 ---
Cylinder Changes, per cylinder 55.750 50.250 40 590 ---
Cylinder Changes, per cylinder 66.875 50.250 40 707 ---
Cylinder Changes, per cylinder 78.000 50.250 40 825 ---
Cylinder Changes, per cylinder 89.125 50.250 40 943 ---
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 Quad / Graphics Inc. September 9, 1996
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
- ----------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
====================================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 45 5,306 56.63
12 Page Body (5/5) 66.875 33.500 45 6,367 57.45
16 Page Body (4/4) 89.125 33.500 45 7,071 75.48
16 Page Body (5/5) 89.125 33.500 45 8,486 77.27
20 Page Body (4/4) 55.750 33.500 45 4,423 94.42
20 Page Body (5/5) 55.750 33.500 45 5,308 95.79
24 Page Body (4/4) 66.875 33.500 45 5,306 113.27
24 Page Body (5/5) 66.875 33.500 45 6,367 114.90
28 Page Body (4/4) 78.000 33.500 45 6,189 132.11
28 Page Body (5/5) 78.000 33.500 45 7,426 134.01
32 Page Body (4/4) 89.125 33.500 45 7,071 150.95
32 Page Body (5/5) 89.125 33.500 45 8,486 153.13
36 Page Body (4/4) 66.875 50.250 45 7,959 169.90
36 Page Body (5/5) 66.875 50.250 45 9,551 172.35
40 Page Body (4/4) 55.750 33.500 45 4,423 188.85
40 Page Body (5/5) 55.750 33.500 45 5,308 191.57
48 Page Body (4/4) 89.125 50.250 45 10,607 226.43
48 Page Body (5/5) 89.125 50.250 45 12,728 229.69
48 Page Body (4/4) 66.875 33.500 45 5,306 226.53
48 Page Body (5/5) 66.875 33.500 45 6,367 229.80
56 Page Body (4/4) 78.000 33.500 45 6,189 264.22
56 Page Body (5/5) 78.000 33.500 45 7,426 268.03
60 Page Body (4/4) 55.750 50.250 45 6,635 283.27
60 Page Body (5/5) 55.750 50.250 45 7,962 287.36
64 Page Body (4/4) 89.125 33.500 45 7,071 301.90
64 Page Body (5/5) 89.125 33.500 45 8,486 306.26
72 Page Body (4/4) 66.875 50.250 45 7,959 339.80
72 Page Body (5/5) 66.875 50.250 45 9,551 344.70
84 Page Body (4/4) 78.000 50.250 45 9,283 396.33
84 Page Body (5/5) 78.000 50.250 45 11,140 402.04
96 Page Body (4/4) 89.125 50.250 45 10,607 452.85
96 Page Body (5/5) 89.125 50.250 45 12,728 459.39
Cylinder Changes, per cylinder 55.750 33.500 45 442 --
Cylinder Changes, per cylinder 66.875 33.500 45 531 --
Cylinder Changes, per cylinder 78.000 33.500 45 619 --
Cylinder Changes, per cylinder 89.125 33.500 45 707 --
Cylinder Changes, per cylinder 55.750 50.250 45 663 --
Cylinder Changes, per cylinder 66.875 50.250 45 796 --
Cylinder Changes, per cylinder 78.000 50.250 45 928 --
Cylinder Changes, per cylinder 89.125 50.250 45 1,061 --
- ----------------------------------------------------------------------------------------------------
</TABLE>
Page 7 Quad / Graphics Inc. September 9, 1996
<PAGE>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
==========================================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 50 5,896 62.93
12 Page Body (5/5) 66.875 33.500 50 7,075 63.83
16 Page Body (4/4) 89.125 33.500 50 7,857 83.86
16 Page Body (5/5) 89.125 33.500 50 9,428 85.85
20 Page Body (4/4) 55.750 33.500 50 4,915 104.92
20 Page Body (5/5) 55.750 33.500 50 5,898 106.43
24 Page Body (4/4) 66.875 33.500 50 5,896 125.85
24 Page Body (5/5) 66.875 33.500 50 7,075 127.67
28 Page Body (4/4) 78.000 33.500 50 6,876 146.79
28 Page Body (5/5) 78.000 33.500 50 8,252 148.90
32 Page Body (4/4) 89.125 33.500 50 7,857 167.72
32 Page Body (5/5) 89.125 33.500 50 9,428 170.14
36 Page Body (4/4) 66.875 50.250 50 8,843 188.78
36 Page Body (5/5) 66.875 50.250 50 10,612 191.50
40 Page Body (4/4) 55.750 33.500 50 4,915 209.83
40 Page Body (5/5) 55.750 33.500 50 5,898 212.86
48 Page Body (4/4) 89.125 50.250 50 11,786 251.58
48 Page Body (5/5) 89.125 50.250 50 14,143 255.21
48 Page Body (4/4) 66.875 33.500 50 5,896 251.70
48 Page Body (5/5) 66.875 33.500 50 7,075 255.33
56 Page Body (4/4) 78.000 33.500 50 6,876 293.57
56 Page Body (5/5) 78.000 33.500 50 8,252 297.81
60 Page Body (4/4) 55.750 50.250 50 7,372 314.75
60 Page Body (5/5) 55.750 50.250 50 8,847 319.29
64 Page Body (4/4) 89.125 33.500 50 7,857 335.45
64 Page Body (5/5) 89.125 33.500 50 9,428 340.29
72 Page Body (4/4) 66.875 50.250 50 8,843 377.55
72 Page Body (5/5) 66.875 50.250 50 10,612 383.00
84 Page Body (4/4) 78.000 50.250 50 10,314 440.36
84 Page Body (5/5) 78.000 50.250 50 12,377 446.71
96 Page Body (4/4) 89.125 50.250 50 11,786 503.17
96 Page Body (5/5) 89.125 50.250 50 14,143 510.43
Cylinder Changes, per cylinder 55.750 33.500 50 491 -
Cylinder Changes, per cylinder 66.875 33.500 50 590 -
Cylinder Changes, per cylinder 78.000 33.500 50 688 -
Cylinder Changes, per cylinder 89.125 33.500 50 786 -
Cylinder Changes, per cylinder 55.750 50.250 50 737 -
Cylinder Changes, per cylinder 66.875 50.250 50 884 -
Cylinder Changes, per cylinder 78.000 50.250 50 1,031 -
Cylinder Changes, per cylinder 89.125 50.250 50 1,179 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
September 9, 1996
Page 8 Quad / Graphics Inc.
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY ENTERPRISES
PAPER REQUIREMENTS
- --------------------------------------------------------------------------------
8 1/8" X 10 7/8" BOOK SIZE ROLL CYL. BASIS RATE
PAPER REQUIREMENTS WIDTH SIZE WEIGHT MAKEREADY PER/M
================================================================================
<S> <C> <C> <C> <C> <C>
12 Page Body (4/4) 66.875 33.500 60 7,075 75.51
12 Page Body (5/5) 66.875 33.500 60 8,490 76.60
16 Page Body (4/4) 89.125 33.500 60 9,428 100.63
16 Page Body (5/5) 89.125 33.500 60 11,314 103.02
20 Page Body (4/4) 55.750 33.500 60 5,898 125.90
20 Page Body (5/5) 55.750 33.500 60 7,077 127.71
24 Page Body (4/4) 66.875 33.500 60 7,075 151.02
24 Page Body (5/5) 66.875 33.500 60 8,490 153.20
28 Page Body (4/4) 78.000 33.500 60 8,252 176.14
28 Page Body (5/5) 78.000 33.500 60 9,902 178.69
32 Page Body (4/4) 89.125 33.500 60 9,428 201.27
32 Page Body (5/5) 89.125 33.500 60 11,314 204.17
36 Page Body (4/4) 66.875 50.250 60 10,612 226.53
36 Page Body (5/5) 66.875 50.250 60 12,734 229.80
40 Page Body (4/4) 55.750 33.500 60 5,898 251.80
40 Page Body (5/5) 55.750 33.500 60 7,077 255.43
48 Page Body (4/4) 89.125 50.250 60 14,143 301.90
48 Page Body (5/5) 89.125 50.250 60 16,971 306.26
48 Page Body (4/4) 66.875 33.500 60 7,075 302.04
48 Page Body (5/5) 66.875 33.500 60 8,490 306.40
56 Page Body (4/4) 78.000 33.500 60 8,252 352.29
56 Page Body (5/5) 78.000 33.500 60 9,902 357.37
60 Page Body (4/4) 55.750 50.250 60 8,847 377.70
60 Page Body (5/5) 55.750 50.250 60 10,616 383.14
64 Page Body (4/4) 89.125 33.500 60 9,428 402.54
64 Page Body (5/5) 89.125 33.500 60 11,314 408.34
72 Page Body (4/4) 66.875 50.250 60 10,612 453.06
72 Page Body (5/5) 66.875 50.250 60 12,734 459.60
84 Page Body (4/4) 78.000 50.250 60 12,377 528.43
84 Page Body (5/5) 78.000 50.250 60 14,853 536.06
96 Page Body (4/4) 89.125 50.250 60 14,143 603.80
96 Page Body (5/5) 89.125 50.250 60 16,971 612.51
Cylinder Changes, per cylinder 55.750 33.500 60 590 --
Cylinder Changes, per cylinder 66.875 33.500 60 707 --
Cylinder Changes, per cylinder 78.000 33.500 60 825 --
Cylinder Changes, per cylinder 89.125 33.500 60 943 --
Cylinder Changes, per cylinder 55.750 50.250 60 885 --
Cylinder Changes, per cylinder 66.875 50.250 60 1,061 --
Cylinder Changes, per cylinder 78.000 50.250 60 1,238 --
Cylinder Changes, per cylinder 89.125 50.250 60 1,414 --
-------------------------------------------------------------------------------
</TABLE>
Page 9 Quad / Graphics Inc. September 9, 1996
<PAGE>
Exhibit 10.5(d)
THIRD AMENDMENT dated as of the 1st day of July, 1996, by and between
COMMUNICATIONS DATA SERVICES INC., an Iowa corporation ("CDS") with its
principal office at 1901 Bell Avenue, Des Moines, Iowa 50315-1099 and PLAYBOY
ENTERPRISES, INC., a ________ corporation (the "Publisher") with its principal
office at 680 North Lake Shore Drive, Chicago, Illinois 60611.
R E C I T A L S
WHEREAS, CDS and the Publisher entered into a Subscription Fulfillment
Agreement (the "Agreement") dated as of the 1st day of July, 1987; and
WHEREAS, CDS and the Publisher amended the aforementioned Agreement by an
Amendatory Agreement dated as of the 1st day of September, 1987 (the "Amendatory
Agreement"), and by a Second Amendment dated as of the 1st day of July, 1990
(the "Second Amendment"); and
WHEREAS the parties now desire to further amend the Agreement to extend the
Term of the Agreement and make other changes as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, it is agreed by and between the parties hereto as follows:
1. The last sentence in Section 1.5 (a) of the Agreement is hereby amended
and restated to read as follows:
"CDS will use its reasonable best efforts to mail invoices within four
(4) working days following the master file reorganization provided that the
Publisher has deposited sufficient monies with the U.S. Postal Service to
cover postage costs prior to the mailing date."
2. Section 1.5 (c) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"(c) The Publisher will provide invoices on a continuous form designed
for Optical Character Recognition ("OCR") processing. The Publisher's mail
components will conform to reasonable specifics provided by CDS, to be
acceptable to CDS for computer processing and be compatible with the then
existing CDS hardware."
3. Section 1.6 (a) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"(a) Regular renewal promotions, which shall not exceed sixteen (16)
efforts, shall be selected in accordance with a schedule provided by the
Publisher in a form attached hereto as Exhibit B at least ten (10) working
days prior to a master file reorganization, and CDS will use its reasonable
best efforts to mail regular renewals within five (5) working days
following the master file reorganization provided that the Publisher has
deposited sufficient monies with the U.S. Postal Service to cover postage
costs prior to the mailing date. An effort will be considered a regular
renewal promotion hereunder only if it is mailed seven (7) months or less
prior to the expiration of the addressee's subscription."
<PAGE>
4. Section 1.9 of the Agreement is hereby amended to add the following
sentences at the end:
"If the Publisher becomes dissatisfied with CDS's performance of the
lettershop Services, it shall notify CDS and CDS shall have thirty (30)
days to correct the problem(s) specified by the Publisher, after which time
if the problem(s) are not corrected to the reasonable satisfaction of the
Publisher, the Publisher may retain another vendor to perform such
Services. All mailing services, such as print programming and sortation,
will be performed by the vendor providing lettershop services to the
Publisher. CDS, in measuring it mailing performance under Sections 1.5(a)
and 1.6(a), will exclude events beyond its control, e.g., stock shortages,
incorrect or late mailing instructions from the Publisher, etc."
5. Section 1.13 (c) of the Agreement is hereby amended to add the following
sentences at the end:
"If the Publisher requests non-list rental selection services that CDS is
not capable of providing, the Publisher may have such services performed by
another vendor (with the understanding that list rental Services shall
remain on an exclusive basis with CDS). CDS will ship list rental tapes
within two (2) working days following receipt of the order. If the
Publisher becomes dissatisfied with CDS's list rental performance, it shall
notify CDS and CDS shall have thirty (30) days to correct the problem(s)
specified by the Publisher, after which time if the problem(s) are not
corrected to the reasonable satisfaction of the Publisher, the Publisher
may retain another vendor to perform such list rental Services. In
measuring performance, CDS will exclude events beyond its control, e.g.,
incorrect or late instructions, etc."
6. Section 1.13 (e) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"(e) CDS will provide Rapid Evaluation and Circulation Tracking (REACT)
and EasySuite Services to the Publisher based on the Publisher's
requirements, if and when requested by the Publisher."
7. Section 1.13 of the Agreement is hereby amended to add the following new
paragraph (j):
"(j) The Publisher shall provide CDS with the opportunity to bid on
merge/purge Services required by the Publisher involving the master file of
the Magazine, other files maintained hereunder, and outside lists obtained
by the Publisher. In soliticing bids, the Publisher agrees not to reveal
CDS's bid to other vendors."
8. Section 2.1 of the Agreement, as previously amended, is hereby amended
and restated in its entirety to read as follows:
"2.1 Basic Service Charge.
--------------------
The Publisher shall pay CDS the following annual Service charge per
subscription of the Magazine:
2
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of
Labels per Issue Annual Service Charge per Subscription
------------------- --------------------------------------
Tape-cleared Non-Tape
Orders cleared Orders
------------ --------------
<S> <C> <C>
0 - 500,000 $0.56 $0.64
500,000 - 1,000,000 $0.39 $0.50
1,000,001 - 2,000,000 $0.36 $0.47
2,000,001 - 2,400,000 $0.34 $0.43
2,400,001 - 3,200,000 $0.32 $0.40
3,200,001 and Over $0.31 $0.39
</TABLE>
The Publisher shall be invoiced monthly for each Magazine. The billing
mechanism for the Basic Service Charge is based on the applicable Annual
Service Charge per Subscription rate divided by the number of issues per year
(frequency) of the Magazine times the total number of labels produced during
the preceding month. (Example using 2,800,000 labels produced with 1,316,000
tape-cleared orders and 1,484,000 non-tape cleared orders: $0.32 divided by 12
issues = $0.02667 per label x 1,316,000 = $35,097.72, plus $0.40 divided by 12
issues = $0.03333 per label x 1,484,000 = $49,461.72).
The charge per label figures are based on the number of issues of the
Magazine per year set forth in the recitals. If the number of issues increases
or decreases, the charge per label figures will be decreased or increased
proportionately so as to maintain the same aggregate charges per subscription
on a yearly basis."
9. Section 2.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"2.2 Merge/Purge.
------------
The Publisher shall provide CDS with the opportunity to bid on
merge/purge services pursuant to Section 1.13(j) of this Agreement."
10. Section 2.3 (a) of the Agreement is hereby amended and restated in its
entirety to read as follows:
"(a) Basic Charge.
-------------
Cheshire Labels or Tape*
------------------------
$3.00/M
*$3.37/M will be added to the above Basic Charge when pressure
sensitive labels are requested."
3
<PAGE>
11. Section 2.3 of the Agreement, as previously amended, is hereby amended
to add a new paragraph (e) to read as follows:
"(e) Two (2) suppression files per year will be provided at no
additional charge to the Publisher."
12. Section 2.5 (a) (i) (4) of the Agreement, as previously amended, is
hereby amended and restated in its entirety to read as follows:
"(4) Keys or commingled lettershop groups with like components, with
quantities of 2,000 and over will be charged at the rate of:
1st and 2nd renewal effort inserting only:
------------------------------------------
Number of components (including envelope):
2 - 5 Components............................... $12.00/M
6 Components................................... $12.75/M
7 Components................................... $13.75/M
8 Components................................... $15.00/M
All Other inserting:
--------------------
Number of components (including envelope):
2 - 5 Components............................... $14.00/M
6 Components................................... $15.00/M
7 Components................................... $16.00/M
8 Components................................... $17.00/M"
13. Section 2.5 (a) (i) (5) of the Agreement is hereby amended and
restated in its entirety to read as follows:
"(5) Keys or commingled lettershop groups with like components, with
quantities of 500 or more but less than 2,000 will be charged at the
rate of:
Number of components (including envelope):
2 - 5 Components............................... $24.00/M
6 Components................................... $25.00/M
7 Components................................... $26.00/M
8 Components................................... $27.00/M"
14. Section 2.5 (a) (iii) of the Agreement is hereby amended and restated
in its entirety to read as follows:
"(iii) Sorting, Tying & Bagging Third Class Mail ...... No Charge"
-----------------------------------------
4
<PAGE>
15. Section 2.5 (a) (v) (3) of the Agreement is hereby amended and
restated in its entirety to read as follows:
"(3) 1 Fold.............................. $2.75/M
2 Folds............................. $2.75/M
3 Folds............................. $6.00/M"
16. Section 2.5 (a) (x) of the Agreement is hereby amended and restated
in its entirety to read as follows:
"(x) Printing
--------
(1) Computer impact or
Standard Laser Printing.............$18.00/M Feet
(2) Plain Paper Color (PPC)
Billing and Renewal Packages..Quoted upon request
(3) Other print technologies (e.g., scanned logos and
signatures, pictures, software-generated graphics,
VIP custom character sets, etc.)...Quoted upon
request
CDS performance of laser printing shall be subject to
compatibility of the Publisher's mailing stock with
CDS equipment and to prior scheduling commitments. The
Publisher agrees to submit new or proposed mailing
packages to CDS for approval for laser printing.
Publisher's requests for laser printing shall be
through its CDS representative."
17. Section 2.8 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"2.8 Laser Printing.
--------------
Subject to compatibility of the Publisher's mailing stock with
CDS equipment and to prior scheduling commitments, CDS will, at the
Publisher's request through its CDS representative, perform laser printing
at its Wilton, Iowa facility and charge the Publisher a rate of $18.00/M
feet of paper printed."
18. Section 2.9 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"2.9 REACT Reporting.
---------------
REACT reporting and the Easy Suite package will be provided at
the Publisher's request for a fee of $500.00 per month for the Magazine set
forth in the recitals of this Agreement."
5
<PAGE>
19. Section 2.17 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"2.17 Change in Charges.
------------------
Except as may otherwise be expressly provided, the fees and
charges set forth in this Agreement will remain in effect until June
30, 1999. On July 1, 1999 and on each July 1 thereafter, all of the fees
and charges will be increased by a percentage equal to the percentage
increase in the most recent Consumer Price Index, All Items, U.S.
Department of Labor, publicly available on each July 1 as compared with
such Index publicly available on the previous July 1, up to a maximum of a
six percent (6%) increase above the fees and charges established for the
prior twelve (12) month period."
20. Section 5.1 of the Agreement, as previously amended, is hereby amended
and restated in its entirety to read as follows:
"5.1 Term.
----
The Term of this Agreement shall continue until June 30, 2001,
plus a period of time equal to the period(s) of time, if any, during which
Services were not rendered hereunder due to an Event of Force Majeure
affecting CDS or the Publisher. When used in this Agreement, the term
"year" shall mean a consecutive twelve (12) month period."
21. Section 8.1 of the Agreement is hereby amended to add the following
sentence at the end:
"At the end of each quarter of the calendar year, CDS will provide the
Publisher with a current copy of its subscriber master file on magnetic
tape."
22. The last sentence of Section 11.3 of the Agreement is hereby amended
to read as follows:
"The representative(s) of both parties may be changed from time to
time in which event the other party shall be notified as promptly as possible,
with the understanding, however, that the CDS representative(s) shall be
subject, within reason, to the approval of the Publisher."
23. Item 5 of Exhibit A to the Agreement, as previously amended, is hereby
amended and restated in its entirety to read as follows:
"5. Toll-free in-WATS telephone Service will be provided at the rate
of $1.37 per call received for all calls requiring a live operator, and at
the rate of $0.85 per call received for calls not requiring a live operator
(VRU calls). The initial set-up for Voice Response Unit ("VRU") messages
will be provided at no additional charge to the Publisher. VRU message
changes, following the initial set-up, will be charged at the rate of
$10.00 per message changed. In addition, if requested by the Publisher, CDS
will provide: (i) its Upsell program at the rate of $2.00 per one-year
subscription and
6
<PAGE>
$4.00 per two-year subscription, and (ii) its Save-A-Subscriber program
at the rate of $2.00 per subscription."
24. Item 6 of Exhibit A to the Agreement, as previously amended, is hereby
amended and restated in its entirety to read as follows:
"6. Special requests from the Publisher to CDS for new programs or
systems will be charged at the rate of $85.00 per hour, with the
understanding, however, that the Publisher shall receive two hundred (200)
hours of programming Services per year at no additional charge to the
Publisher."
25. Item 15 (a) of Exhibit A to the Agreement, as previously amended, is
hereby amended and restated in its entirety to read as follows:
"15. (a) CDS will process sweepstakes and direct mail responses in
accordance with the Publisher's specific instructions at the following rates:
"Yes" Responses in Response-identified Envelopes No Charge
"No" Responses in Response-identified Envelopes:
Gift $32.50/M
Non-Gift $30.00/M
Non-identified Envelopes:
Gift $32.50/M
Non-Gift $30.00/M
Winning Number Screening $5.14/M
Creation of "No" responses Electronic file:
Finder Number key entry $0.05 each
Name and address key entry $0.13 each
OCR Scanner entry $0.02 each"
26. Exhibit A to the Agreement is hereby amended to add the following
new item 19 to read as follows:
"19. At the Publisher's request, CDS will provide, on a monthly basis,
a feed of subscriber data from CDS to the Publisher's marketing database at
Acxiom, as instructed by the Publisher, for a charge of $1.50/M Database
records selected."
27. Exhibit A to the Agreement is hereby amended to add the following new
item 20 to read as follows:
"20. CDS has the capability to create a Marketing Database for the
Publisher and provide Marketing Database Services involving the storage and
selection of subscriber information (including multi-magazine subscription
information, product information, promotion information, demographic
information, and special interest information). The Publisher agrees to
provide CDS with the opportunity to bid on Marketing Database Services in
1997. In soliciting bids, the Publisher agrees not to reveal CDS's bid to
other vendors. If CDS is selected to provide the Marketing Database
Services, the parties hereto agree to execute an amendment to this
7
<PAGE>
Agreement or a separate agreement covering Services and prices for the
Marketing Database."
28. Exhibit A to the Agreement is hereby amended to add the following new
item 21 to read as follows:
"21. Incoming fax orders and customer service faxes (incoming and
outgoing) will be charged for at the rate of $0.75 per page, with the
understanding that the Publisher will supply a fax machine at CDS."
29. Exhibit A to the Agreement is hereby amended to add the following new
item 22 to read as follows:
"22. The Publisher agrees to provide CDS with the opportunity to bid
on premium fulfillment services. In soliciting bids, the Publisher agrees
not to reveal CDS's bid to other vendors."
30. Exhibit A to the Agreement is hereby amended to add the following new
item 23 to read as follows:
"23. CDS will provide microfilming for order documents at the rate of
$0.02 per piece."
31. Except as expressly amended hereby, the Agreement shall remain in full
force and effect in accordance with its terms.
32. This Third Amendment shall become effective as of the date first above
written.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the day and year first above written.
COMMUNICATIONS DATA SERVICES, INC. PLAYBOY ENTERPRISES, INC.
by /s/ Scott Weir by /s/ Phyllis Rotunno
--------------------------- ----------------------
(signature) (signature)
Scott Weir Phyllis Rotunno
--------------------------- ----------------------
(print or type) (print or type)
Title SR V.P. Title CIRC Director
------------------------ -------------------
8
<PAGE>
Exhibit 10.9
THIS AGREEMENT is made the 2nd day of February 1996
BETWEEN
(1) CONTINENTAL SHELF 16 LIMITED registered in England under number 3,005,499
whose registered office is at The Quadrangle, Imperial Square,
Cheltenham, Gloucester, GL50 1 YX ("Flextech")
(2) PLAYBOY ENTERTAINMENT GROUP, INC. a Delaware corporation of 9242 Beverly
Boulevard, Beverly Hills, California 90210, USA ("Playboy Entertainment")
(3) PLAYBOY ENTERPRISES INC., of 680 North Lake Shore Drive, Chicago, Illinois
60611, USA ("Playboy Enterprises")
(4) PLAYBOY TV UK/BENELUX LIMITED registered in England under the number
3,000,033 whose registered office is at Five Chancery Lane, Clifford's
Inn, London EC4A 1BU (the "Company")
NOW IT IS HEREBY AGREED as follows:
1. Definitions
The "Original Documents" the documents set out in Part I of the Schedule
hereto dated on or about 26th January 1995 and made effective on 12th
January 1995.
The "New Documents" the documents set out in Part II of the Schedule
hereto.
2. Termination
On signature of this Agreement by the parties and signature of the relevant
parties hereto of each of the New Documents, the Original Document of the
same name shall be terminated with immediate effect and no party thereto
shall have any liability under such Original Documents as shall have been
so terminated to any other party thereto, save for any rights accrued prior
to such termination which rights, to the extent that they are against the
Company, shall be deemed to relate to the Company prior to the date hereof
and Precis (1378) Limited shall be deemed to have no liability therefor.
3. Governing Law
This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties hereto submit to the
jurisdiction of the courts of England.
1
<PAGE>
THE SCHEDULE
------------
PART I
1. Shareholders' Agreement relating to the establishment of Playboy TV
UK/Benelux Limited between Continental Shelf 16 Limited (1) Playboy
Entertainment Group, Inc. (2) and Playboy TV/Benelux Limited (3) described.
2. Trade Mark Licence between Playboy Enterprises, Inc. (1) and Playboy TV
UK/Benelux Limited (2).
3. Programme Supply Agreement between Playboy Entertainment Group, Inc. (1) and
Playboy TV UK/Benelux Limited (2).
4. The Forbearance Agreement between Harris Trust and Savings Bank (1),
Lasalle National Bank (2), Continental Shelf 16 Limited (3) and Playboy TV
UK/Benelux Limited (4).
5. Thc Consent Agreement between Playboy Entertainment Group, Inc., (1)
Playboy Enterprises Inc. (2) Continental Shelf 16 Limited (3) and Playboy
TV UK/Benelux Limited (4).
PART II
1. Shareholders' Agreement relating to the establishment of Playboy TV
UK/Benelux Limited between Continental Shelf 16 Limited (1) Playboy
Entertainment Group, Inc. (2) and Playboy TV/Benelux Limited (3) and
Precis (1378) Limited (4).
2. Trade Mark Licence between Playboy Enterprises, Inc. (1) and Playboy TV
UK/Benelux Limited (2).
3. Programme Supply Agreement between Playboy Entertainment Group, Inc. (1) and
Playboy TV UK/Benelux Limited (2).
4. The Forbearance Agreement between Harris Trust and Savings Bank (1),
Lasalle National Bank (2), Continental Shelf 16 Limited (3) and Playboy TV
UK/Benelux Limited (4) and Precis (1378) Limited.
5. Thc Consent Agreement between Playboy Entertainment Group, Inc. (1)
Playboy Enterprises Inc. (2) Continental Shelf 16 Limited (3) and Playboy
TV UK/Benelux Limited (4) and Precis (1378) Limited.
2
<PAGE>
SIGNED by )
for and on behalf of )
CONTINENTAL SHELF 16 )
LIMITED in the presence of: ) /s/ Roger Luard
/s/ J. Butler /s/ Janine F. Butler
SIGNED by ANTHONY J. LYNN )
for and on behalf of PLAYBOY )
ENTERTAINMENT GROUP, )
INC. in the presence of: ) /s/ Anthony J. Lynn
/s/ P.D. Feely /s/ P. Feely
SIGNED by ANTHONY J. LYNN )
for and on behalf of PLAYBOY )
ENTERPRISES, INC. )
in the presence of: ) /s/ Anthony J. Lynn
/s/ P.D. Feely /s/ P. Feely
SIGNED by )
for and on behalf of PLAYBOY )
TV UK/BENELUX LIMITED )
in the presence of ) /s/ Roger Luard
/s/ J. Butler /s/ Janine F. Butler
3
<PAGE>
DATED 2nd February 1996
-----------------------
(1) CONTINENTAL SHELF 16 LIMITED
(2) PLAYBOY ENTERTAINMENT GROUP, INC.
(3) PRECIS (1378) LIMITED
(4) PLAYBOY TV UK/BENELUX LIMITED
---------------------
SHAREHOLDERS' AGREEMENT
Relating to the establishment of
PLAYBOY TV UK/BENELUX LIMITED
---------------------
EXECUTED AGREEMENT
DENTON HALL
FIVE CHANCERY LANE
CLIFFORD'S INN
LONDON EC4A 1BU
TELEPHONE 0171 242 1212 FAX 0171 404 0087
MEMBER OF THE DENTON INTERNATIONAL
<PAGE>
<TABLE>
<CAPTION>
INDEX
--------
<S> <C>
CLAUSE PAGE
------ ----
1. Definitions 2
2. Business of the Company and Launch of the Channel 12
3. Closing Arrangements 13
4. Provision of Finance 16
5. The Board and Management 20
6. Agreement to Perform 23
7. Information 23
8. Restrictions on the Company's Activities 25
9. Name 33
10. Dividend Policy 33
11. Confidentiality 33
12. Disclosure 34
13. Transfers of Shares and Loan Stock 35
14. Deemed Transfers 43
15. Option 45
16. Sell Down 52
17. Compulsory Purchase by Flextech and Sky 55
18. Representations and Warranties 57
19. Competition 58
20. No Assignment 58
21. Waivers, Remedies Cumulative, Amendments etc 59
22. Invalidity etc 59
23. No Partnership or Agency 60
24. Announcements 60
25. Costs 60
26. Entire Agreement 60
27. Conflict with Articles etc 61
28. Notices 61
29. Governing Law 62
</TABLE>
<PAGE>
AGREED FORM DOCUMENTS
- ---------------------
1. Articles of Association
2. Resolutions
3. Loan Stock Deed and Certificate
4. Programme Supply Agreement
5. Trademark Licence
6. Legal Opinions
7. Consent Agreement
8. Initial Business Plan
9. Subscriber Management Services Agreement
<PAGE>
SCHEDULES
---------
SCHEDULE I Particulars of the Company
SCHEDULE II Details of Subscriptions by Shareholders at Closing
SCHEDULE III Deed of Adherence
SCHEDULE IV Funding
SCHEDULE V Directors
<PAGE>
THIS AGREEMENT is made the 2nd day of February 1996
but made effective from 1st November 1995
BETWEEN:
(1) CONTINENTAL SHELF 16 LIMITED registered in England under number 3,005,499
whose registered office is at The Quadrangle, Imperial Square, Cheltenham,
Gloucester, GL50 lYX ("Flextech");
(2) PLAYBOY ENTERTAINMENT GROUP, INC. a Delaware corporation of 9242 Beverly
Boulevard, Beverly Hills, California 90210 ("Playboy");
(3) PRECIS (1378) LIMITED registered in England under number 3092549 whose
registered office is at 6 Centaurs Business Park, Grant Way, Isleworth,
Middlesex TW7 5QD ("Sky");
(4) PLAYBOY TV UK/BENELUX LIMITED registered in England under number 3,000,033
whose registered office is at Five Chancery Lane, Clifford's Inn, London
EC4A lBU (for itself and, under Clauses 11, 12 and 19, for itself and as
trustee for its Subsidiaries for the time being) ("the Company").
WHEREAS:
(A) The Shareholders have incorporated the Company and wish to procure that the
Company will establish a pay television service to be known as "Playboy TV"
based on the pay television service which is currently operated by Playboy
in the United States of America under the name "Playboy TV" ("the Channel")
in the Territory.
(B) The Shareholders are entering into this Agreement with the Company (whose
corporate details are set out in Schedule I) in order to record the basis
of their relationship as shareholders in the Company and to establish the
manner in which the business and affairs of the Company will be financed
and conducted.
<PAGE>
NOW IT IS HEREBY AGREED as follows:
1. Definitions
1.1 In this Agreement and in the Recitals and Schedules hereto the following
words and expressions shall save as otherwise specifically provided have
the following meanings:
"the Act": the Companies Acts 1985 to 1989 and the Companies Consolidation
(Consequential Provisions) Act 1985 and the Company Directors
Disqualification Act 1986 and all regulations made under any of the
foregoing;
"Advertising Material": audio and/or visual and/or audio visual films
and/or sound recordings which in each such case are advertising, promoting
or selling goods, services or facilities or otherwise as permitted in
accordance with the relevant codes published from time to time by the ITC;
"the Articles": the articles of association of the Company in the agreed
form or as they may subsequently be altered from time to time in a manner
consistent with the terms of this Agreement;
"Associate": in relation to any company, another company which controls, is
controlled by or is in common control with that company; and for the
purposes of this definition a company shall be deemed to control any
company which is a subsidiary or a subsidiary undertaking of such company;
"the Board": the board of directors of the Company;
"the Business": the operation of a pay television service and ancillary
businesses (known as Playboy TV) in the Territory and in such other country
in Europe as the Board may approve from
2
<PAGE>
time to time and in respect of which the Company or any Subsidiary has a licence
to operate such a service under the "Playboy" name;
"the Business Plan": the initial business plan and budget of the Company in the
agreed form or where the context permits any revision or amendment thereto and
any other business plan and/or budget approved pursuant to Clause 8;
"Chairman": the Chairman from time to time of the Board;
"the Channel": a pay television service to be known as "Playboy TV" based on the
pay television service which is currently operated by Playboy in the United
States of America under the name "Playboy TV" as such service may be developed
from time to time initially to operate primarily as a cable and DTH channel and
thereafter to be transmitted by such other means as may be approved from time to
time in accordance with Clause 8;
"Closing": the date of completion of all of the matters specified in Clause 3.1;
"consent Agreement": an agreement in the agreed form between Playboy, Playboy
Enterprises, Inc., Flextech, Sky and the Company which (inter alia) permits the
pledge of certain assets which would otherwise have been prohibited under the
Transaction Documents (as amended and/or amended and restated from time to
time);
"Control": the meaning ascribed thereto in Section 416 of the Taxes Act;
"Deed of Adherence": a deed of adherence in the form set out in Schedule III;
"Directors": the directors for the time being of the Company;
"Disqualified Participant": any person all or part of whose Interest or
shareholding or interest in any other company taken alone or together with the
Interest or shareholding or interest in any
3
<PAGE>
other company of any other person or persons, after taking into account any
issue of any shares or securities in the Company or any transfer of any
Interest, in either case in respect of which the relevant person has indicated
in writing an intention to acquire any such shares or securities and, has caused
or would cause or be likely to cause (as determined in accordance with this
Agreement), a Licence Event;
"Encumbrance": means any assignment by way of security, charge, hypothecation,
lien (other than a lien arising solely by operation of law in the normal course
of trading, the aggregate amount of which is not material), mortgage, pledge,
title retention (other than arising pursuant to a third party's standard
conditions of supply of goods) right of set off, security interest, trust
arrangement and any other preferential right or agreement to confer security,
including any analogous security interest under local law.
"Europe": all countries which are situated within the geopolitical entity known
as Europe, for the avoidance of doubt, including, but without limitation all the
countries which are members of the European Union or the European Free Trade
Area.
"Fair Value":
(a) in respect of each Share the same proportion of the fair market value
of the Company as a whole on the date of service of the Transfer
Notice (or deemed date thereof) or in the event that clauses 8.5 and
8.6 apply the date of the Winding up Resolution or in the event that
clause 15 applies on the date of the Option Exercise Notice as such
Share bears to the whole of the issued ordinary share capital of the
Company stated as a price per Share; and
(b) in respect of each (Pounds) 1 principal amount of Loan Stock the
lesser of:
4
<PAGE>
(i) the principal amount thereof plus interest thereon which has
accrued in accordance with the terms of issue of the Loan Stock
but which remains unpaid; and
(ii) the same proportion of the fair market value thereof treating
each (Pounds) 1 of Loan Stock as if it were a fully paid Share
calculated in accordance with (a) above
as certified (except in relation to (b)(i)) by the Referee on the basis of a
sale thereof as between a willing vendor and a willing purchaser on the
assumption that the Shares and/or Loan Stock the subject of the Transfer Notice
will be purchased in one lot by a purchaser contracting on arm's length terms,
who has no other interest in the Company and (if the Company is then continuing
as a going concern) on the assumption that all the Shares were ordinary shares
of the same class and that the Company will continue in business as a going
concern and having regard to any goodwill attaching to the Company though taking
into account of the fact (if that be the case) that the Programme Supply
Agreement and/or Trademark Licence has been terminated;
"Foreign Licence Event": an event having a legal effect analogous to that of a
Licence Event in any of the Territories (other than the United Kingdom);
"Gross Revenues": all income and other payments receivable in the normal course
of business as shown in the audited accounts of the Company from time to time
less any value added tax or other similar taxes;
"Group": in relation to a Shareholder, that Shareholder and any holding company
or subsidiary of that Shareholder and any subsidiary of such holding company;
"Indebtedness for Borrowed Money": any loan, debt, bond, note, loan stock,
debenture or other obligation for borrowed moneys, any obligation under any hire
purchase, conditional sale or title retention agreement or lease (other than for
payment of rent and service charges not exceeding a
5
<PAGE>
commercial rate under any lease of real property), any liability in respect of
any acceptance credit or note or bill discounting facility, any amount of
consideration left outstanding by way of loan or otherwise under any agreement
for the sale or purchase of assets and/or the supply of services (other than
normal trade credit) and any guarantee, indemnity or security in respect of any
of the foregoing, the amount thereof in each case being taken for the purpose of
this Agreement to be (a) the maximum amount capable of being outstanding from
companies in the Playboy/Europe Group whether or not then due or owing from or
advanced to companies in the Playboy/Europe Group at the time of calculation but
(b) to be calculated excluding any amounts owing to other companies in the
Playboy/Europe Group;
"Interest": an interest of any person in Shares, Loan Stock or any other
securities of the Company;
"in the Agreed Proportions": where the term is used in relation to all the
Shareholders in such proportions as equal the percentage which the nominal value
of the Shares for the time being in issue and beneficially owned by each
Shareholder respectively bears to the aggregate nominal value of all the Shares
or, where the term is used in relation to some only of the Shareholders in such
proportions as equal the percentage which the nominal value of the Shares for
the time being in issue and beneficially owned by each relevant Shareholder
bears to the aggregate nominal value of all the Shares held by such relevant
Shareholders;
"in writing": includes any communication made by letter, facsimile transmission
or electronic mail;
"ITC Satellite Licence": the non-domestic satellite service licence in respect
of the Channel dated 7th June 1995 issued to the Company by the ITC in
accordance with the provisions of the Broadcasting Act 1990;
"the ITC": the Independent Television Commission;
6
<PAGE>
"LIBOR": the three month London Interbank Offered Rate for Sterling Deposits, as
published in the Financial Times on the first day of each month or on the next
succeeding day on which the Financial Times is published;
"Licence Event": any of the following events:
(a) the ITC revoking or (in a manner which has or is reasonably likely to have
a material adverse effect on the Company) reducing the period of the ITC
Satellite Licence (and, for the avoidance of doubt, any reduction which
results in the involuntary cessation of business by the Company shall be
deemed to have such an effect); or
(b) the ITC varying the terms of the ITC Satellite Licence which variation has
or is likely to have a material adverse effect on the Company; or
(c) the ITC declining to grant to the Company a renewal licence to provide a
non-domestic satellite service on terms and conditions reasonably
acceptable to the Company upon the expiry of the ITC Satellite Licence; or
(d) a relevant change (as defined in sub-section 5(7) of the Broadcasting Act
1990) taking place in relation to the Company; or
(e) the Company becoming a Disqualified Participant in relation to the holding
of the ITC Satellite Licence by virtue of Schedule 2 to the Broadcasting
Act 1990;
"Loan Stock": unsecured floating rate loan stock of the Company 1999 to be
constituted by a Loan Stock Deed, in the agreed form and/or such other loan
stock whether of the same or a different series as the Company may issue to the
Shareholders from time to time pursuant to this Agreement;
"Loan Stock Certificate": a certificate in respect of Loan Stock in the agreed
form;
7
<PAGE>
"the Option": the options granted to Playboy pursuant to Clause 15;
"the Original Shares": the number of ordinary shares of (Pounds)1 each in the
capital of the Company as have been subscribed for by the Shareholders in
accordance with clauses 3.1(b) and 4.1(b);
"person": any individual, firm, company or other incorporated or unincorporated
body;
"Playboy/Europe Group": the Company and each of its subsidiaries from time to
time;
"plc": Flextech plc;
"Prescribed Price":
(a) in relation to a voluntary Transfer of Shares or Loan Stock in respect of
which a Transfer Notice shall have been served pursuant to Clauses 13.5 or
13.11, the price per Share or, as the case may be, for each (Pounds)1
principal amount of Loan Stock, offered by the Proposed Transferee (as
defined in Clause 13.5.1(a));or
(b) in relation to a Transfer of Shares or Loan Stock in respect of which a
Transfer Notice shall be deemed to have been served pursuant to Clauses 14
or 16.2, such price as the Shareholders may agree per Share and, as the case
may be, for each (Pounds)1 principal amount of Loan Stock, or in default of
agreement within 30 days after the date on which the Transfer Notice is
deemed to be served, following a reference by either of the Shareholders,
such price per Share and, as the case may be, for each (Pounds)1 principal
amount of Loan Stock, as the Referee shall determine to be on the date of
receipt of the relevant Transfer Notice:
(i) in the case of Clause 14.1(a) and (b) and Clause 16.2, Fair Value; and
8
<PAGE>
(ii) in the case of Clause 14.l(c) the Fair Value (for the avoidance
of doubt, taking into account the breach of agreement which has
given rise to the requirement to transfer pursuant to Clause
14.l(c)) less a discount of 10%.
"Programme Service": the supply of television programmes by Playboy pursuant to
the Programme Supply Agreement;
"the Programme Supply Agreement": an agreement in the agreed form between the
Company and Playboy relating to the Programme Service on the Channel;
"Referee": such independent merchant or investment bank with acknowledged
experience of the industry in which the Company operates as the Shareholders may
agree or, in default of agreement within seven business days, as may be
nominated, on the request of either Shareholder, by the President for the time
being of the British Institute of Bankers, who shall be instructed to produce
his certificate within thirty days of this appointment and who shall act as
expert and not as arbitrator and whose certificate shall be final and binding on
the parties hereto, save in the event of manifest error;
"the Satellite": the Astra 1C satellite which is to be used for the transmission
of the Channel or any other satellite which may from time to time be used for
the transmission of the Channel in accordance with this Agreement;
"the Shareholders": Flextech, Sky and Playboy and their permitted transferees
pursuant to Clauses 13, 14, 15 and 17;
"Shares": ordinary shares of (Pounds)1 each in the capital of the Company;
"Sky parent": in clauses 13.5.9(b) and 14.1 British Sky Broadcasting plc and
elsewhere British Sky Broadcasting Limited;
9
<PAGE>
"Subscriber Management Services Agreement": an agreement between Satellite
Encryption Services Limited ("SESL") and the Company relating to the management
of subscriptions to the Channel;
"subsidiary" and "holding company": have the respective meanings attributed to
them by Section 736 of the Act;
"the Taxes Act": the Income and Corporation Taxes Act 1988;
"the Territories": the UK, the Republic of Ireland, Belgium, Luxembourg, the
Netherlands and such other countries and regions in which the Channel has been
launched or in which the Board subject to Clause 19.1 has decided to launch the
Channel and in respect of which any company in the Playboy/Europe Group has a
licence pursuant to the Trademark Licence to operate a pay television service
under the "Playboy" name;
"the Trademark Licence": a licence in the agreed form between the Company and
Playboy Enterprises, Inc. granting to the Company the right to use the name,
logo and trade mark "Playboy" in connection with the Business;
"Transaction Documents": this Agreement, the Articles, the ITC Satellite
Licence, the Trademark Licence, the Programme Supply Agreement, the Subscriber
Management Services Agreement, the Consent Agreement, Deed of Forbearance, the
Transponder Sub-Lease, the Uplink and Encryption Agreement and any Deed of
Adherence which has been executed pursuant to this Agreement, each as it may
subsequently be amended or altered from time to time;
"Transfer": any sale, assignment, transfer, grant of lease or other disposition
of any legal, equitable or other interest or the creation of an Encumbrance;
"Transponder": the Transponder No. 42 on the Satellite, as defined in the
Transponder Sub Lease;
10
<PAGE>
"the Transponder Sub Lease": a sub-lease of specified capacity on the
Transponder to be entered into between the Company and United Artists
Entertainment Corporation and Bravo Classic Movies Limited.
"UK": the United Kingdom of Great Britain and Northern Ireland which
expression shall for the avoidance of doubt continue to include Northern
Ireland notwithstanding that Northern Ireland may at any time hereafter
cease to be part of the UK, the Channel Islands and the Isle of Man.
"the Uplink and Encryption Agreement": an agreement of that name between the
Company, United Artists Entertainment Corporation, Bravo Classic Movies
Limited, United Artists Entertainment (Programming) Limited.
1.2 All references to "the Company" in Clauses 5, 7, 8, 9, 11 and 12 shall
include a reference to each company in the Playboy/Europe Group so that each
provision of such clauses shall, where the context admits, also apply to
each company in the Playboy/Europe Group.
1.3 In this Agreement, references to statutes, statutory instruments and
regulations shall include any statute statutory instruments and regulations
modifying, re-enacting, extending or made pursuant to the same or which is
modified re-enacted or extended by the same or pursuant to which the same is
made.
1.4 A document is in "the agreed form" if it is in the form of a draft agreed
between and initialled by or on behalf of the Shareholders on or before the
date hereof.
1.5 References in this Agreement to Clauses, Sub-Clauses, paragraphs and
Schedules are references to those contained in this Agreement.
1.6 The Schedules to this Agreement are an integral part of this Agreement and
references to this Agreement include references to such Schedules.
11
<PAGE>
1.7 Clause headings are for ease of reference only and shall not be taken into
account in construing this Agreement.
1.8 "day" (except where it is used in the expression "business day") means any
day and "business day" means any day other than a Saturday, Sunday or
public holiday either in England or the United States of America.
2. Business of the Company and Launch of the Channel
2.1 The sole object of the Company shall be to carry on the Business and
businesses ancillary or incidental thereto, and to that end the Board shall
seek to secure such means to distribute the Channel as are, in the Board's
opinion, viable in the context of the Business Plan and the Company's
available resources. The Shareholders shall use their reasonable endeavours
to procure that the Business shall be conducted in accordance with the
Business Plan.
2.2 After Closing the Shareholders and the Company shall do all such things as
are reasonably within their respective powers as Shareholders to ensure
that the Channel is launched in the Territories (other than Republic of
Ireland) for broadcast via cable and DTH operators on or before 1st
November 1995 and in Republic of Ireland after, but not before, the first
anniversary of the launch of the Channel in the Territory and to this end
the Company shall as soon as practicable after Closing apply for any
licences which have not already been obtained and which are necessary to
launch the Channel in the Territories.
2.3 If any product using the brand name Playboy other than the Playboy Magazine
and other Playboy publications ("a Playboy Product") is advertised on the
Channel:
(a) where all the rights to use the brand name in relation to such Playboy
Product vest in any company in the Playboy Group the Company shall
have the right to sell such Playboy Product on the Channel and shall
be entitled to be paid a fee by Playboy (which shall be negotiated and
agreed by Playboy and the Company in good faith)
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which will, unless otherwise agreed be calculated by reference to an
agreed percentage of the gross selling price of sales of such Playboy
Product;
(b) where the rights to use the brand name in relation to a Playboy
Product have been licensed other than to a company in the Playboy
Group, Playboy shall use its reasonable endeavours to procure
advertising of such Playboy Product on the Channel on similar terms to
those set out in relation to (a) above.
2.4 The Company shall not launch, or otherwise make available, the Channel
outside the Territory without all parties unanimous approval.
3. Closing Arrangements
--------------------
3.1 Closing shall take place on the third business day after the signature of
this Agreement when (if such has not already occurred):
(a) the Shareholders shall cause to be passed at a duly convened
Shareholders' meeting of the Company a resolution in the agreed form
to adopt the Articles;
(b) each Shareholder shall subscribe in cash at par for the number of
Shares and principal amount of Loan Stock set opposite its respective
name in Schedule II, provided that Associates of Flextech, Sky and
Playboy may make such Loan Stock subscriptions in substitution for
Flextech, Sky and Playboy respectively;
(c) at a meeting of the Board, the Company shall allot and issue such
Shares and Loan Stock to the Shareholders (or in respect of Loan
Stock, where the provision in paragraph (b) has been utilised, the
relevant Associates of the Shareholders) as so subscribed by them
respectively and shall enter the names of the Shareholders (or, as
appropriate their Associates in the case of Loan Stock) in the
register of members and Loan Stock holders of the Company as
registered holders of such Shares and Loan
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Stock, and shall issue and deliver to the Shareholders (or as
appropriate their Associates in the case of Loan Stock) the requisite
Share and Loan Stock Certificates in the agreed form duly executed
under seal by the Company;
(d) the following officers of the Company shall be appointed:
- Fred Vierra, Roger Luard, Mark Luiz, Leon Unterhalter, Brent
Harman, Steve Brett as Flextech appointed Directors
- David I. Chemerow and Anthony J. Lynn as Playboy appointed
Directors;
- David Chance, Chris MacKenzie and Nick Carrington as Sky
appointed Directors;
- Fred Vierra as first Chairman;
- Mark Luiz as Company Secretary;
- KPMG Peat Marwick as the Company's auditors;
(e) the following Transaction Documents shall be duly executed:
- the Loan Stock Deed
- the Trademark Licence
- the Programme Supply Agreement
- the Consent Agreement
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- the Subscriber Management Services Agreement
- the Forbearance Agreement
- the Transponder Sub-Lease
- the Uplink and Encryption Agreement
the Board shall adopt and approve the Business Plan;
(g) Playboy will deliver a legal opinion addressed to Flextech, Sky and
the Company by Howard Shapiro (General Counsel, Playboy Enterprises,
Inc.) in the agreed form; and
(h) Flextech will deliver a legal opinion addressed to Playboy, Sky and
the Company by Denton Hall in the agreed form;
(i) Sky will deliver a legal opinion addressed to Playboy, Flextech and
the Company by Herbert Smith in the agreed form.
3.2 Any provision in Clause 3.1 to the effect that a Transaction Document
shall be "entered into and completed in accordance with its terms" shall
constitute several obligations on the parties to sign such agreement, and
duly to perform its respective obligations under the clause therein headed
"Completion" or "Closing". Where any party to such a Transaction Document
is not also a party to this Agreement, the Shareholder (if any) of whom
any such party is an Associate shall, to the extent practicable, make
reasonable efforts to procure that such party so signs and performs.
3.3 The payments by the Shareholders under paragraph 3.1(b) shall each be
made for value on the date of Closing by way of bankers' drafts drawn on a
London Town Clearing Bank payable to the Company or by international wire
transfer.
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3.4 No party shall be obliged to complete this Agreement unless all of the
matters referred to in Clause 3.1 are completed or, as appropriate, dealt
with in accordance with that clause.
4. Provision of Finance
4.1 The parties agree that the approved budgeted, working capital, capital
expenditure and other budgeted funding requirements of the companies in the
Playboy/Europe Group as set out in any Business Plan and any other funding
requirements shall be met in the following order of priority:
(a) initially, out of the proceeds of the subscription for Shares and
Loan Stock pursuant to Clause 3.1;
(b) thereafter by the Shareholders (or, in the case of Loan Stock,
Shareholder's Associates) by subscription in the Agreed Proportions at
par for Shares and Loan Stock in the ratio of one Share for every
(Pounds)3 principal amount of Loan Stock (or such other ratio as the
Inland Revenue agrees is suitable for allowing all interest on such
Loan Stock to be tax deductible for UK corporation tax purposes) on
such dates and in such amounts as are set out in Schedule IV or in the
event that the Board considers funding in excess of or earlier than
that specified in Schedule IV is required, on the dates and in such
amounts as may be determined by the Board having given to the
Shareholders 14 days prior written notice thereof up to a maximum
principal aggregate amount (including amounts previously advanced
whether or not for the time being outstanding) of (Pounds)11,500,000;
or
(c) thereafter (subject to Clause 4.7) by borrowings (secured if necessary
by charges over the assets of any company in the Playboy/Europe Group)
from a bank or another financial institution on terms approved
pursuant to Clause 8 provided that the Board
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shall approve any such borrowings which are available on terms in all
respects commercially reasonable and further provided that any
Shareholder (or in the case of Loan Stock its Associate) may
participate in such borrowings on such terms up to such amount
(including all such borrowings) as such Shareholder may decide and if
more than one in the Agreed Proportions;
(d) thereafter (subject to Clause 4.7) by subscription for Shares and/or
Loan Stock by one or more Shareholders (or, in the case of Loan Stock
their Associates) in accordance with Clause 4.5 or any third parties
nominated by a Shareholder.
4.2 If any Shareholder (or its nominated Associate in the case of Loan Stock)
fails to provide funding pursuant to Clause 4.1(b), the other Shareholders
(or their respective Associates) may forthwith (at their own election and
without prejudice to their other rights under this Agreement or the general
law) provide funding by the methods described in Clause 4.5 or subscribe
for new Shares/Loan Stock at par ("the Subscription Price") to meet the
resulting funding requirement deficit, in a ratio of one Share each for
every (Pounds)2 principal amount of Loan Stock (the "Default Shares/Loan
Stock") PROVIDED THAT if the Inland Revenue agrees a debt: equity ratio for
the purposes of Clause 4.1(b) other than 3:1, this 2:1 ratio shall be
adjusted pro rata. Any Loan Stock created pursuant to this clause shall be
designated as a separate series of Loan Stock from any Loan Stock issued
pursuant to Clause 4.1.
4.3 Where any Loan Stock has been issued to a Shareholder or its Associate
pursuant to Clause 4.2 ("Clause 4.2 Loans") as a result of the default by
another Shareholder ("the Defaulter") no outstanding Loan Stock of the
Defaulter (or interest accrued due thereon) subscribed pursuant to Clauses
3.1 and 4.1 may be repaid or demanded for repayment without the other
Shareholders' consent until all Clause 4.2 Loans and any loans of a Funding
Shareholder pursuant to Clause 4.5 (and interest accrued thereon) have been
fully discharged.
4.4 Save as specifically provided in Clause 3.1(b) and 4.l(b), no Shareholder
shall be required to make any funding available to the Company. The maximum
amount of funding which each
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Shareholder is required to make available to the Company pursuant to Clause
3.1(b) and 4.1(b) is as follows:
Flextech - (Pounds) 5,865,000;
Subject to Clause 15, Playboy - (Pounds) 2,185,000
Subject to Clause 15, Sky - (Pounds) 3,450,000
4.5 Subject always to Clause 4.7 (save where funding is being provided pursuant
to clause 4.2), if the Board determines that any company in the
Playboy/Europe Group requires funds in excess of those currently available
to it or them (whether from Shareholders or third parties) any Shareholder
("a Funding Shareholder") wishing to provide (and who commits in writing
within 7 business days of such determination to provide or procure the
provision of) such additional funds shall be entitled to do so. The
method(s) for such additional funding (whether by way of borrowing, or the
issue of loan capital or securities) shall be determined by the Funding
Shareholder(s) or, in the event that more than one Shareholder so commits
(each a "Funding Shareholder") and proposes different methods of providing
additional funds, the Shareholders shall acting in good faith use their
reasonable endeavours to agree the method of funding and the amount of such
funding; failing which it shall be determined by the Funding Shareholder
who holds the largest number of Shares PROVIDED THAT (i) no such method may
provide for any Shareholder being obliged to incur any expenditure or
financial commitment without its prior agreement; (ii) in the event of
competition, unless otherwise agreed by the Funding Shareholders, the
additional funds shall be provided in the Agreed Proportions. In any event,
any opportunity to participate in any funding proposed pursuant to this
clause 4.5 shall be offered first to the Shareholders in the Agreed
Proportions and in the event that the method of funding determined is
proposed to be or to include the subscription for Shares, the opportunity
to provide such funding in the method or methods determined shall again be
offered to each Shareholder in the Agreed Proportions, even if such
Shareholder had not originally proposed to be a Funding Shareholder
pursuant to this clause who shall have seven business days to provide all
(but not part only of) such funding, failing which such Shareholder shall
be deemed to have declined to participate.
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4.6 Subject always to Clause 4.7, for the purpose of implementing any method of
funding approved by the Board pursuant to Clause 4.5 each of the parties
agrees that any provision in this Agreement, the Loan Stock Deed or the
Articles which requires any particular agreement of the parties or any of
them (including for the avoidance of doubt agreement to convert the Loan
Stock into Shares or to subordinate the Loan Stock to any such funding) or
a voting level or quorum or the vote of any class of Shareholder to
increase the Company's authorised capital, to issue any securities or to
create any Indebtedness for Borrowed Money shall not apply and
(notwithstanding any other provision of this Agreement or of the Articles)
the Shares held by any Shareholder(s) providing funds pursuant to Clause
4.2, a non-Defaulter(s) (in the case of clause 4.3) or a Funding
Shareholder(s) (in the case of clause 4.5) shall on any vote carry such
number of votes and entitle the holder(s) to fulfill such quorum
requirements as will enable the necessary resolution(s) to be passed as
required by the non-Defaulter(s) or Funding Shareholder(s) as appropriate.
4.7 Flextech undertakes to Playboy and Sky that it will exercise all voting
rights and other powers of control available to it in relation to the
Company so as to procure (in so far as it is able by the exercise of such
rights) that the Board shall not approve any annual budget or business plan
for the Company or implement any material amendment to or material
departure from any of the same which would require funding to be provided
or procured pursuant to clause 4.1(c) or (d) ("the Additional Funding") if
the Directors appointed by Playboy or Sky pursuant to clause 5.1 do not
approve such Additional Funding and
(a) the proposal and/or the approval of such Additional Funding by the
Directors appointed by Flextech pursuant to clause 5.1 is capricious;
or
(b) the Additional Funding is in excess of what is reasonably required for
the normal commercial operations of the Business for the 12 month
period covered by the then current Business Plan and annual budget
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<PAGE>
provided that this Clause 4.7 shall not apply and the Board shall be
entitled to approve funding without reference to the restrictions contained
in this clause for the purchase in any Year after the second Year (as
determined in accordance with the Programme Supply Agreement) of Acquired
Premium Movies (as defined in the Programme Supply Agreement).
4.8 In the event of any dispute as to whether Flextech has complied with its
undertaking in Clause 4.7, the matter may be referred by any party hereto
within 28 days of any proposal or approval of Additional Funding to an
independent accountant agreed between the parties. The independent
accountant shall act as expert and not as arbitrator; and shall be
instructed to determine the matter within thirty days of such referral.
4.9 If the parties are unable to agree as to the appointment of the independent
accountant pursuant to 4.8 above within 15 days of one party serving notice
on the others calling for such appointment then the independent accountant
shall be appointed on the application of any party to the President for the
time being of the Institute of Chartered Accountants of England and Wales.
4.10 The decision of the independent accountant appointed pursuant to Clauses
4.8 or 4.9 shall be final and binding on the parties hereto, save in the
event of manifest error. The costs of such independent accountant shall be
borne by the party whose position on the proposal for the Additional
Funding least prevails.
5. The Board and Management
5.1 The Board shall comprise not more than eleven Directors. Each Shareholder
shall be entitled to appoint up to such number of Directors as is stated
opposite its name in Schedule V and to remove and replace any such
appointees provided that Flextech shall always be entitled to appoint a
majority of the Directors so long as it holds more than 50% of the Shares.
The right to appoint remove and/or replace a director shall be exercisable
by notice to the Company a copy of which notice shall be given to the
Shareholders not exercising or giving such notice. The Board shall act by
majority vote only.
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5.2 The Chairman shall be one of the Directors appointed by Flextech and shall
not have a second or casting vote at Board or Shareholders' Meetings.
5.3 The appointment of the Chief Executive Officer, the Chief Financial
Officer and the Marketing Manager (if any) of the Company shall be made by
the Board in accordance with clause 8.1.
5.4 The Chief Financial Officer and the Marketing Manager (if any) shall report
directly to the Chief Executive Officer. Any director of the Board shall
have unrestricted direct access to such executives who shall be obliged, as
a term of their respective service agreements, to respond to any enquiries
from, and provide any information and documentation requested by, any such
director.
5.5 Without prejudice to the rights of any such persons under their respective
terms of employment to claim compensation for breach, any Shareholder
beneficially owning (or Shareholders together beneficially owning) more
than 15% of the Shares may terminate the employment of the Chief Executive
Officer, the Marketing Manager (if any) or the Chief Financial Officer.
5.6 Save as otherwise provided or contemplated in this Agreement, the Company
(so far as it is legally able) shall and the Shareholders shall exercise
their powers in relation to the Company so as to ensure that the Company
shall:
(a) convene and hold a formal meeting of the Board at least once in every
period of 4 months;
(b) procure that (save for emergency meetings) not less than fourteen
business days' prior written notice of any meeting of the Board shall
be given to the Directors, that every such notice shall be accompanied
by a written agenda specifying the business of such meeting. Directors
shall be permitted to attend board meetings by telephone;
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<PAGE>
(c) carry on and conduct its business and affairs on a commercial basis,
and in accordance with the Business Plan in force from time to time,
(d) comply with the terms and conditions of the ITC Satellite Licence and
any directions made by the ITC in relation to it and comply with the
provisions of the Broadcasting Act 1990 and any other licences;
(e) observe and duly perform its obligations under each Transaction
Document to which it is a party.
5.7 Subject to clause 8.4 each Shareholder and each Director shall, in its
capacity as Shareholder and/or Director of the Company, be entitled to
vote in connection with the approval by the Company of any agreement,
transaction or arrangement in or to which (as applicable) that Shareholder
(or as appropriate Shareholder appointing such Director), or any of its
Associates, is an interested party and in connection with any revisions or
amendments to, or waiver of any rights under, such agreement, transaction
or arrangement PROVIDED THAT its/his interest therein has been disclosed
beforehand to the Board.
5.8 Upon a Shareholder ceasing to be entitled to appoint a director or
directors of the Company (other than by Transfer of Shares to its
Associate pursuant to Clause 13.2) it shall procure the resignation from
the Board (and from any executive position held with the Company) of some
or all the Directors (as the case may be) it has appointed to the Board
without any claim for damages or compensation for loss of office of any
kind whatsoever.
5.9 No non-executive Director shall be entitled to Directors' fees or to
reimbursement by the Company of travelling or other expenses for attending
meetings of the Board.
5.10 All references to "the Board" in Clause 5 shall include a reference to the
board of directors of each company in the Playboy/Europe Group, so that
each provision therein shall (where the
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<PAGE>
context admits) also apply to the board of directors of each company in the
Playboy/Europe Group.
6. Agreement to Perform
6.1 Each Shareholder shall at all times exercise its respective powers and votes
as shareholder of the Company to ensure that (to the extent that the same is
within such powers and voting rights) the Company will comply with all of
its obligations under each Transaction Document.
6.2 Each Shareholder undertakes with the others generally to use its reasonable
endeavours to promote the Business and the Channel.
7. Information
7.1 The Company shall:
(a) at all times keep true, accurate and up to date books and records of all
the affairs of the Company;
(b) subject to Clause 11, and subject to having received not less than 2
business days' prior notice, make available to the Shareholders and
their duly authorised representatives during working hours on reasonable
notice access to the books, records, accounts, documents and premises of
the Company; and
(c) subject to Clause 11, supply to each Shareholder such information
relating to the Company as it may reasonably require and without
prejudice to the foregoing shall keep the Shareholders fully and
promptly informed as to all material developments regarding the
Company's financial and business affairs and promptly notify the
Shareholders of any significant event (including without limitation any
litigation or
23
<PAGE>
arbitration) the outcome of which will or is likely to materially
affect the Company or its business, finances, assets or affairs.
7.2 Without detracting from the provisions of Clause 7.1, the Company shall at
its own cost prepare and send to the Shareholders and each Director:
(a) within 10 business days from the end of each calendar month unaudited
management accounts of the Company for that month and cumulative
management accounts for the current accounting period up to and
including that month;
(b) within forty five business days from the end of each of its financial
years audited consolidated accounts of the Company (to be prepared,
save as required by law, in accordance with UK Accounting Standards
and certified by the auditors of the Company) and will convene and
hold a meeting of Shareholders within one month thereafter to approve
the same; and
(c) without detracting from the provisions of clause 8.2(a) it shall be
the responsibility of the Chief Executive Officer and the Chief
Financial Officer, in consultation with Mark Luiz or such other
person as may be nominated by Flextech from time to time and such
person as each of Playboy and Sky may nominate from time to time, to
prepare a budget, business plan and marketing plan for each fiscal
year beginning after 31st December 1995 no later than the end of
October in the year prior to the year to which the budget, business
plan and marketing plan relates.
7.3 The Company may at any time serve written notice upon any Shareholder
requiring it to provide the Company with any information, supported by a
declaration or by such other evidence (if any) in support as the Company
may reasonably require, for the purpose of:
24
<PAGE>
(a) complying with any EC or UK merger or competition law or regulations
in relation to the issue or transfer of Shares and/or Loan Stock in
accordance with this Agreement; or
(b) deciding whether a Licence Event has occurred or is likely to occur;
or
(c) deciding whether a Shareholder is, or is likely to become, a
Disqualified Participant
and such Shareholder shall promptly comply with any such notice.
7.4 The Company undertakes to each Shareholder to keep it informed of any
matter of which the Company is aware which may lead to a Licence Event or
to any Shareholder becoming a Disqualified Participant.
7.5 Each Shareholder shall use its reasonable endeavours to ensure that all
data and information which is reasonably required by the ITC or any other
regulatory body having jurisdiction or to ensure compliance with EC or UK
merger or competition law or regulations or with the Broadcasting Act 1990
shall be duly and promptly supplied to that body.
8. Restrictions on the Company's Activities
----------------------------------------
8.1 Save as expressly provided for in any Transaction Document, or in the
initial Business Plan and subject to clause 8.2, so long as a Shareholder
(together with its Associates) is the beneficial owner of not less than 15%
of the Shares (and, additionally in the case of Playboy and its Associates)
so long as Playboy is an Associate of Playboy Enterprises, Inc., and the
Trademark Licence and the Programme Supply Agreement have not been
terminated or are or is under notice of termination, other than by
wrongful termination by the Company and additionally in the case of Sky, so
long as Sky is an Associate of Sky parent the following matters shall
require the prior written approval of such Shareholder and if the above
condition does not apply the following matters shall require the prior
approval of the Board and the Shareholders shall exercise all
25
<PAGE>
voting rights and other powers of control available to them in relation to
the Company so as to ensure (in so far as they are able by the exercise of
such rights) that the Company shall not without such approval:
(a) increase or reduce the authorised or issued share capital of the
Company (other than to permit an issue of shares conducted in
accordance with clause 4 of this Agreement) or consolidate, sub-
divide, purchase, redeem or cancel any of such share capital or alter
any right pertaining to any share or class of shares in such capital
or otherwise re-organise, restructure or reduce the share capital of
the Company;
(b) issue or allot any share or security or grant or create any option or
right to acquire any share or security in the capital of the Company
other than by way of a rights issue offered in accordance with Clause
4 of this Agreement and the Articles;
(c) alter the Company's Memorandum of Association or the Articles;
(d) save where Clause 8.2(i) applies, take or permit the taking of any
action to have the Company wound up PROVIDED THAT nothing in this
clause shall prohibit such action taken upon the recommendation or
decision of the Board (on the advice of the Company's auditors or
legal counsel of not less than six years standing with experience in
such matters) that the Company should cease trading in circumstances
where, if the Company continued to trade, the Directors may, under the
Insolvency Act 1986, be or become personally liable for the debts of
the Company or to make a contribution to the Company's assets;
(e) amend or assign or fail to implement or fail to enforce any
Transaction Document;
(f) enter into a scheme or arrangement, admit in writing its inability to
pay its debts as they fall due, commence negotiations with creditors
or any class thereof with a view to the readjustment or rescheduling
of its indebtedness, make a general assignment for
26
<PAGE>
the benefit of creditors, or save where Clause 8.1(d) applies take
any action for the winding-up, administration, dissolution,
liquidation or reorganisation (other than a solvent reorganisation) of
the Company, or for the adjustment, protection or relief of the
Company or its debts under any law relating to bankruptcy, insolvency
or reorganisation;
(g) enter into, renew, vary, terminate or continue after expiry any
contract which is not on bona fide arm's length terms in all material
respects;
(h) subject to Clauses 5.3 and 5.4, engage or alter the terms of
employment (including salary and benefits) of any person fulfilling
the function of Chief Executive Officer, Chief Financial Officer, or
Marketing Manager (if any);
(i) approve any secure encryption system for the Channel or make any
material change in such system such approval not to be unreasonably
withheld or delayed;
(j) make any material change in the character of the Channel from that set
out in this Agreement and the Programme Supply Agreement;
(k) subject to Clause 16, make any determination as to (i) whether a
Licence Event has been caused or is likely to be caused, (ii) whether
a person is or is likely to become a Disqualified Participant, or
(iii) whether a Transfer Notice has been or is deemed to be given in
accordance with Clause 16 provided that:
(aa) the approval of such Shareholder shall not be required pursuant
to (i) and/or (ii) of this clause once 14 days have elapsed
after a direction or ruling in respect of the matter has been
made by the ITC (unless, during such 14 days, such Shareholder
has, at its own expense, applied to court for a judicial review
or reversal of such direction or ruling and the application has
been successful or is still sub judice the first instance
court); and
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<PAGE>
(bb) in the event that such Shareholder fails to give approval,
either such Shareholder or the Board may by notice in writing to
the other refer the matter to such legal counsel of not less
than six years standing with experience in such matters as shall
be agreed between such Shareholder and the Board (or, in the
event of failure to agree within 7 business days of such notice,
to such legal counsel as above appointed by the President of the
Bar Counsel) who shall be instructed to determine the matter as
soon as reasonably practical, who shall act as expert and not as
arbitrator and whose decision shall be final and binding on such
Shareholder and the Board. The costs of such legal counsel shall
be borne by such Shareholder if their position least prevails.
Otherwise such costs shall be borne by the Company;
(l) Transfer (other than by an Encumbrance) the whole or any material part
of the undertaking, property and/or assets of the Company (or any
interest therein), or contract so to do otherwise than in the ordinary
and proper course of the Business;
(m) consolidate, merge or amalgamate with any other person;
(n) subject to clause 4 create, acquire or dispose of any subsidiary or
otherwise acquire or dispose of any shares, securities or other
interest in any company or business or incorporate or promote any
company or permit any subsidiary to issue or allot any share or
security or grant or create any option or right to acquire any share
or security except to the Company or another wholly owned subsidiary
of the Company;
(o) declare or pay any dividend or other distribution or refrain from
declaring or paying any dividend or other distribution other than in
accordance with Clause 10;
(p) incur, enter into or commit to Indebtedness for Borrowed Money or vary
any terms or conditions of any such Indebtedness other than in
accordance with clause 4;
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<PAGE>
(q) give any guarantee or indemnity or other similar undertaking or
create any Encumbrance over any of the undertaking, property,
assets or uncalled share capital of the Company except to the
extent necessary to obtain Indebtedness to be incurred pursuant to
clause 4 of this agreement;
(r) make any loan or advance other than loans to another company in the
Playboy/Europe Group and normal trade credit and season ticket
loans to employees not exceeding (Pounds)2,500 for all employees;
(s) approve the transmission of the Channel by means of a satellite
other than the Satellite, such approval not to be unreasonably
withheld or delayed;
(t) use (other than in emergencies) any transponder, other than the
Transponder such approval not to be unreasonably withheld or
delayed;
(u) change the hours during which the Channel is broadcast from the
hours of midnight to 4.00 a.m. daily;
(v) permit any change to the standard or quality of the programmes
broadcast on the Channel from the standard and quality required by
"the Programme Specification" contained in the Programme Supply
Agreement.
(w) cease to transmit the Channel by analogue signal or commence to
transmit the Channel by digital signal (such approval in each case
not to be unreasonably withheld or delayed).
8.2 Save as expressly provided for in any Transaction Document, or the Business
Plan any decision relating to any of the following matters and any other
matters of a non-routine nature shall require the prior approval of the
Board alone and the Shareholders shall exercise all voting rights and other
powers of control available to them in relation to the Company so as to
procure (in so
29
<PAGE>
far as they are able by the exercise of such rights) that the Company shall
not without such approval:
(a) approve any annual budget or any business plan for the Company or
implement any amendment to or material departure from any of the
same;
(b) set, amend or waive any of the charges levied by the Company to
subscribers to and/or advertisers on the Channel other than in the
normal course of business;
(c) approve the Company's audited balance sheet or profit and loss
accounts or change the Company's accounting reference date,
accounting policies or auditors;
(d) vary or terminate (other than by effluxion of time) any long term
contract or contract of material importance to the Company;
(e) except in the case of emergency for the protection of the Company's
business or assets institute or defend any litigation, arbitration
or tribunal proceedings (other than normal debt collection in the
ordinary course of business);
(f) take or agree to take any leasehold interest in or licence over any
land;
(g) approve any payment of capital or interest (including capitalised
interest) in respect of the Loan Stock;
(h) enter into any joint venture, partnership, consortium or joint
purchase arrangement;
(i) take or permit the taking of any action to have the Company wound
up if in the first Year (as defined in accordance with the
Programme Supply Agreement) and the immediately succeeding two
Years (the "Relevant Years") the aggregate of the Gross Revenues of
the Company are less than 70% (seventy per cent) of the aggregate
of the
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projected Gross Revenues of the Company as shown in the initial
Business Plan for the Relevant Years provided that in the event
that the Board does take any such action the provisions of Clauses
8.5 - 8.6 shall apply.
8.3 Notwithstanding the provisions of Clause 8.2, if the Board shall not have
approved the annual budget for any company in the Playboy/Europe Group
before the commencement of the financial year to which it relates, the
Company shall continue to carry on the Business for a period of six months
on the basis of the previous year's approved budget in order to give the
Board time in which to agree the annual budget for the financial year in
question.
8.4 The exercise of the Company's rights under the Programme Supply Agreement
(including without limitation its rights in relation to Programme
Scheduling under clause 8 and Termination under clause 10.3) and the
Trademark Agreement shall be exercised by the Company through a majority
of the directors of the Company appointed by Flextech and Sky pursuant to
Clause 5.1 and not otherwise and, so long as Sky parent or any Associate
thereof holds any interest in any shares in SESL, the exercise of the
Company's rights under the Subscriber Management Services Agreement shall
be exercised by the Company through a majority of the directors of the
Company appointed by Flextech and Playboy pursuant to Clause 5.1 and not
otherwise.
8.5 In the event that the Board resolves to take or permit the taking of any
action to have the Company wound up in the circumstances set out in
Clauses 8.1(d) and 8.2(i) ("the Winding Up Resolution"):
(i) the obligations of the Shareholders pursuant to Clause 4 shall
forthwith cease save for obligations which have accrued due prior
to the date of such Winding Up Resolution;
(ii) any Shareholder may serve a notice on the other Shareholder(s) and
the Company at any time within 30 days after the Winding Up
Resolution has been passed, requiring the determination of Fair
Value of the Shares and the Loan Stock;
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(iii) any Shareholder may, within 30 days after such determination has
been made serve a notice ("the Offer Notice") on the
Shareholder(s) offering to acquire all the Shares and Loan Stock
of the other Shareholder(s) at the price (which shall not be less
than 90% of Fair Value determined pursuant to paragraph (ii)) per
Share and per (pounds)1 in nominal value of Loan Stock specified
by the Shareholder in the Offer Notice;
(iv) any Shareholder may within 2 business days of service of an Offer
Notice serve on the Shareholder(s) a notice ("the Counter Offer
Notice") offering to acquire all the Shares and Loan Stock of the
other Shareholder(s) at the price per Share and per (Pounds)1 in
nominal value of Loan Stock specified in the Counter Offer Notice
(being in each case a price which is higher than the price
specified in the Offer Notice). If no Counter Offer Notice is
served within such timescale, the Shareholder serving the Offer
Notice shall prevail;
(v) if a Counter Offer Notice is served the procedure set out in
(iii) above shall continue and may be repeated until such time as
no further Counter Offer Notice is served within 2 business days
from the date of service of the immediately preceding Counter
Offer Notice when the Shareholder serving the last Counter Offer
Notice shall prevail.
8.6 The Shareholder who prevails and the other Shareholders shall be bound
within 14 days of service of the successful Offer Notice or Counter Offer
Notice (as the case may be) to complete the sale and purchase of all the
Shares and Loan Stock in the Company (other than the Shares and the Loan
Stock held by the prevailing Shareholder or any member of such
Shareholder's Group) at the price per Share and per (Pounds)1 in nominal
value of Loan Stock specified in the Offer Notice or Counter Offer Notice
which prevails (as the case may be) and in the event that any of the other
Shareholders fails to do so the Company may receive the purchase money and
the Directors appointed by the successful Shareholder may authorise some
person to execute a transfer as appropriate of the Shares and Loan Stock
in favour of such Shareholder and the Company shall hold the purchase
money in trust for the relevant Shareholder(s).
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9. Name
----
The Company's right to use, or trade under, any name which includes
the word "Playboy" shall be governed by the Trademark Licence.
10. Dividend Policy
---------------
Subject to Clause 8.1 and except as may otherwise be agreed in writing
by the Shareholders, and subject to the provisions of the Act, the
terms of issue of any Loan Stock or other Company indebtedness and the
Company's working capital and other capital requirements all of the
Company's profits from time to time available for distribution shall
be distributed to the Shareholders by way of dividend as soon as
practicable.
11. Confidentiality
---------------
11.1 Each Shareholder shall at all times keep confidential (and shall
procure that its Associates, officers and employees and agents shall
keep confidential) any information which it may have or acquire in
relation to the customers, business, finances, assets or affairs of
the Company or the other Shareholders and their Associates or which,
in consequence of the negotiation or operation of, or the exercise of
rights under, any Transaction Document it may have or acquire in
relation to the customers, business, finance, assets or affairs of the
Company or the other Shareholders or their Associates, save for any
information:
(a) which is publicly available or becomes publicly available through
no act of that Shareholder;
(b) which is disclosed to that Shareholder by a third party which did
not acquire the information under an obligation of
confidentiality;
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(c) which is independently acquired by that Shareholder as the result of
work carried out by an employee to whom no disclosure of such
information had been made; or
(d) which is required to be disclosed by any law (including any order of a
court of competent jurisdiction) or the rules of any stock exchange or
governmental, revenue or other regulatory authority, whether or not
having the force of law.
Provided that nothing in this clause shall prevent any Shareholder or
any Associate of such Shareholder from operating their respective
businesses in the ordinary and normal course.
11.2 The Company shall, and the Company shall procure that each other member of
the Playboy/Europe Group shall observe a similar obligation of confidence
in favour of the Shareholders.
11.3 The provisions of this Clause shall survive any termination of this
Agreement.
11.4 The Shareholders and the Company agree that for the purpose of Clause 8,
the directors shall be entitled to pass any information relating to the
Company, its business or affairs to any Shareholder and neither the
Shareholder nor the Company shall raise any objection to such passing of
information nor allege any breach of any duty of confidence to the Company
as a result of such action.
12. Disclosure
12.1 In recognition of each Shareholder's understanding that the other
Shareholders propose or may in the future propose to invite third parties
to participate as equity or non equity investors or other providers of
finance in or to plc or Flextech or Playboy or Playboy Enterprises, Inc. or
Sky or Sky parent the parties agree that such other Shareholders may
provide to such invitees copies of:
(a) the Transaction Documents;
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(b) any Business Plan;
(c) accounting and other information provided to the Shareholders pursuant
to this Agreement; and
(d) such other information as it would be reasonable in all the
circumstances for a potential investor to require in relation to
the Company and the Business
PROVIDED THAT no Shareholder may include in such copies any information
which is commercially sensitive, disclosure of which could in its
reasonable opinion cause harm to any company in the Playboy/Europe Group,
any Shareholder or any company in its Group AND PROVIDED FURTHER that
before providing such copies the invitee has signed a confidentiality
agreement on terms which follow, at least, those conventionally followed in
the United Kingdom, which agreement shall be expressed to be for the
benefit of all parties to this Agreement and all the companies in the
Playboy/Europe Group. Furthermore, in recognition of the fact that plc, Sky
and Playboy are each subsidiaries of publicly-owned companies, the parties
agree that (subject to the first of the preceding provisos) each
Shareholder and its Associates may provide to institutional investors and
analysts such information concerning the Company as is conventional to
assist such investors in deciding whether to invest or such analysts to
prepare their analyst reports.
12.2 The provisions of this Clause shall survive any termination of this
Agreement.
13. Transfers of Shares and Loan Stock
13.1 No Shares may be Transferred:
(a) at any time if the Transfer is to a Disqualified Participant; or
(b) unless and until the terms of clause 13.4 are complied with.
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13.2 Subject to Clause 13.1 a Shareholder may Transfer all, but not part only,
of its Shares to any of its Associates but on terms that immediately upon
such transferee ceasing to be the transferor's Associate such Shares
shall be transferred to the transferor or another of its Associates.
13.3 Subject to Clause 13.1 and save for a Transfer in accordance with
Clauses 13.2, 14, 15, 16 and 17, each Shareholder undertakes that it will
not at any time Transfer any Shares except in accordance with Clause
13.5.
13.4 If any Shareholder ("the transferor") proposes to Transfer any Shares to
any person ("the transferee") then it shall be a condition precedent to
such Transfer and the registration thereof that the parties to this
Agreement and the transferee shall execute a Deed of Adherence and
deliver a legal opinion in a form, and from legal counsel, reasonably
acceptable to the other Shareholders concerning the issues warranted and
represented by them in Clause 3 of the Deed of Adherence.
13.5.1 Subject to Clauses 13.1 and 13.2 any Shareholder who wishes to sell any
of its Shares (a "Vendor") shall give notice in writing to the Company
and the other Shareholders of such wish (a "Transfer Notice")
identifying:
(a) the person to whom it proposes to sell any of its Shares (the
"Proposed Transferee");
(b) the name of the Proposed Transferee's ultimate parent company and
controlling shareholders, if any;
(c) the Prescribed Price and other terms of the proposed sale and the
extent to which (if any) such price assumes that the Proposed
Transferee shall be entitled to receive all or any dividends or other
distributions accrued due but not paid in respect of the Shares.
The Transfer Notice shall not be effective if it does not contain such
information unless it is a deemed Transfer Notice pursuant to Clause 14.
A Transfer Notice, once given, cannot be
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withdrawn without the consent of all the Shareholders (other than the
Vendor). The Transfer Notice shall constitute the Company the Vendor's
agent for the sale of all, but not some only, of the Shares the subject
of the Transfer Notice ("the Sale Shares") to the other Shareholder(s)
and/or (subject to Clause 13.5.4) any person procured or nominated by the
other Shareholder(s) as it/they may in its/their absolute discretion
determine ("a Nominee") at the Prescribed Price. The Transfer Notice
shall be accompanied by the Vendor's share certificates and duly executed
transfers in blank in respect thereof and (save as hereinafter provided)
may not be withdrawn.
13.5.2 In any case where there is a deemed Transfer Notice and the determination
of the Prescribed Price has been referred to the Referee, the Company
shall as soon as it receives the Referee's certificate serve a certified
copy thereof on the Shareholders. The fees and expenses of the Referee
shall be borne as to one half by the purchaser(s) (if any) and as to the
balance (or the whole if there are no purchasers) by the Vendor of the
Sale Shares.
13.5.3 Within 7 business days of receipt of the Transfer Notice by the Company
or, where a Referee's certificate is required, within 7 business days of
receipt by the Company of the Referee's certificate, the Company shall
give notice in writing to the other Shareholders specifying the number of
Sale Shares and the Prescribed Price therefor and offering the Sale
Shares for sale to the other Shareholders and/or (subject to Clause
13.5.4) a Nominee at the Prescribed Price. Such notice shall be
accompanied by a copy of the Transfer Notice and, if applicable, the
Referee's certificate and shall require the other Shareholders within 14
days of the receipt of the notice:
(a) give notice that it and/or a Nominee is willing to purchase the Sale
Shares at the Prescribed Price; or
(b) (except in the case of a deemed Transfer Notice pursuant to Clause 14
or 16.2) give notice that it consents to the sale of all the Sale
Shares within 28 days thereof to the Proposed Transferee at the
Prescribed Price;
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(c) give notice that it objects to the Transfer to the Proposed
Transferee on the grounds set out in Clause 13.5.9.
In the event that no notice or notices are received within the said
period of 14 days or notice or notices have been given pursuant to Clause
13.5.3(a) but not in respect of all the Sale Shares then such other
Shareholders shall be deemed to have served a notice or notices pursuant
to Clause 13.5.3(b) at the end of such 14 day period.
13.5.4 In the event that a notice or notices are served pursuant to Clause
13.5.3(a) in respect of all of the Sale Shares, the other Shareholder or
Shareholders or a Nominee of any such Shareholder or Shareholders shall
within 28 days thereafter complete the purchase from the Vendor of the
Sale Shares at the Prescribed Price provided that in the event of
competition the Shareholders (and/or their Nominees) shall complete the
purchase of the Sale Shares in the Agreed Proportions save that
notwithstanding the above no purchase pursuant to this clause may be made
by a Nominee of any Shareholder if there remains another Shareholder
willing to purchase those Sale Shares which such Nominee would otherwise
have purchased. The Vendor shall be bound to transfer the Sale Shares
comprised in the notice to the other Shareholders or its/their Nominees
at the Prescribed Price, and if it makes default in so doing the Company
may receive the purchase money and the Directors appointed to the Board
by the other Shareholders may authorise some person to execute a transfer
as appropriate of the Sale Shares in favour of the other Shareholders
and/or their Nominees ("the Shareholder Purchasers") and the Company
shall hold the purchase money in trust for the Vendor. The receipt by the
Company of the purchase money shall be a good discharge to the
Shareholder Purchasers and after its or their name has been entered in
the Company's Register of Members in exercise of the aforesaid power, the
validity of the proceedings shall not be questioned by any person. If
such purchase is not completed (for any reason other than the Vendor's
delay or default) within such period of 28 days, then the certificate and
duly completed transfer of the Sale Shares shall be returned to the
Vendor and consent shall be deemed to have been given pursuant to Clause
13.5.3(b) and the provisions of Clause 13.5.5 shall apply.
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<PAGE>
13.5.5 In the event that a notice is given or deemed to be given by the other
Shareholders pursuant to Clause 13.5.3(b) the Vendor shall, subject to
Clause 13.6, be at liberty to sell all of the Sale Shares at any time
within 28 days after the date of such notice (or, if no actual notice is
given pursuant to Clause 13.5.3, the expiry of the period of 14 days
provided for under Clause 13.5.3) to the Proposed Transferee at the
Prescribed Price and otherwise upon no more favourable terms than those
offered to the other Shareholders and as stated in the Transfer Notice
PROVIDED THAT if prior to completion of the said sale an event has
occurred which, if any Proposed Transferee had been a member of the
Company at the date of the Transfer Notice would have meant that a deemed
Transfer Notice arose under Clause 14 then the identity of the Proposed
Transferee shall need to be re-approved and failing such re-approval, the
Transfer Notice shall be deemed to have been withdrawn by the Vendor and
such sale shall not take place. It shall be a condition precedent of
completion of any such sale that the Proposed Transferee shall deliver to
the Vendor an undertaking that no such event has occurred.
13.5.6 The Board shall refuse to register any Transfer of any Share other than a
Transfer permitted by or under and made in accordance with the provisions
of Clauses 13, 14, 15, 16 or 17, which Transfers the Board shall
register.
13.5.7 All Shares Transferred pursuant to Clause 13.5 shall be transferred as
beneficial owner and free from all Encumbrances together with all rights,
benefits and advantages attached thereto as at the date of the Transfer
Notice or deemed Transfer Notice except the right to any dividend
declared or interest accrued but not paid prior to the date of the
relevant Transfer Notice except where the benefit to the Proposed
Transferee of such payments after the date of the Transfer Notice has
been taken into account in determining the Prescribed Price.
13.5.8 Immediately upon completion of the Transfer of any Shares by any
Shareholder pursuant to the provisions of this Agreement the Vendor shall
procure the resignation of any Director in accordance with clause 5.8.
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<PAGE>
13.5.9 A notice under Clause 13.5.3(c) may only be given where the Proposed
Transferee or its Associate engages in a business which has editorial
control over either:
(a) a men's sophisticate magazine which regularly features nudity;
(b) a film, television or multi-media production company which
regularly produces films or programming that features nudity; or
(c) a television programme service consisting of programming that
regularly features nudity
PROVIDED THAT such notice may not be given where the Shareholder
otherwise entitled to give it consents to the Transfer to the Proposed
Transferee, such consent not to be unreasonably withheld. When deciding
whether or not to give such consent, such Shareholder may take account
of:
(a) the value of its or its Associate's logo, trademark, brands,
image and/or reputation (in the case of Playboy, including its
reputation as a mainstream men's sophisticate publisher and its
unique position as an advertising vehicle for many reputable
businesses);
(b) Playboy's, Sky parent and plc's (and plc's ultimate parent
company, Tele-Communications, Inc's.) position as companies whose
stock is publicly traded.
The parties acknowledge that if the publisher of "Hustler", "Mayfair" or
"Penthouse" magazines or the producer of "Spice", "Adam and Eve" or "The
Adult Channel" television services becomes a Shareholder, the image
and/or reputation of Playboy might be impaired and that it might be
reasonable for Playboy to withhold consent to a Transfer to such an
entity. In the event that a notice is duly given under this Clause the
Vendor shall not be permitted to Transfer its Shares to the Proposed
Transferee.
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13.6 No Transfer shall be permitted pursuant to Clause 13.5.5, or Clause 13.11
read with Clause 13.5.5, by any Shareholder ("the Selling Shareholder")
who together with its Associates holds the beneficial interest in Shares
representing more than 35% of the Shares immediately prior to such
Transfer if after the proposed Transfer the Selling Shareholder and its
Associates would cease to hold the beneficial interest in shares
representing at least 15% of the Shares unless the Selling Shareholder
shall procure that the Proposed Transferee shall irrevocably offer (in
writing) to acquire that proportion of Shares and Loan Stock held by each
of the other Shareholders (and/or their respective Associates) as the
proportion of Shares and Loan Stock which the Selling Shareholder
proposes to Transfer bears to the total number of Shares and Loan Stock
held by the Selling Shareholder and/or its Associates. Such offer shall
be capable of acceptance, and shall be irrevocable, for not less than 14
days after it is given; such offer shall be at the Prescribed Price and
otherwise on substantially no less favourable terms than those offered to
the Selling Shareholder by the Proposed Transferee. If such offer is
accepted, completion of the purchase thereby arising shall take place
simultaneously with the completion of purchase by the Proposed Transferee
from the Selling Shareholder.
13.7 The Shareholders shall together procure that at all times during the
continuation of this Agreement the Board acts in accordance with the
provisions of Clause 13.
13.8 Each Share and Loan Stock Certificate in respect of Shares and Loan Stock
shall have typed on the face thereof the following legend:
"Transfer is subject to restriction as appears on the back".
and on the back the following legend:
"The Shares/Loan Stock represented by this certificate are held and may
only be Transferred by the registered owner subject to the terms of a
Shareholders' Agreement dated [ ] (as amended from time to
time)"
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13.9 The Company undertakes with each Shareholder that it will from time to
time and as necessary undertake, and each Shareholder severally
undertakes with each other Shareholder that it will vote in favour of,
any reorganisation of the Shares or Loan Stock in issue if the Company
is reasonably requested to undertake any such reorganization by any
Shareholder and, in the Company's reasonable opinion, such a
reorganisation is necessary in order to avoid the occurrence of a
Licence Event or a Shareholder becoming a Disqualified Participant,
including, without limitation, the separation of voting and capital and
income rights, the issue of new shares to any Shareholder or to its
Associates and the sub-division or consolidation of Shares or Loan Stock
held by any Shareholder or its Associates (as the case may be) PROVIDED
THAT the Company shall not be requested to undertake any such
reorganisation:
(a) if that reorganisation would or would be likely to, as determined
in accordance with the provisions of clause 16.1, cause a Licence
Event or to make any Shareholder a Disqualified Participant; or
(b) if that reorganisation would or would reasonably be likely, in
the reasonable opinion of the Board (the Board having first
consulted the auditors of the Company and considered any
reasonable representation of any Shareholder), to have a material
adverse effect on the Company or any of the other Shareholders
(c) unless the Shareholder making the said request bears all the
Company's and the other Shareholders' reasonable legal and other
costs and expenses in relation to the reorganisation.
13.10 Each of the Shareholders hereby irrevocably consents for the purposes of
Article 24 of the Articles to a transfer permitted by or made pursuant
to the provisions of Clauses 13, 14, 15, 16 and 17.
13.11 Clauses 13.1 to 13.5 (excluding Clause 13.5.8) shall apply to Transfers
of Loan Stock, mutatis mutandis.
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14. Deemed Transfers of Shares
--------------------------
14.1 (a) If a Shareholder becomes unable to pay its debts within Section 123
of the Insolvency Act 1986 or makes a composition or arrangement
with its creditors or puts a proposal to its creditors for a
voluntary arrangement for a composition or arrangement for a
composition of its debts or a scheme of arrangement or on the
presentation of a petition that it be put into liquidation (which
is not withdrawn or defeated within 28 days) or administration or
passes a resolution putting into voluntary liquidation (other than
for the purposes of amalgamation or reconstruction reasonably
approved by the other Shareholders) or it suffers the appointment
of a provisional liquidator, a receiver, manager or an
administrative receiver or on the occurrence of an event which does
result in the crystallisation of any floating charge over its
business, undertaking, property or assets or any part thereof or is
dissolved or an event occurs which is analogous to any of the above
in any jurisdiction other than the UK in which the relevant
Shareholder is incorporated; or
(b) if Playboy or Sky parent cease to own on a diluted basis at least
10% of the Shares, or plc ceases to own on a diluted basis at least
20% of the Shares; (ownership on a diluted basis shall mean the
"see through" percentage of such shares so that for example where a
company (Company A) owns 50% of the shares in another company
(Company B) and Company B owns 50% of the shares in another company
(Company C), Company A will be deemed to own on a diluted basis 25%
of the shares in Company C provided that in the event that Playboy
exercises any of the Options under Clause 15, whether in whole or
in part, the provisions of this Clause shall on completion of such
exercise, cease to apply either to Playboy, Sky or to Flextech); or
(c) if a Shareholder or any of its Associates shall commit a material
breach of any material provision of this Agreement, or any other
agreement with the Company to which it or any of its Associates is
a party and shall have failed to remedy such
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breach, if capable of remedy, within 30 days after the date of a
notice from the other Shareholders specifying the nature of the breach
and requiring it to be remedied
(such Shareholder (or, in the case of (b) if the event happens to
Playboy Enterprises, Inc., Playboy or if the event happens to plc,
Flextech or if the event happens to Sky parent, Sky) being hereinafter
referred to as "the Affected Party")
then in any such event (without prejudicing or in any way limiting its
other rights) the other Shareholders ("the Non-Affected Party") shall be
entitled (by notice in writing to the others and to the Company given
within 60 days of the later of the date of the event or of the date on
which the Non-Affected Party become aware of the event giving rise to such
rights under this Clause) in their entire discretion to treat the
occurrence of any such event as the deemed service by the Affected Party of
a Transfer Notice pursuant to Clauses 13.5 and Clause 13.11 the provisions
of which shall accordingly apply mutatis mutandis.
14.2 Where any notice is given by the Non-Affected Party pursuant to Clause 14.1
the Non-Affected Party may specify (and the parties shall give effect
thereto) that (notwithstanding any provision of the Articles) until
completion of the Transfer in accordance with Clause 13:
(a) any transfer by an Affected Party of its Shares or Loan Stock ("the
relevant Units") (other than to or at the direction of the Non-
Affected Party) shall be void;
(b) no voting rights shall be exercisable by the Affected Party in
respect of its Shares or Loan Stock;
(c) no further Shares or Loan Stock shall be issued or need be offered
to the Affected Party;
(d) in the event that the notice is served pursuant to Clause 14.1(c) no
interest, dividend or other payment shall be made of any sums due
from the Company on the Affected
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Party's Shares or Loan Stock or any other loans due from the Company
(whether in respect of capital or otherwise) to the Affected Party
but such sums shall be taken into account in determining the
Prescribed Price;
(e) all the Affected Party's rights (but not its obligations) under
Clauses 4, 5, 7 and 8, 13 and 14, shall be suspended during that
period and in the event that the Affected Party is Playboy or any of
its Associates, its rights under Clause 15 of this Agreement shall
lapse.
14.3 The Non-Affected Party may by notice remove or relax such restriction in
whole or in any particular case at any time.
14.4 In case of dispute between the Non-Affected Party in relation to the
provisions of this Clause 14 the decision of the Non-Affected Party holding
together the largest number of Shares and Loan Stock in the Company shall
prevail.
15. The Option
----------
15.1 Sky hereby grants to Playboy (for itself, or in the case that Playboy has
transferred Shares to an Associate in accordance with Clause 13.2, to hold
on trust for such Associate) the option:
(i) at any time during the period ending twenty four months after the
Company commences the provision of the Service (as defined in the
Programme Supply Agreement) for reception within the Territory (the
"Launch Date") to purchase up to such number of the Original Shares
as shall, following the exercise of such option and together with
all other Original Shares held by Playboy or any Associate (as the
case may be) at that time, result in Playboy or the Associate (as
the case may be) holding not more than 29% of the Original Shares
("the First Option"). The consideration payable for the Original
Shares in respect of which the First Option is exercised ("the
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First Option Shares") shall be the aggregate price paid by Sky for
the First Option Shares plus interest thereon at LIBOR + 3% from the
date of payment by Sky therefor up to and including the date of
completion of the First Option pursuant to Clause 15.6.
(ii) if or to the extent that the First Option is not exercised in full,
at any time during the 180 day period commencing on the third
anniversary of the Launch Date to purchase up to such number of
Original Shares as shall represent 10% of the total number of the
Original Shares or such lesser number as shall, following the
exercise of such option and together with all other Original Shares
held by Playboy or an Associate (as the case may be) at that time
including for the avoidance of doubt any Original Shares acquired
pursuant to the First Option), result in Playboy or an Associate (as
the case may be) holding not more than 29% of the Original Shares
("the Second Option"). The consideration payable for the Original
Shares in respect of which the Second Option is exercised ("the
Second Option Shares") shall be:
(a) the Fair Value; or
(b) the aggregate price paid by Sky for the Second Option Shares
plus interest thereon at LIBOR + 3% from the date of payment
by Sky therefor up to and including the date of Completion of
the Second Option pursuant to clause 15.6;
whichever is the greater.
(iii) if or to the extent that the First Option and the Second Option are
not exercised in full and subject to clause 15.2 below, at any time
during the 180 day period commencing on the fifth anniversary of the
Launch Date to purchase such number of Original Shares as shall,
following the exercise of such option and together with all other
Original Shares held by Playboy or an Associate (as the case may be)
at that time,
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(including for the avoidance of doubt any Original Shares acquired
pursuant to the First Option and/or the Second Option), result in
Playboy or an Associate (as the case may be) holding not more than 29%
of the Original Shares ("the Third Option"). The consideration payable
for the Original Shares in respect of which the Third Option is
exercised ("the Third Option Shares") shall be:
(a) the Fair Value; or
(b) the aggregate price paid by Sky for the Third Option Shares plus
interest thereon at LIBOR + 3% from the date of payment by Sky
therefor up to and including the date of Completion of the Third
Option pursuant to clause 15.6;
whichever is the greater.
15.2 In the event that it appears to Playboy and Sky reasonably likely that
(based on available audited accounts of the Company, management accounts
and any annual budgets and projections for future financial years) Playboy
will be entitled to receive the Bonus Licence Fee (as defined in the
Programme Supply Agreement), Sky will on written request from Playboy to
be received on or before the day on which the Third Option would have
expired in accordance with clause 15.1 (iii) above, extend the period
during which the Third Option may be exercised so that the Third Option
may be exercised at any time during the period commencing on the date on
which the Third Option would have expired in accordance with clause
15.1(iii) and ending on 30 days after (i) the Return of Investment Date
(as defined in the Programme Supply Agreement); or (ii) the sixth
anniversary of the Launch Date as defined in the Programme Supply
Agreement, whichever is the earlier. If the Third Option is so exercised,
payment of so much of the consideration for the Third Option Shares as
equals the Board's estimate (based as aforesaid) of the Bonus Licence Fee
or any relevant part thereof may be deferred, until 3 business days after
each payment of the Bonus Licence Fee is made to Playboy so that amounts
received by way of Bonus Licence Fee
47
<PAGE>
may be used to satisfy the consideration payable in respect of the Third
Option Shares, provided that:
(i) the difference between the Bonus Licence Fee and the
consideration payable for the Third Option Shares shall be
payable within 3 business days after the consideration for the
Third Option Shares shall have been determined;
(ii) all payments of Bonus Licence Fee shall, to the extent necessary,
be used to satisfy any consideration for the Third Option Shares
which may be outstanding;
(iii) interest shall be payable on any consideration deferred pursuant
to this clause at LIBOR plus 3% from the third business day after
the date on which the consideration for the Third Option Shares
is established up to and including the date of payment of any
deferred amount pursuant to this clause;
(iv) for the purposes of Clause 15.7, Playboy shall be deemed on each
payment made in respect of the Third Option Shares to have
completed the Third Option in respect of that percentage of the
Original Shares in respect of which the Third Option has been
exercised as equals the percentage which the relevant payment
being made bears to the total consideration payable for the Third
Option Shares; and
(v) all the consideration payable in respect of the Third Option
Shares deferred pursuant to this clause (if not paid or payable
before such date) shall be paid on the second anniversary of the
exercise of the Third Option.
15.3 In calculating interest for the purposes of the above First, Second or
Third Options respectively (and for the purposes of clause 15.5(iii)),
interest shall accrue from day to day on the basis of a 365 day year and
shall be compounded at six monthly intervals.
48
<PAGE>
15.4 Each of the First Option, the Second Option and the Third Option ("the
Options") may be exercised once only during the relevant periods set out
above (time being of the essence as provided in clause 15.2 save in
respect of the Third Option) by Playboy giving to Sky not more than 21
days' nor less than 7 business days' notice ("the Option Exercise Notice")
in writing to expire on or before the last day of the relevant option
period.
15.5 The right to exercise each of the Options shall be conditional on:
(i) Playboy or an Associate (as the case may be) being the beneficial
owner and registered holder of not less than 15% of the Shares
(or not less than 10% provided that Playboy (or an Associate as
the case may be) has not disposed of Shares which have resulted
in neither Playboy's (nor any Associate as the case may be) being
the registered holder of at least 15% of the Shares and Playboy
are not in default under any provisions of Clause 4 of this
Agreement) and Playboy being an Associate of Playboy Enterprises,
Inc. on the date on which the Option is exercised;
(ii) such exercise not resulting in or being reasonably likely to
result in a Licence Event;
(iii) Playboy or its Associates contemporaneously with completion of
the relevant Option subscribing in cash for such principal amount
of new Loan Stock as is equal to that proportion of the Loan
Stock then held by Sky and its Associates as equals the
proportion of Sky's Shares to be purchased under the relevant
Option; such new Loan Stock shall be subscribed for in cash for
the sum of:
(A) the par value thereof; plus
(B) an amount equal to interest on the said proportion of Loan
Stock which is accrued or due but unpaid, calculated from
the date of Sky's or its relevant Associates subscription
for such Loan Stock to the date of completion of the
relevant Option exercise;
49
<PAGE>
(iv) the entire proceeds of the subscription pursuant to paragraph
(iii) being applied on the date of completion of the relevant
Option exerise to redeem the proportion of Sky's Loan Stock
referred to in paragraph (iii) and interest due or accrued due
thereon, for which purposes (and for the purposes of the
calculations to be made under paragraph (iii)(B)) the "first in,
first out" principal shall be applied.
(v) no event having occurred which would mean that a Transfer Notice
has or may (whether or not such Transfer Notice is served) be
served in relation to Playboy or any of its Associates under
clause 14;
(vi) no notice having been served on Playboy to terminate the
Programme Supply Ageement or the Trademark Licence
and for the avoidance of doubt if either (i), (v) or (vi) above are not
satisfied at any time when one or more Options remain available to be
exercised, that Option and any other subsisting Option shall automatically
terminate and be of no further force and effect.
15.6 Completion of the exercise of any of the Options shall take place within 3
business days after the consideration for the relevant Option Shares has
been determined.
15.7 On completion of each of the Options:
(a) Playboy shall pay or procure the payments to:
(i) Sky (or as Sky may direct) of the consideration for the
relevant Option; and
(ii) the Company of the subscription price in respect of the
new Loan Stock to be subscribed pursuant to Clause
15.5 (iii)
50
<PAGE>
(b) the Company shall, out of the proceeds of the payment under paragraph
(a)(ii), redeem the relevant proportion of Sky's Loan Stock pursuant
to Clause 15.5(iv);
(c) Sky shall deliver to Playboy transfers in respect of the relevant
Option Shares duly signed and completed in favour of Playboy together
with the certificate(s) therefor;
(d) Each of the parties shall use their respective reasonable endeavours
to procure that the said transfer shall be registered subject to
(where applicable) being duly stamped and that the certificates be
sealed and issued to Playboy in respect of the relevant Option Shares.
15.8 Any Option Shares shall be sold by Sky as beneficial owner free from all
Encumbrances and together with all rights and benefits attached thereto
on or after the date of the exercise, save that in relation to any
dividend declared and paid in respect of any fiscal year in which the
Option is exercised, Sky and Playboy shall be entitled to that proportion
of the dividend relating to the relevant Option Shares as equals the
proportion of the fiscal year to which the dividend relates during which
they were the holder of the relevant Option Shares and Sky and Playboy
hereby instruct the Company to make any such dividend payments in
accordance with the above provision unless an entitlement to such
proportion has been taken into account in calculating the consideration
for the relevant Option Shares.
15.9 The Option shall be personal to Playboy and shall not be assignable,
either separately or through a Deed of Adherence.
15.10 Nothing in this Clause 15 shall prevent Sky from transferring any of the
Shares the subject of any of the Options in accordance with the provisions
of Clauses 13 or 14 provided that (save where the Transfer is to any of
its Associates pursuant to Clause 13.2):-
(a) in the event that Sky transfers all or any of its Original
Shares, immediately prior to such Transfer, the Options shall
automatically terminate and be of no further force
51
<PAGE>
and effect in relation to those Original Shares and the Original
Shares shall be transferred by Sky free from the Option; or
(b) in the event that after any such Transfer Sky retains Original
Shares in excess of the maximum number of shares the subject of the
Options which are still exercisable, the Options shall continue,
subject to the other provisions of this Clause 15; or
(c) to the extent that after any such Transfer the number of Original
Shares held by Sky is less than the number of Original Shares the
subject of any Options which are still exercisable, the relevant
Option(s) shall be deemed forthwith on such Transfer to relate to
the maximum number of Original Shares then held by Sky.
15.11 For the purposes of Clause 15.1O Sky shall be deemed to dispose first of
its Original Shares and only after it has disposed of shares equal in
number to the number of Original Shares for which it has subscribed shall
it be deemed to dispose of shares which are not Original Shares.
15.12 Notwithstanding any of the preceding provisions of this Clause 15, the
maximum number of Shares which Playboy has the right to purchase under
the Option shall be such number (when added to the other Shares for the
time being held by Playboy and its Associates) as equals 29% of all the
Shares.
16. Selldown
--------
16.1 Where any provision in this Agreement requires a determination of whether
a Licence Event has been caused or has occurred or is likely to be caused
or to occur or whether a person is, or is likely to become, a
Disqualified Participant, that matter shall be determined:
(a) if the ITC shall have made a direction or ruling in respect of the
matter, by the Board in accordance with that direction or ruling;
and
52
<PAGE>
(b) otherwise, in the reasonable opinion of the Board, provided that:
(i) if, in the reasonable opinion of the Board, it is
appropriate in all the circumstances for the Board to
consult the ITC on the matter, the Board shall first
consult the ITC; and
(ii) the Company shall first have served a written notice of
such duration (if any) as the Board shall in its
reasonable discretion think fit on the Shareholder or
Shareholders directly concerned with or affected by the
matter specifying the grounds on which the Board believes
that:
(A) a Licence Event may have been caused or occurred or may be
likely to be caused or occur; or
(B) that a person may be a Disqualified Participant or may be
likely to become a Disqualified Participant
and shall consider any reasonable representation of the
Shareholder(s) concerned.
16.2 Where the Board (following if the Board in its reasonable opinion
considers it is appropriate so to do, consultation with the ITC) shall
determine, in its reasonable opinion and having regard to all the
relevant circumstances, that a Licence Event has been caused or has
occurred or one or more Shareholder(s) has or have become a Disqualified
Participant or Participants or there is a reasonable likelihood that a
Licence Event will occur or be caused or that one or more Shareholders
will become a Disqualified Participant or Participants then the
Shareholders agree that the Company shall be entitled to serve notice ("a
Licence Notice") upon the affected Shareholder(s) requiring it/them
within 90 days (or such other period as may be specified by the ITC) of
service of a Licence Notice to reduce its/their proportionate holding of
the Shares to such maximum percentage shareholding (if any) as may be
fixed pursuant to any decision of the ITC
53
<PAGE>
or, in the absence of any fixed percentage, to such percentage as the
Board may reasonably consider necessary in the circumstances ("the
Reduced Percentage") the difference between the number of Shares in the
Reduced Percentage and the comparable amount of Loan Stock and the total
number of Shares and the Loan Stock held by the Shareholder being the
"Relevant Number". A Licence Notice shall be deemed to constitute a
Transfer Notice served by the affected Shareholder(s) offering to sell
within the said period the Relevant Number of its/their holding of Shares
and Loan Stock pursuant to the provisions of Clause 13.5.1 and (as the
case may be) 13.11 save that (a) the Relevant Number of Shares and Loan
Stock Units shall constitute the Sale Shares and Sale Loan Stock and (b)
the Prescribed Price shall be determined pursuant to paragraph (b)(i) of
the definition of Prescribed Price in Clause 1.1.
16.3 In the event that the provisions of Clause 16.1 or 16.2 apply then, with
effect from the date of the Licence Notice, pending transfer of the
Shares and Loan Stock in question, the affected Shareholder(s) shall to
the extent required by the ITC be disenfranchised and lose any right to
vote or receive dividends or other distributions in respect of the Shares
and Loan Stock in question. Any such dividends or distributions shall
belong to the transferee of any such Shares and Loan Stock and shall be
taken into account in establishing the Prescribed Price. To the extent
operation of this Clause 16.3 would cause any other Shareholder to be in
the position where Clauses 16.1 or 16.2 applied to it then the relevant
percentage of the Shares held by such other Shareholders shall also be so
disenfranchised with effect from the same date, pending the said
Transfer.
16.4 If at any time within six months after completion of a Transfer pursuant
to Clause 16.2 the ITC or other relevant regulatory authority indicates
it has changed its mind or its decision is found to be incorrect then in
consideration of the repayment by the affected Shareholder(s) to the
purchaser(s) thereof of the Prescribed Price paid by such purchaser under
clause 16.2 plus interest thereon at LIBOR + 3% from the date of Transfer
to the date on which such Shares are transferred back pursuant to this
clause the Relevant Number of Shares and Loan Stock Units shall be
transferred back to the affected Shareholder(s) who, together with the
purchaser of such
54
<PAGE>
Shares shall to the extent possible be put in the same position as if
such Transfer had not taken place.
16.5 A Shareholder who reasonably believes that any other Shareholder is or
may, or would or might with the passage of time, be likely to cause a
Licence Event or become a Disqualified Participant shall forthwith notify
the Company and the other Shareholders to that effect, provided that it
has simultaneously so notified the relevant Shareholder, and the relevant
Shareholder shall provide such information to the Company and the other
Shareholders as any of them shall reasonably require.
16.6 The provisions of this Clause 16 shall apply so far as may be applicable
to a Foreign Licence Event as if references in this Clause 16 to the ITC
were deleted and reference to the analogous licensing body in the
relevant territory was substituted in its place.
16.7 The Shareholders shall themselves respectively and shall procure that the
Company shall use its reasonable endeavours to mitigate the effects on a
Disqualified Participant of the provisions of this clause 16 provided
that nothing in this clause shall require the Company or any of the
Shareholders to take any action or omit to take any action which would in
its reasonable opinion be prejudicial to the interest of any company in
the Playboy/Europe Group or to such Shareholders.
17. Compulsory Purchase by Flextech and Sky
---------------------------------------
17.1 In the event that:
(a) the Company terminates the Programme Supply Agreement pursuant to
Clause 10.3(a) of that Agreement or terminates the Trade Mark
Licence other than on grounds of breach by Playboy or any of its
Associates; and
55
<PAGE>
(b) Playboy and/or its Associates within 60 days of such termination
serves a notice on the Company pursuant to clause 13.5.1 in respect
of all its Shares and Loan Stock; and
(c) a purchase of all such Shares and Loan Stock is not completed in
accordance with clauses 13.5.4 or 13.5.5
Flextech and Sky on demand in writing by Playboy undertake to purchase or
procure the purchase of all the Shares and Loan Stock held by Playboy
and/or its Associates at the lower of:
(i) the Prescribed Price (as defined in paragraph (a) of the
definition of Prescribed Price) (if any); and
(ii) the Fair Value
pro rata to the Shares and Loan Stock held by Flextech and
Sky on the date of demand or in such other proportions as
Flextech and Sky shall agree.
("the Compulsory Price")
17.2 The Compulsory Price shall be notified to the Company and each of the
Shareholders as soon as practicable after it has been established.
Completion of the purchase shall take place not later than 14 days after
the Compulsory Price has been notified as set out above.
17.3 The provisions of clause 13.5.8 shall apply to any Transfer pursuant to
this clause 17.
56
<PAGE>
18. Representations and Warranties
------------------------------
Each Shareholder hereunder represents and warrants to the other
Shareholders that:
(a) it, and each of its Associates which is a party to any Transaction
Document, is a company duly incorporated and validly existing in all
respects under the laws of the jurisdiction of its incorporation
with full power and authority to own its assets and to carry on its
business as it is now being conducted and no action has been taken
or threatened (whether by it or any third party) for or with a view
to its or their liquidation, receivership or analogous process;
(b) the execution of any Transaction Document to which it or its
relevant Associate is a party has been validly authorised and the
obligations expressed as being assumed by it (or, as applicable, by
its Associate) under such Transaction Documents constitute its (or,
as applicable, its Associate's) valid, legal and binding obligations
enforceable against it (or, as applicable, its Associate) in
accordance with its terms;
(c) neither the execution and delivery by it or its Associate of any
Transaction Document to which it is a party nor the performance or
observance of any of its or its Associate's obligations thereunder
does or will:
(i) conflict with, or result in any breach or violation of, any
judgement, order or decree, indenture, mortgage, trust deed,
agreement or other instrument, arrangement, obligation or duty
by which it or such Associate is bound; or
(ii) cause any limitation on any of its or its Associate's powers
whatsoever, howsoever imposed, or on the right or ability of
the directors of it or such Associate to exercise such powers,
to be exceeded.
19. Competition
-----------
57
<PAGE>
19.1 If Playboy wishes to launch (alone or with others) a channel which will be
the same as or substantially similar to the Channel in any country in
Europe other than the Territories ("the New Channel") using any of the
assets of the Company, Playboy will negotiate reasonably and in good faith
with Flextech, Sky and the Company with a view to Flextech, Sky and/or the
Company participating in the New Channel. To enable Flextech, Sky and the
Company to consider such launch, Playboy shall provide to Flextech, Sky
and the Company copies of any reports, surveys and other information which
they have obtained or prepared relating to the launch of such New Channel.
Nothing in this Clause shall permit Playboy to launch or operate a New
Channel (other than through a wholly owned subsidiary of the Company)
using any assets of or facilities of the Company or any Company in the
Playboy/Europe Group without the consent of the Company and the Company's
rights under this clause shall be exercised by the Company through a
majority of the directors of the Company appointed by Flextech and Sky and
not otherwise.
19.2 Subject to clauses 11, 12 and 19.1, the Programme Supply Agreement and the
Trademark Licence, the Subscriber Management Services Agreement no
Shareholder or its Associates shall be prohibited or restricted from
participating in other ventures that compete, or do not compete, with the
Business or the businesses of any of the other parties.
20. No Assignment
-------------
The provisions of this Agreement shall be binding on and enure to the
benefit of the successors of each party hereto provided that save as
otherwise provided in this Agreement no party may agree to assign,
transfer, charge or otherwise dispose of or subcontract any of its rights
or obligations hereunder without the prior written consent of the other
parties.
58
<PAGE>
21. Waivers, Remedies Cumulative, Amendments, etc.
---------------------------------------------
21.1 No failure or delay by any of the parties hereto in exercising any right,
power or privilege under this Agreement shall operate as a waiver thereof
nor shall any single or partial exercise by any of the parties hereto of
any right, power or privilege preclude any further exercise thereof or
the exercise of any other right, power or privilege.
21.2 The rights and remedies herein provided are cumulative and not exclusive
of any rights and remedies provided by law.
21.3 No provision of this Agreement may be amended, modified, waived,
discharged or terminated, otherwise than by the express written agreement
of the parties hereto nor may any breach of any provision of this
Agreement be waived or discharged except with the express written consent
of the parties not in breach.
22. Invalidity etc.
---------------
22.1 Should any provision of this Agreement be or become ineffective for
reasons beyond the control of the parties, the parties shall use
reasonable efforts to agree upon a new provision which shall as nearly as
possible have the same commercial effect as the ineffective provision.
22.2 Any provision contained in this Agreement or in any arrangement of which
this Agreement forms part by virtue of which this Agreement or such
arrangement is subject to registration under the Restrictive Trade
Practices Act 1976 shall not come into effect until the business day
following the date on which particulars of this Agreement and of any such
arrangement have been furnished to the Office of Fair Trading (or on such
later date as may be provided for in relation to any such provision) and
the parties hereto agree to furnish such particulars within three months
of the date of this Agreement.
59
<PAGE>
23. No Partnership or Agency
------------------------
Nothing in this Agreement shall be deemed to constitute a partnership
between the parties hereto nor, save as expressly set out herein,
constitute any party the agent of another party for any purpose. In
addition, unless otherwise agreed in writing between the Shareholders,
none of them shall enter into contracts with third parties as agent for
any member of the Playboy/Europe Group or for the other Shareholders or
any member of its Group nor shall any Shareholder describe itself as
agent as aforesaid or in any way hold itself out as being an agent as
aforesaid.
24. Announcements
-------------
Unless specifically otherwise agreed in writing or required by law or by
The Stock Exchange no public announcement shall be made in respect of the
subject matter of any Transaction Document without the prior written
approval of the others as to its form and content.
25. Costs
-----
Each of the parties hereto shall pay its own costs, charges and expenses
connected with the preparation and implementation of this Agreement and
the transactions contemplated by it.
26. Entire Agreement
----------------
This Agreement and the Transaction Documents constitute the entire
agreement and understanding of the parties hereto with respect to the
subject matter hereof and none of the parties hereto has entered into
this Agreement in reliance upon any representation or warranty other than
any such as may be set out herein.
60
<PAGE>
27. Conflict with Articles, etc.
---------------------------
In the event of any conflict between the provisions of this Agreement and
the Articles the provisions of this Agreement shall prevail and the
parties shall exercise all voting and other rights and powers available to
them so as to give effect to the provisions of this Agreement and shall so
far as they are able further if necessary procure any required amendment
to the Articles as may be necessary.
28. Notices
-------
28.1 Any notice or other communication given or made under this Agreement shall
be in writing and, without prejudice the validity of any other method of
service, may be delivered personally or by courier or sent by facsimile
transmission by prepaid recorded delivery letter (airmail if overseas),
addressed as follows:
(a) if to Flextech to:
13 Albermarle Street
London W1X 3HX
Facsimile transmission number (London 171) 499 7533
(b) if to Playboy to:
9242 Beverly Boulevard,
Beverly Hills,
California 90210
Facsimile transmission number: (Beverly Hills 310) 246 4065
(Attention President)
with a copy to
Playboy Enterprises, Inc,
680 North Lake Shore Drive,
Chicago,
Illinois 60611
Facsimile transmission number: (Chicago 312) 266 2042 (Attention
General Counsel)
6l
<PAGE>
(c) if to Sky to
6 Centaurs Business Park
Grant Way
Isleworth
Middlesex TW7 5QD
(d) if to the Company to:
Twyman House
16 Bonny Street,
London
NW1 NPG
Facsimile transmission number: (London 171) 911 0145
with a copy to the other parties, other than the party giving
the notice
or to such other address, or facsimile transmission number as the
relevant addressee may hereafter by notice hereunder substitute.
28.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission one
business day after transmission.
29. Governing Law
-------------
This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the
exclusive jurisdiction of the English Courts as regards any claim or
matter arising in relation to this Agreement.
IN WITNESS whereof this Agreement has been duly executed.
62
<PAGE>
SCHEDULE I
PARTICULARS OF THE COMPANY
Date of Incorporation: 9th December 1994
Place of registration: England and Wales
Company Registration Number: 3,000,033
Authorised Share Capital: (Pounds)11,000,000
Accounting Reference Date: 31st December
Directors: Roger Luard
Fred Vierra
Mark Luiz
David I. Chemerow
Anthony J. Lynn
Name and address of Secretary: Mark Luiz
Name of Auditors: KPMG Peat Marwick
63
<PAGE>
SCHEDULE II
DETAILS OF SUBSCRIPTIONS BY SHAREHOLDERS AT CLOSING
<TABLE>
<CAPTION>
Shareholders Loan Stock Total Subscription
Names Ordinary Shares (Pounds) Price (Pounds)
- ------------ --------------- ----------------- ------------------
<S> <C> <C> <C>
Flextech 340,552 1,021,658 1,363,210
Playboy 126,872 380,618 507,490
Sky 200,325 600,975 801,300
--------------- ----------------- -----------------
(Pounds)667,749 (Pounds)2,003,251 (Pounds)2,671,000
</TABLE>
64
<PAGE>
SCHEDULE III
DEED OF ADHERENCE
THIS DEED is made this ____ day of 199__
BETWEEN:
(1) [Name of transferee] ("the New Shareholder") registered in [ ]
under number [ ] whose registered office is at [ ];
and
(2) [ INSERT DETAILS OF SHAREHOLDER [X] ]; and
(3) [ INSERT DETAILS OF SHAREHOLDER [Y] ]; and
(4) [ ] ("the Company") registered in England under number
[ ] and having its registered office at [ ]; and
[Any other person becoming bound by the Shareholders' Agreement];
WHEREAS:
By virtue of the Transfer referred to in the Schedule to this Deed the New
Shareholder became entitled subject, inter alia, to the execution of this Deed,
to the Shares in the capital of the Company set out in the Schedule hereto.
NOW THIS DEED WITNESSES as follows:
1. In this Deed and the Recitals hereto:
65
<PAGE>
(a) "the Shareholders' Agreement": means the agreement dated [ ]
and made between
(b) terms and expression defined in the Shareholders' Agreement shall have
the same meaning when used herein or in the Recital hereto, unless the
context requires or admits otherwise
2. In consideration of the sum of (Pounds) 1 now paid by the Company (on behalf
of itself and each other party hereto) to the New Shareholder, receipt
whereof is hereby acknowledged, the New Shareholder hereby covenants with
and undertakes to each other party to this Deed and to the Company as
trustee for all other parties who hereafter become bound by the
Shareholders' Agreement pursuant to a deed in a similar form to this Deed,
entered into pursuant to the Shareholders' Agreement, to adhere to and be
bound by the provisions of the Shareholders' Agreement as if the New
Shareholder had been an original party to the Shareholders' Agreement.
3. [INSERT WARRANTIES BY ALL PARTIES SIMILAR TO CLAUSE [18] TO THE
SHAREHOLDERS' AGREEMENT].
4. Subject to the provisions of Clause 2 of this Deed, and the Shareholders
Agreement the Company and the Shareholders hereby release the transferor
from its obligations under the Shareholders' Agreement.
5. The provisions of this document (other than those contained in this clause)
shall not have any effect until this document has been dated.
IN WITNESS whereof this Deed has been duly executed.
66
<PAGE>
SCHEDULE
--------
Transferor Transferee Price
---------- ---------- -----
67
<PAGE>
SCHEDULE IV
FUNDING
Quarterly cash due date requirement
<TABLE>
<S> <C>
lst July l995 (Pounds)753,000
1st October l995 (Pounds)1,918,000
1st January 1996 (Pounds)1,352,000
lst April l996 (Pounds)1,420,000
lst July 1996 (Pounds)945,000
1st October l996 (Pounds)1,010,000
lst January 1997 (Pounds)672,000
lst April l997 (Pounds)628,000
lst July 1997 (Pounds)107,000
1st October l997 (Pounds)145,000
lst January 1998 --
lst April l998 (Pounds)80,000
lst July 1998 (Pounds)2,468,000
(contingency)
</TABLE>
68
<PAGE>
SCHEDULE V
BOARD OF DIRECTORS COMPOSITION
<TABLE>
<CAPTION>
Percentage
Ownership of Number of
Shares Directors
------------ ---------
<S> <C> <C>
Flextech 50.1%(Plus) 6
Playboy 0-9.9 0
10-27.9 2
27.9(Plus) 3
Sky 0.-9.9 0
10-27.9 2
27.9(Plus) 3
</TABLE>
69
<PAGE>
SIGNED by )
for and on behalf of ) /s/ Roger Luard
CONTINENTAL SHELF 16 LIMITED )
in the presence of: )
Janine F. Butler
SECRETARY
FLEXTECH PLC
13 ALBEMARLE ST
LONDON W1X 3HA
SIGNED by )
for and on behalf of PLAYBOY ) /s/ Anthony J. Lynn
ENTERTAINMENT GROUP, INC. in )
the presence of: )
Myron DuBow
SR. V.P.
PLAYBOY ENT. GROUP
SIGNED by )
for and on behalf of ) /s/ David Chance
PRECIS (1378) LIMITED )
in the presence of: )
/s/ Fleur Howard
----------------
Fleur Howard
Solicitor
British Sky Broadcasting Limited, London
SIGNED by )
for and on behalf of ) /s/ Roger Luard
PLAYBOY TV UK/BENELUX )
LIMITED in the presence )
of: )
Janine F. Butler
SECRETARY
FLEXTECH PLC
13 ALBEMARLE ST
LONDON W1X 3HA
70
<PAGE>
DATED 2nd February 1996
-----------------------
(1) PLAYBOY ENTERPRISES, INC
(2) PLAYBOY TV UK/BENELUX LIMITED
-----------------------------------------
TRADE MARK LICENCE
-----------------------------------------
EXECUTED AGREEMENT
DENTON HALL
FIVE CHANCERY LANE
CLIFFORD'S INN
LONDON EC4A 1BU
TELEPHONE 0171 242 1212 FAX 0171 404 0087
MEMBER OF THE DENTON INTERNATIONAL
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
Page No.
--------
<S> <C>
1. Interpretation 1
2. Licence 3
3. Quality Control 6
4. Use of the Trade Marks 6
5. Ownership of the Trade Marks 7
6. Infringements 8
7. Indemnity by Licensee 9
8. Termination 10
9. Post Termination 11
10. No Assignment 11
11. Force Majeure 11
12. Invalidity etc 12
13. Waivers, Remedies Cumulative, Amendments, etc. 12
14. Costs 12
15. Notices etc 13
16. Governing Law 14
</TABLE>
Schedule - Part 1 - Registered Trade Marks
Part 2 - Unregistered Trade Marks
<PAGE>
THIS DEED is made the 2nd day of February 1996 but made effective from 1st
November 1995
BETWEEN:
(1) PLAYBOY ENTERPRISES, INC of 680 North Lake Shore Drive Chicago Illinois
60611 United States of America ("the Licensor"); and
(2) PLAYBOY TV UK/BENELUX LIMITED ("the Licensee") registered in England with
number 3000033 whose address is Twyman House, 16 Bonny Street, London NW1
9PG.
WHEREAS:
Pursuant to the Shareholders' Agreement and the Programme Supply Agreement, the
Licensor, who is the proprietor of the Playboy trade marks, wishes to permit the
Licensee to use the Playboy trade marks in relation to a cable and satellite
delivered television service and programmes transmitted in such service on the
terms of this Deed
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
1.1 In this Deed (including the Recital hereto) the following words and
expressions shall have the following meanings:
"Flextech": Continental Shelf 16 Limited, a company registered in England
and Wales under no. 3005499;
"Permitted Licensee": any person who may be appointed by the Licensee to
market, promote, sell, distribute or manage subscribers to the Service in
any country within the Territory;
"PROGAMME": any television programme which is, or is scheduled to be,
broadcast or transmitted in the Service;
"the Programme Supply Agreement": the programme supply agreement of even
date herewith which is to be entered into between Playboy Entertainment
Group, Inc. and the Licensee;
<PAGE>
"Promotional Material": any audio-visual, visual and/or audio material which is
intended to promote the Service or the transmission of particular Programmes in
the Service including but not limited to channel generic promotions, programme
strand generic promotions and programme specific promotions;
"the Service": the television programme service which is to be provided for
reception within the Territory by the Licensee in accordance with the
Shareholders' Agreement;
"the Shareholders' Agreement": an agreement of even date herewith between
Flextech, Playboy Entertainment Group, Inc., Sky and the Licensee relating to
the Licensee;
"Sky": Precis (1378) Limited, a company registered in England under no. 3092549
whose address is 6 Centaurs Business Park, Grant Way, Isleworth, Middlesex TW7
5QD;
"Television Service": any television service or channel (other than the Service)
which is broadcast, distributed or transmitted by any means (including but not
limited to all forms of terrestrial, satellite and cable television
transmission, broadcast and delivery) whether now known or hereafter invented
and is capable of being received in any country within the Territory (whether or
not that service or channel is primarily intended for reception outside the
Territory);
"the Territory": the United Kingdom of Great Britain and Northern Ireland
(irrespective of whether Northern Ireland remains part of the United Kingdom),
the Republic of Ireland, Belgium, Luxembourg, The Netherlands and any other
country or countries in Europe to which the scope of this Deed is extended in
accordance with Clause 2.2;
"the Trade Marks": the registered trade marks and any service marks listed in
Part 1 of the Schedule, the unregistered trade marks and service marks listed in
Part 2 of the Schedule together with any registered or unregistered trade marks
of the Licensor substantially similar to those listed in the Schedule in any
country to which the scope of the licence granted under Clause 2.1 is extended
pursuant to Clause 2.2;
"Transmission Period": shall have the meaning ascribed to it in the Programme
Supply Agreement.
2
<PAGE>
1.2 In this Deed all words defined in the Shareholders Agreement shall when
used herein, save where otherwise expressly provided, bear the same meaning
as in the Shareholders Agreement.
1.3 References in this Deed to statutes, bye-laws, regulations and delegated
legislation shall include any statute, bye-law, regulation or delegated
legislation in force at the date hereof whether before or after the date
hereof modifying, reenacting, extending or made pursuant to the same or
which is modified, re-enacted or extended by the same or pursuant to which
the same is made.
1.4 Clause headings in this Deed are for ease of reference only and shall not
be taken into account in construing this Deed.
1.5 References in this Deed to Clauses, sub-clauses, paragraphs and Schedules
are references to those contained in this Deed.
1.6 The Schedules to this Deed are an integral part of this Deed and reference
to this Deed includes reference thereto.
2. Licence
2.1 In consideration of the Licensee hereby agreeing to pay to the Licensor the
sum of One Pound ((Pounds) 1) upon signature hereof (receipt of which is
hereby acknowledged) and to enter into the Programme Supply Agreement
immediately following the signature of this Deed, the Licensor grants to
the Licensee, on the terms set out in this Deed, an exclusive licence to
use the Trade Marks in the Territory in relation to the broadcast,
transmission and distribution of Programmes and Promotional Material in or
as part of the Service and in relation to the promotion and marketing of
the Service and of the Programmes in any medium or media whatsoever.
2.2 If at any time during the term of this Deed and in accordance with Clause
2.6 of the Shareholders Agreement the Licensee or any subsidiary (within
the meaning of Section 736 of the Companies Act 1985) of the Licensee
launches its television programme service in any country in Europe which
prior to such launch is not within the Territory, then with the prior
written consent of the Licensor:
(a) the license granted under sub-clause 2.1 shall automatically be
extended to that country;
3
<PAGE>
(b) all references to the Territory in this Deed shall thereafter be
deemed to include that country; and
(c) the list of trade marks set out in the Schedule shall thereafter be
deemed to include all registered or unregistered trade marks in that
country the same or substantially similar to those listed in the
Schedule.
2.3 The Licensee shall be entitled to grant sub-licences to any Permitted
Licensee of such of the rights granted under sub-clause 2.1 in respect of
any country in the Territory as may be necessary for the marketing,
promotion, sale or distribution of or management of subscribers to the
Service in that country provided that:
(a) any sub-licence contains obligations on the Permitted Licensee
relating to the use and protection of the Trade Marks at least
equivalent to the obligations of the Licensee under this Deed;
(b) the Licensee informs the Licensor within one month of the execution of
each sub-licence that it has been signed;
(c) the Licensee remains responsible for all acts and omissions of each
Permitted Licensee as though they were by the Licensee;
(d) on termination of this Deed for whatever reason any sub-licence shall,
at the option of the Licensor, either be assigned to the Licensor or
terminated by the Licensee.
2.4 The licence granted under sub-clause 2.1 shall continue in force until any
termination of this Deed in accordance with the provisions of Clause 8.
2.5 The Licensee undertakes that during the term of this Deed it will not
provide a television programme service using the Trade Marks which is
intended for and capable of general reception outside the Territory
PROVIDED THAT the Licensee shall not be in breach of this Clause if the
Service is received outside the Territory so long as the Service is
transmitted in encrypted form and decoders designed to receive and decode
such encrypted transmissions are not made available to the general public
outside the Territory by or with the authority of the Licensee.
4
<PAGE>
2.6 The Licensor undertakes that during the term of this Deed it will not
itself use or permit any other person to use the Trade Marks or any
confusingly similar designation within the Territory in relation to any
Television Service or any programmes or other items of any description
included in any Television Service provided that use of the Trade Marks or
any confusingly similar designation in relation to any Television Service,
or any programmes or other items of any description included in any
Television Service, which is intended solely for reception in any country
or countries outside the Territory but which is also received in a country
or countries within the Territory shall not constitute a breach of this
clause so long as that Television Service was transmitted in encrypted form
and decoders designed to receive and decode such encrypted transmissions
are not made available to the general public within the Territory by or
with the authority of the Licensor or any other licensee of any of the
Trade Marks.
2.7 During the term of this Deed, any or all of the following shall not be used
on or in connection with the Service without the Licensor's prior written
consent:
(a) permutations of any or all of the Trade Marks;
(b) secondary marks derived from any of the Trade Marks; or
(c) new words, devices, designs, slogans or symbols derived from any of
the Trade Marks.
Upon such authorisation by the Licensor and use by the Licensee, each such
permutation, secondary mark, word, device, design, slogan and symbol
derived from any of the Trade Marks shall be the property of the Licensor
and shall be included as one of the Trade Marks subject to this Deed.
2.8 In the event that at any time during the term of this Deed the Licensee
creates or develops any advertising, promotion, packaging or trade dress
which is unique to the Service (collectively "Service Packaging"), it shall
be and remain the property of the Licensee. Accordingly, the Licensee shall
be free to use such Service Packaging throughout the world (excluding the
United States of America) but the Licensee shall within thirty (30) days
after the date of this Deed enter into a royalty-free licence with Flextech
and Sky and with the Licensor entitling each of them to use such Service
Packaging in perpetuity and throughout the world excluding the Territory
and further excluding (in the case of the licences granted to Flextech and
Sky) the United States of America.
5
<PAGE>
3. Quality Control
All Programmes transmitted in the Service by the Licensee under or by
reference to the Trade Marks shall comply with the Programme Specification
(as defined in the Programme Supply Agreement).
4. Use of the Trade Marks
4.1 The Licensee shall use the Trade Marks in the form stipulated by the
Licensor and shall include such trademark and copyright notices as the
Licensor may request and as are necessary for the protection of the
Licensor's ownership of the Trade Marks. The Licensee shall also observe
any reasonable directions given by the Licensor as to colours and size of
the representations of the Trade Marks and their manner and disposition in
connection with the Programmes, the Promotional Material and the Service.
Save as expressly set out in sub-clause 2.8, any additional goodwill which
may attach to the Trade Marks and which arises out of the Licensee's use of
the Trade Marks under this Deed will inure solely to the benefit of the
Licensor. Save as expressly set out in sub-clauses 2.1, 2.2 and 2.8 the
Licensee has not acquired and will not acquire any proprietary rights in
the Trade Marks by reason of this Deed.
4.2 The use of the Trade Marks by the Licensee shall at all times be in keeping
with and seek to maintain their distinctiveness and reputation as
determined by the Licensor.
4.3 Licensee hereby acknowledges that the trade names "Playboy" and "Playmate"
and the Trade Marks are the sole and exclusive property of the Licensor.
Licensee shall have the right to develop and distribute advertising,
publicity and promotional materials relating to the Programmes, provided,
however, that any such materials (other than material obtained directly
from Licensor) shall:
(a) clearly identify the Trade Marks with a legible credit line with the
wording "Playboy" (or the "Rabbit Head Design" or "The Playboy
Channel" or "Playboy at Night" or "Playboy Television" or "Playmate",
as the case may be) is the mark of and used with the permission of
Playboy Enterprises Inc." or such other words as Licensor may
designate not later than 60 days prior to the first transmission of
the relevant Programme(s) in the Service; and
6.
<PAGE>
(b) in no event may any advertising, publicity or promotional material
using the names of Licensor or any person appearing in a Playboy
Programme (as defined in the Programme Supply Agreement) be used to
constitute an endorsement, express or implied of any party, sponsor,
product or service (other than the Service).
Other than as expressly set forth in this Deed, Licensee shall make no use
of the Trade Marks or any confusingly similar designation without the prior
express written consent of Licensor in each instance. Licensee shall also
make no use whatsoever of any other trademark, trade name or service mark
that is the property of Licensor without the prior express written consent
of Licensor in each instance. Licensee similarly agrees that it will not
authorise or purport to authorise any third party to make any such use
except as set out in Clause 2.3, and it will expressly provide in any
applicable third party agreements that such third parties will only be
entitled to use such names and marks on material supplied to them by
Licensee in accordance with Licensee's rights hereunder.
4.4 Licensee may publicise and advertise telecasts of the Programmes or (unless
it is notified to the contrary prior to delivery of the relevant
Programmes(s) in accordance with the Programme Supply Agreement) any person
appearing therein in the Territory.
5. Ownership of the Trade Marks
5.1 The Licensor warrants that it is the proprietor of the Trade Marks and that
it is not aware that any of the Trade Marks or the use of any of them on or
in relation to Programmes or Promotional Material or the Service in the
Territory infringes or will infringe the rights of any third party.
5.2 The Licensor shall pay all renewal fees necessary to maintain the
registrations of the registered Trade Marks on the Register of Trade Marks
("the Register") during the term of this Deed.
5.3 The Licensee will on request give to the Licensor or its authorised
representative any information as to its use of the Trade Marks which the
Licensor may require and will during the term of this Deed render any
assistance reasonably required by the Licensor at the Licensor's cost in
maintaining the registrations of the registered Trade Marks.
5.4 The Licensee will not make any representation or do any act which may be
taken to indicate that it has any right title or interest in or to the
ownership or use of any of the Trade Marks except
7.
<PAGE>
under the terms of this Deed, and acknowledges that nothing contained in
this Deed shall give the Licensee any right, title or interest in or to the
Trade Marks save as granted hereby
5.5 Each party shall at its own expense, if required by the other, do all such
acts and execute all such documents as may be necessary to confirm the
licence granted hereunder in respect of any of the Trade Marks and to
record the Licensee as a registered user of the registered Trade Marks on
the trade marks register in any country within the Territory (including
such of the applications as mature into registrations during the term of
this Deed). The Licensee hereby agrees that any such entry on any trade
mark register may be cancelled by the Licensor on termination of this Deed,
for whatever reason, and that it will assist the Licensor so far as may be
necessary to achieve such cancellation including by executing any necessary
documents.
5.6 The Licensor shall indemnify the Licensee against all costs, damages,
liabilities, fees and expenses which it may suffer or incur and all claims,
actions and proceedings which may be made or brought against it, by any
person claiming that use of the Trade Marks by the Licensee in accordance
with this Deed infringes the rights of such person. The Licensee will
notify the Licensor of any such claims promptly and allow the Licensor to
control the defence thereof PROVIDED THAT, where the Licensee reasonably
considers that it may be adversely or materially prejudiced thereby, the
Licensee may elect to continue to be separately represented in the defence
thereof and (if the Licensee shall so elect) no such claim, action or
proceedings may be settled by the Licensor without the prior written
consent of the Licensee. The Licensee will also provide any assistance
reasonably requested by the Licensor at the Licensor's expense.
6. Infringements
6.1 Each party shall as soon as it becomes aware thereof give the other written
particulars of any use or proposed use by any other person, firm or company
of a trade name, trade mark or get-up or mode of promotion or advertising
which amounts or might amount either to infringement in the Territory of
the Licensor's registered rights in relation to the Trade Marks or to
passing-off.
6.2 Each party shall, as soon as it becomes aware that any other person, firm
or company alleges that the Trade Marks are invalid within the Territory or
that use of the Trade Marks infringes any rights of another party or that
the Trade Marks are otherwise attacked or open to attack within the
Territory, give the other written particulars.
8
<PAGE>
6.3 The Licensee will at the request of the Licensor give full co-operation to
the Licensor in any action, claim or proceedings brought or threatened in
respect of the Trade Marks within the Territory and the Licensor shall meet
any reasonable expenses incurred by the Licensee in giving such assistance.
6.4 The Licensor shall in the first instance have the conduct of all
proceedings relating to the Trade Marks and shall in its sole discretion
decide what action (if any) to take in respect of any infringement or
alleged infringement of the Trade Marks within the Territory or passing-
off or any other claim or counter-claim brought or threatened in respect of
the use or registration of the Trade Marks within the Territory.
6.5 If the Licensor does not take any action to protect the Trade Marks under
the provisions of Clause 6.4 within two months of the circumstances giving
rise to the need for such action coming to the attention of the Licensor
(or earlier if the Licensor indicates that it does not intend to take such
action) and if the Licensee receives advice from experienced trade mark
counsel that proceedings could stand a reasonable chance of success, the
Licensee shall, provided it has consulted with the Licensor as to the
bringing of proceedings, have the option to commence proceedings at its own
cost relating to the Trade Marks to which the Licensor shall lend its name
and reasonable assistance subject to the Licensee reimbursing the Licensor
for all costs and expenses that the Licensor may reasonably incur and any
award of costs against it. All sums recovered by any such action
representing damages suffered by the Licensee or unreimbursed costs of the
Licensee shall belong to the Licensee.
6.6 The provisions of sub-clauses 6.1 - 6.5 inclusive shall also apply in
relation to any registered or unregistered trade mark of the Licensor
within the Territory which are substantially similar to the Trade Marks.
7. Indemnity by Licensee
The Licensee shall indemnify the Licensor against all costs, damages,
liabilities, fees and expenses which it may suffer or incur and all claims,
actions and proceedings which may be made or brought against it as a result
of any breach by the Licensee of the provisions of this Deed. The Licensor
will notify the Licensee of any such claims promptly and allow the Licensee
to control the defence thereof PROVIDED THAT, where the Licensor reasonably
considers that it may be adversely or materially prejudiced thereby, the
Licensor may elect to continue to be separately
9
<PAGE>
represented in the defense thereof and (if the Licensor shall so elect) no
such claim, action or proceedings may be settled by the Licensee without
the prior written consent of the Licensor.
8. Termination
8.1 Either party may without prejudice to its other remedies terminate this
Deed forthwith by notice in writing to the other on or after the occurrence
of any of the following:
(a) the persistent commission of material breaches of this Deed by the
other party which are not capable of remedy; or
(b) the commission of a material breach of this Deed by the other party
which is capable of remedy (a "remediable breach") which shall not
have been remedied within a period of one month after the party in
breach has been given notice in writing specifying that remediable
breach and requiring it to be remedied PROVIDED ALWAYS THAT the notice
of termination may not be given if that remediable breach is incapable
of remedy within that one month period and during that one month
period the party in breach shall diligently endeavour to remedy that
remediable breach; or
(c) a supervisor, receiver, administrator, administrative receiver or
other encumbrancer taking possession of or being appointed over or any
distress, execution or other process being levied or enforced (and not
being discharged within thirty days) upon the whole or any substantial
part of the assets of the other party PROVIDED ALWAYS THAT the
Licensor shall not be entitled to terminate this Deed under this sub-
clause 8.1(c) if Flextech and/or Sky shall notify the Licensor of its
offer to acquire the entire shareholding of Playboy Entertainment
Group, Inc., or any Associate of Playboy Entertainment Group, Inc. in
the Licensee pursuant to Clause 8.5 of the Shareholders' Agreement; or
(d) any event analogous to any of the foregoing occurring in any
jurisdiction in relation to the other party.
8.2 Subject only to clause 9.2, this Deed shall automatically terminate on:
10.
<PAGE>
(a) the date on which any termination of the Programme Supply Agreement by
the Licensee pursuant to Clause 10.2 or 10.3 of the Programme Supply
Agreement takes effect; or
(b) the date on which any termination of the Programme Supply Agreement by
the Licensor pursuant to Clause 10.2 of the Programme Supply Agreement
takes effect.
9. Post Termination
9.1 The termination of this Deed for whatever reason shall not affect any
provision of this Deed which is expressed to survive or operate in the
event of its termination and shall not prejudice or affect the rights of
either party against the other in respect of any breach of this Deed or in
respect of any moneys payable by one party to the other in relation to any
period prior to termination.
9.2 Upon the date on which any termination of this Deed for whatever reason
takes effect ("the Termination Date") the Licensee shall cease to make any
use of the Trade Marks save that in relation to Programmes whose
Transmission Period has not ended prior to the Termination Date the
Licensee shall continue to be entitled to make use of the Trade Marks for
so long as the Licensee continues to be entitled to transmit those
Programmes by virtue of Clause 10.6 of the Programme Supply Agreement.
10. No Assignment
The provisions of this Deed shall be binding on and enure to the benefit of
the successors of each party hereto provided that no party may agree to
assign, transfer, charge or otherwise dispose of or subcontract any of its
rights or obligations hereunder (other than pursuant to sub-clause 2.3)
without the prior written consent of the other party.
11. Force Majeure
Either party shall be excused from performance of its obligations under
this Deed if and to the extent that such performance is hindered or
prevented (directly or indirectly) by reason of any strike, lockout, labour
disturbance, government action, riot, armed conflict, accident,
unavailability or breakdown of normal means of transport, act of God or any
other matter whatsoever beyond the reasonable control of that party (other
than a breach of the provisions of this Deed by the other party).
11.
<PAGE>
12. Invalidity etc.
---------------
12.1 Should any provision of this Deed be or become ineffective for reasons
beyond the control of the parties, the parties shall use reasonable
efforts to agree upon a new provision which shall as nearly as possible
have the same commercial effect as the ineffective provision.
12.2 Any provision contained in this Deed or in any arrangement of which this
Deed forms part by virtue of which this Deed or such arrangement is
subject to registration under the Restrictive Trade Practices Act 1976
shall not come into effect until the day following the date on which
particulars of this Deed and of any such arrangement have been furnished
to the Office of Fair Trading (or on such later date as may be provided
for in relation to any such provision) and the parties hereto agree to
furnish such particulars within three months of the date of this Deed.
13. Waivers, Remedies Cumulative, Amendments, etc.
----------------------------------------------
13.1 No failure or delay by any of the parties hereto in exercising any
right, power or privilege under this Deed shall operate as a waiver
thereof nor shall any single or partial exercise by any of the parties
hereto of any right, power or privilege preclude any further exercise
thereof or the exercise of any other right, power or privilege.
13.2 The rights and remedies herein provided are cumulative and not exclusive
of any rights and remedies provided by law.
13.3 No provision of this Deed may be amended, modified, waived, discharged
or (other than pursuant to Clause 8) terminated, otherwise than by the
express written agreement of the parties hereto nor may any breach of
any provision of this Deed be waived or discharged except with the
express written consent of the party not in breach.
14. Costs
-----
Each of the parties hereto shall pay its own costs, charges and expenses
connected with the preparation and implementation of this Deed and the
transactions contemplated by it, except where otherwise expressly
specified herein.
12
<PAGE>
15. Notices
-------
15.1 Any notice or other communication given or made under this Deed shall be
in writing and, without prejudice to the validity of any other method of
service, may be delivered personally or by courier or sent by facsimile
transmission and by prepaid airmail letter, addressed as follows:
(a) if to the Licensor to:
The General Counsel of the Licensor
680 North Lake Shore Drive
Chicago IL 60611
United States of America
Facsimile transmission number: (0101 312) 266 2042
with a copy to:
The President of Playboy Entertainment, Inc.
9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
Facsimile transmission number: (0101 310) 246 4065
(b) if to the Licensee to:
Twyman House
16 Bonny Street
London NW1 9PG
Facsimile transmission number: (0171) 911 0145
with a copy to both of the following:
The Chief Executive Head of Legal and Business Affairs
Flextech plc Sky
13 Albemarle Street Grant Way
London Isleworth
W1X 3HA Middlesex TW7 5QD
13
<PAGE>
Facsimile transmission number: Facsimile transmission number:
(0171) 499 7553 (0171) 705 3254
or to such other address, or facsimile transmission number as the
relevant addressee may hereafter by notice hereunder substitute.
15.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been
duly served, given or made; or (ii) in the case of delivery, when left
at the relevant address; or (iii) in the case of facsimile transmission
on the first business day in the country of the intended recipient after
the date of transmission.
16. Governing Law
-------------
16.1 This Deed shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the
exclusive jurisdiction of the English Courts as regards any claim or
matter arising in relation to this Deed.
16.2 The Licensor hereby appoints O'Melveny & Myers of 10 Finsbury Square,
London EC2A 1LA, as its authorised agent for the purpose of accepting
service of process for all purposes in connection with this Deed.
IN WITNESS whereof this Deed has been duly executed.
14
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE
--------
Part I
------
Registered Trade Marks
----------------------
Mark Country Reg. No Class Reg. Date Relevant
- ---- ------- ------- ----- --------- --------
Goods/Services
--------------
<S> <C> <C> <C> <C> <C>
PLAYBOY United 1286798 41 10/14/93 radio,
Kingdom television and stage
entertainments; all
included in this class
RABBIT United 1324768 41 10/22/87 radio,
HEAD Kingdom television and
DESIGN stage entertainments
PLAYBOY Benelux 424544 41 1/6/87 entertainment and
amusements; and
the production of
radio and television
programmes
RABBIT Benelux 427684 41 1/6/87 entertainment
HEAD and amusements;
DESIGN and the production
of radio and
television
programmes
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Part 2
------
Unregistered Trademarks
-----------------------
Country Mark or Representation or Goods/Services
- ------- ------------------------- --------------
Description of Get-up
---------------------
<S> <C> <C>
Republic of PLAYBOY Entertainment services,
Ireland namely, pay television
services and pay per view
television services
Republic of RABBIT HEAD DESIGN Entertainment services,
Ireland namely, pay television
services and pay per view
television services
</TABLE>
16
<PAGE>
EXECUTED AS A DEED by )
Anthony J. Lynn acting under )
the express authority of ) /s/ Anthony J. Lynn
PLAYBOY ENTERPRISES, INC. )
in accordance with the laws )
of the State of Delaware )
P.D. Feely /s/ P. Feely
EXECUTED AS A DEED by )
PLAYBOY TV UK/BENELUX LIMITED )
in the presence of: )
P.D. Feely /s/ P.D. Feely
Director /s/ Roger Luard
Director /s/ Anthony J. Lynn
17
<PAGE>
DATED 2nd February 1996
-----------------------
(1) PLAYBOY ENTERTAINMENT GROUP, INC
(2) PLAYBOY TV UK/BENELUX LIMITED
--------------------------
PROGRAMME SUPPLY AGREEMENT
--------------------------
EXECUTED AGREEMENT
DENTON HALL
FIVE CHANCERY LANE
CLIFFORD'S INN
LONDON EC4A 1BU
TELEPHONE 0171 242 1212 FAX 0171 404 0087
MEMBER OF THE DENTON INTERNATIONAL
<PAGE>
THIS AGREEMENT is made the 2nd day of February 1996
but made effective from 1st November 1995
BETWEEN:
(1) PLAYBOY ENTERTAINMENT GROUP, INC
of 9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
("the Licensor")
and
(2) PLAYBOY TV UK/BENELUX LIMITED
of Twyman House
16 Bonny Street
London NWl 9PG
("the Company")
WHEREAS:
The Company wishes to licence from the Licensor and the Licensor has agreed to
licence to the Company certain television programmes upon the terms set out in
this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. Definitions and Interpretation
------------------------------
1.1 In this Agreement the following words and expressions shall have the
following meanings:
"Accumulated Net Losses": means as at the end of any Year commencing after
the Return of Investment Date, the amount by which the aggregate amount of
the Losses of the Company in respect of that Year and all preceding Years
(ignoring, for the avoidance of doubt, the fact that any such Losses may
have been, or may be capable of being, surrendered by way of group relief)
exceeds the aggregate amount of the Net Profits of the Company in respect
of that Year and all preceding Years;
<PAGE>
"Acquired Premium Movie": any full-length (i.e. with a running time of not less
than 84 minutes) motion picture (whether made for theatrical release and/or
television exhibition) which falls within the Programme Specification and which
may be acquired by the Licensor or the Company for transmission in the Service
following a notice given by the Company pursuant to Clause 8.9;
"Acquired Programme": means any television programme falling within the
Programme Specification which is not a Playboy Programme or a Third Party
Programme but (a) in or to which the Licensor or any Affiliate of the Licensor
has acquired or does at any time during the Term acquire from a third party
inter alia the Non-Standard Television Rights within the Territory and (b) which
the Licensor delivers to the Company for first transmission in the Service in
any Year and as part of the Minimum Number of Hours in respect of that Year;
"Affiliate": of any person means any other person which is from time to time
either directly or indirectly controlling, controlled by or under common control
with the first person and for this purpose "control" means in relation to a
person (the "Relevant Person") the power of another person ("the Controlling
Person") to secure, whether by the holding of shares or the possession of voting
rights in or in relation to the Relevant Person or any other person or the
provisions of any agreement or otherwise, that the affairs of the Relevant
Person are conducted in accordance with the wishes of the Controlling Person;
"the Availability Date": in respect of any Third Party Programme or Acquired
Programme means the first day of the Licence Period in respect of that Third
Party Programme or Acquired Programme and in respect of any Playboy Programme
means the later of the following:
(a) the first day of the Licence Period in respect of that Playboy Programme;
and
(b) the expiry of the earlier of:
(i) a period of twelve (12) months commencing upon the date on which the
home video release of that Playboy Programme within the Territory takes
place; and
(ii) a period of twenty-four (24) months commencing upon the date of
completion of production of that Playboy Programme;
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"Available Cash Flow": means such amount of the monies received by the Company
from the conduct of its business as is available for the purpose of paying the
Bonus Licence Fee to the Licensor pursuant to this Agreement but after having
made such provision as may be necessary, having regard to the reasonably
projected income and cash flow of the Company, to pay the Company's projected
cash requirements and needs, to pay and discharge the current liabilities and
obligations of the Company and to pay and discharge the known contingent
liabilities and obligations of the Company, which amount shall be determined in
accordance with Clause 7.6;
"Available Net Profits": means as at the end of any Year commencing after the
Return of Investment Date, the amount (if any) by which the Net Profits of the
Company in respect of that Year exceeds the Accumulated Net Losses of the
Company as at the end of the immediately preceding Year;
"the Basic Licence Fee": means in respect of each Year an amount calculated in
accordance with the provisions of Schedule 3;
"Bonus Amount": means the amount (if any) by which in respect of any of the
second, third, fourth and fifth Years the total of the Basic Licence Fee and any
Programming Premium payable by the Company in respect of that Year is less than
US$2,000,000 and which shall, for the avoidance of doubt, be calculated on an
annual basis following the end of each such Year;
"Bonus Licence Fee": means an amount calculated by aggregating each Bonus Amount
following the end of the fifth Year;
"the Business Plan": means any plan which is from time to time in force and in
accordance with which the business of the Company is to be managed and conducted
pursuant to the Shareholders' Agreement;
"Co-Production": means any television programme falling within the Programme
Specification which was not produced solely by or under commission from the
Licensor and is not an Acquired Programme but which is co-produced by the
Licensor and/or any Affiliate of the Licensor with a third party;
"the CPI": means the US City Average Consumer Prices Index for all urban
consumers or any successor or replacement index. For the purpose of determining
any percentage increase in the CPI over the twelve months immediately preceding
the first day of any Year, reference shall be made to
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<PAGE>
the published figure for the CPI available for the month immediately preceding
the first day of that Year ("the final figure") provided that, if the final
figure is not available, the latest published figure available shall apply;
"Delivery Material": means in relation to any Selected Programme, so-called
"vignette" or promotional material the master of the Selected Programme, so-
called "vignette" or promotional material in the form specified in Schedule 2
together with the other materials therein described and any dubbed or sub-titled
version of the Selected Programme, so-called "vignette" or promotional material
which the Licensor is required to deliver pursuant to Clause 5;
"the Directive": means the Directive of the Council of European Communities of
3rd October 1989 No 89/552 EEC and/or any other Directive of the Council of
European Communities which may modify, replace or supersede any of the
provisions of that Directive (including but not limited to Articles 4, 5 and 6
of that Directive);
"European Work": means a programme which complies with the definition of a
European Work contained in the Directive;
"the First Year": means the period commencing upon the Launch Date and ending
upon 31st December in the calendar year in which the Launch Date falls;
"Flextech": Continental Shelf 16 Limited, a company registered in England and
Wales under no. 3005499;
"Force Majeure": means any event or cause not within the control of the party
affected by it (other than a breach of this Agreement by the other party)
including (but not by way of limitation) accident or breakdown of any satellite
or any other facilities equipment or apparatus (caused otherwise than by the
wrongful act neglect or default of that party), act of God, flood, war, riot,
rebellion, civil commotion, strike, lock-out or other industrial dispute or
action, Act of Parliament, any act, order, direction or regulation of any
government or any public, local or regulatory authority or imposition of
government sanction, embargo or similar action, or of any law, judgment, order,
decree, embargo or blockade;
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"the Growth Factor": means, for the purpose only of calculating the Minimum
Production Cost in any Year, the aggregate percentage increase in the CPI over
the twelve months immediately preceding the first day of that Year or three (3)
per cent, whichever is the greater;
"the Launch Date": means the date on which the Company commences the provision
of the Service for reception within the Territory;
"LIBOR": the three month London Interbank Offered Rate for Sterling Deposits, as
published in the Financial Times on the first day of each month or on the next
succeeding day on which the Financial Times is published;
"Licence Period": means in relation to:
(a) each Playboy Programme, the period commencing upon the date of signature of
this Agreement or (in the case of a Playboy Programme production of which
has not prior to such date been completed) the date on which production of
that Playboy Programme or the first episode of that Playboy Programme is
completed and ending upon the later of (i) the final day of the Term and
(ii) the date after the end of the Term on which any Transmission Period
relating to that Playboy Programme ends in accordance with sub-clauses
10.6.2, 10.6.3 and 10.6.4; and
(b) each Acquired Programme or Third Party Programme acquired on behalf of the
Company by the Licensor, the duration of the Playboy Licence Period
relating to that Acquired, Programme or Third Party Programme;
"Licence Year": has the meaning ascribed to it in Clause 7.3;
"the Licensor's Territory": means the United States of America;
"Losses": means in respect of any Year, the losses shown by the audited profit
and loss account of the Company for that Year (which losses shall be determined
according to the Company's accounting policies but shall always take into
account the amount of any Programming Premium payable in respect of that Year
and shall in respect of the fifth Year take into account the full amount of the
Bonus Licence Fee payable by the Company) but before interest on any loans made
to the Company
5
<PAGE>
by its shareholders pursuant to sub-clauses 3.1(b) and 4.1(b) of the
Shareholders' Agreement of even date herewith;
"Minimum Number of Hours": means in respect of each Year the minimum number of
Programme Hours of Programmes which the Licensor is obliged to deliver to the
Company in that Year pursuant to this Agreement for first transmission in the
Service and which shall (A) in the First Year be calculated by multiplying 114
by the number of days during the First Year (including the Launch Date) and
dividing the product of that multiplication by 365 and (B) be one hundred and
fourteen (114) Programme Hours in each subsequent Year unless or until that
number is reduced or increased
(a) in accordance with Clause 8.6, Clause 8.7, Clause 8.8 or Clause 8.11; or
(b) following any termination of this Agreement pursuant to Clause 10.3,
"Minimum Production Cost": means an amount which shall increase during the Term
as follows:
(a) in the first Year, the sum of US$1,000,000 (one million United States
dollars); and
(b) in any subsequent Year, the sum which, by virtue of this definition,
represented the Minimum Production Cost in the immediately preceding Year
increased by the Growth Factor;
"Net Profits": means in respect of any Year, the audited, after tax profits of
the Company for that Year shown in the accounts of the Company for that Year
prepared by its auditors (which profits shall be determined according to the
Company's accounting policies but shall always take into account the amount of
any Programming Premium payable by the Company in respect of that Year and
shall in respect of the fifth Year take into account the full amount of the
Bonus Licence Fee payable by the Company) but before interest on any loans made
to the Company by its shareholders pursuant to sub-clauses 3.1(b) and 4.1(b)
of the Shareholders' Agreement of even date herewith;
"Net Revenue per Household": means an amount calculated in accordance with the
provisions of Schedule 4;
"Net Revenues": means in respect of any Year, the aggregate of all payments
which are actually received by the Company during that Year, which (after making
adequate provision for refunds,
6
<PAGE>
discounts, bad debts and credits) the Company is entitled to retain and
which represent charges made for the reception and/or re-transmission of
the Service in its entirety, or of programmes (other than Premium Movies
and Acquired Premium Movies included in the Service on a Pay-Per-View
Basis), by any third party (including but not limited to any cable
operator) after deduction of:
(i) all amounts of Value Added Tax or similar sales taxes which may form
part of such payments; and
(ii) all sales and agency commissions and all subscriber management
charges (including but not limited to charges for the supply of
viewing cards and/or other decryption devices) which may be payable
to third parties (including but not limited to Satellite Encryption
Services Limited) as a result of or in connection with the receipt of
any such payment(s) by the Company and which have not been deducted
by such third party or parties prior to the receipt of the relevant
payment(s) by the Company;
"Non-Standard Television": means all forms of television exhibition,
transmission and distribution whether now existing or developed in the
future (other than Standard Television) and however transmitted or
delivered, including but not limited to the following:
(a) basic cable and pay cable;
(b) "over the air pay" subscription television (STV), direct
broadcasting by satellite (DBS), master antenna television systems
(MATV), multipoint distribution systems (MDS), satellite master
antenna television systems (SMATV), microwave transmission and video-
on-demand services;
(c) transmission via Non-Standard Television delivery systems to closed
circuit television systems such as hotel, motel or hospital rooms,
educational institutions and military locations;
whether all of the foregoing (a), (b) and/or (c) are on a subscription,
pay-per-view, licence, free or other basis;
"the Non-Standard Television Rights": means the right to exhibit, or cause
the exhibition of, a Programme or a Third Party Programme by means of Non-
Standard Television;
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<PAGE>
"Payment Date": means any of the six dates specified in Clause 7.3;
"Pay-Per-View Basis": means the inclusion of a programme in the Service on terms
whereby a payment becomes due from a subscriber in consideration solely for the
right to receive and view (a) that programme or (b) a number of programmes which
are transmitted in the Service on the same day including that programme;
"Playboy Acquired Programme": means any Acquired Programme acquired by the
Licensor or any Affiliate of the Licensor pursuant to a licence:
(a) under which the Licensor or that Affiliate was also granted the Television
Rights in that Acquired Programme within the Licensor's Territory;
(b) under which all of the Television Rights in that Acquired Programme granted
to the Licensor and/or any Affiliate of the Licensor were granted on a sole
and exclusive basis;
(c) which was granted for a period of not less than five (5) years from the
date of its commencement; and
(d) under which the Television Rights in that Acquired Programme were granted
within one of the following territories (in addition to the Licensor's
Territory and the Territory): namely, Australia, Germany, France, Italy,
Mexico or Brazil;
"Playboy Licence Period": means in respect of any Acquired Programme, so-called
"vignette" or (if applicable) Third Party Programme the period for which the
Licensor or any Affiliate of the Licensor has acquired the Non-Standard
Television Rights therein within the Territory;
"Playboy Production Costs": means in respect of any Premium Movie the aggregate
of (a) all fees and other remuneration paid to the Licensor and/or any Affiliate
of the Licensor, and to any employee or officer of the Licensor and/or any such
Affiliate, in connection with the production of that Premium Movie and (b) any
part of the cost of production of that Premium Movie which represents overhead
expenditure of the Licensor and/or any Affiliate of the Licensor that the
Licensor and/or any such Affiliate would have incurred even if that Premium
Movie had never been produced, including but not limited to expenditure incurred
in paying salaries or other remuneration to employees and in owning, operating,
occupying, using and/or leasing premises, office equipment,
8
<PAGE>
facilities and/or services and/or equipment customarily used in the production
of television programmes and/or motion pictures;
"Playboy Programme": means (a) any television programme falling within the
Programme Specification which is or was produced by, or under commission from,
the Licensor or any Affiliate of the Licensor or (b) a Co-Production which in
either case is not a Premium Movie;
"Premium Movie": means a full-length film or motion picture
- --------------
(a) which contains at least one actor or actress with a generally recognizable
name value in the United States motion picture industry who, in the five
years immediately preceding the date on which production of that film or
motion picture was commenced, has appeared in a starring role in a motion
picture theatrically released in the United States by one or more of the
major Hollywood studios or had a starring role in a regular prime-time U.S.
network television series or movie-of-the-week,
(b) which is photographed in colour, using 35 millimeter film
(c) which has a running time of not less than eighty-four (84) minutes
(d) which is based upon a recognisable dramatic plot and/or storyline
(e) which has a Total Production Cost in excess of the Minimum Production Cost
and
(f) whose Total Production Cost does not include Playboy Production Costs which
in the aggregate exceed an amount equal to ten (10) per cent of the Minimum
Production Cost (and to the extent that Playboy Production Costs in excess
of that amount were included in the Total Production Cost such excess
Playboy Production Costs shall be disregarded for the purposes of
determining whether the relevant film or motion picture is a "Premium Movie"
hereunder);
"Programme": means:
---------
(a) any Playboy Programme; or
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<PAGE>
(b) any Acquired Programme (including but not limited to any Playboy Acquired
Programme) in or to which the Licensor or any Affiliate of the Licensor
acquires owns or holds or is entitled to exercise, or authorise the exercise
of, any or all of the Non-Standard Television Rights within the Territory;
or
(c) any Premium Movie but only insofar as the same may be licensed to the
Company in accordance with Clause 3.2;
and for the purposes of interpreting this definition, it is agreed and declared
that, where a television programme consists of more than one episode or group of
episodes, each series or serial of that television programme which consists of a
single or discrete group of episodes shall be treated as a separate Programme;
"Programme Duration": means in relation to any Programme or Third Party
Programme or (in the case of a Programme or Third Party Programme consisting of
more than one episode) any episode, the running time of the master of the
Programme or Third Party Programme or episode (excluding, for the avoidance of
doubt, commercial breaks, promotional material and advertisements interpolated
in any Programme or Third Party Programme or episode and further excluding any
so-called "vignettes") delivered to the Company by the Licensor as part of the
Delivery Material or by the licensor of the Third Party Programme (as the case
may be);
"Programme Hour": means in relation to the Programme Duration of any
Programme(s) or Third Party Programme(s), a period of forty-five (45) minutes;
"the Programme Specification": means the description of the programming which is
to be broadcast by the Company as part of the Service and is attached as
Schedule 1;
"Programming Premium": means, in respect of any Year commencing after the Year
in which the Return of Investment Date falls, the amount (if any) payable to the
Licensor in respect of that Year pursuant to sub-clause 7.l(b);
"Quarter": shall mean any three month period ending on the last day of March,
June, September and December;
10
<PAGE>
"Requisite Percentage": means for the purpose of calculating the amount (if any)
of the Programming Premium payable to the Licensor:
(a) 33% (thirty-three per cent) of Available Net Profits; and
(b) 20% (twenty per cent) of Net Revenues
subject always to reduction of such percentages in accordance with the
provisions of Clause 8.6, sub-clause 8.8(d), Clause 8.11 or sub-clause 10.4.2;
"Return of Investment Date": the day on which each of the Company's shareholders
shall actually have received (by way of the repayment of all loans made, by way
of the return (by sale or repayment of shares or otherwise) of all share capital
subscribed (including share premiums), and by way of the payment of interest or
dividends thereon) an amount equal to the aggregate of:
(a) the principal amount of all loans made, and share capital subscribed for in
the capital of the Company, by each such shareholder pursuant to sub-
clauses 3.1(b) and 4.1(b) of the Shareholders' Agreement of even date
herewith (in each case the "Initial Cost"); PLUS
(b) interest on the Lnitial Cost at LIBOR plus 3% (which interest shall accrue
on a daily basis from the date of the relevant loan or subscription and
shall be calculated and compounded on 30th June and 31st December of
each Year) PLUS
(c) the principal amount of all loans made, and share capital subscribed for in
the capital of the Company, by each such shareholder in addition to the
Initial Cost prior to the date on which the Initial Cost plus interest
thereon calculated in accordance with (b) above has been received by each
of the Company's shareholders in accordance with the foregoing provisions
of this definition (in each case the "Additional Cost"); PLUS
(d) interest on the Additional Cost at LIBOR plus 3% or (if higher) at the rate
of interest contractually payable on the relevant loan to the relevant
shareholder (which interest shall accrue on a daily basis from the date of
the relevant loan or subscription and shall be calculated and compounded on
30th June and 31st December of each Year)
PROVIDED THAT:
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(i) where any such shares or loans are transferred to any person, including
but not limited to upon exercise of any of the Options (as defined in
Clause 15 of the Shareholders' Agreement of even date herewith), such
person shall on such transfer be deemed to have subscribed for the shares
and made the loans the subject of the transfer and there shall not be
taken into account for the purposes of determining the Return of
Investment Date such amount of the consideration paid by such person as
exceeds the Initial Cost to the selling shareholder of the shares and
loans the subject of the relevant transfer plus interest thereon,
calculated in accordance with (b) above; and
(ii) if any part of the Initial Cost or the Additional Cost shall be repaid to
any shareholder through the use of monies borrowed by the Company from any
third party (i.e. a person other than a shareholder in the Company or an
Affiliate of such a shareholder), the Return of Investment Date shall not
occur until all of those third party borrowings shall have been repaid by
the Company to that third party together with interest thereon at the rate
of interest contractually payable by the Company to that third party
provided, however that if the Company has the funds to repay such third
party but is not contractually permitted to prepay such third party, the
Company will establish a fund to pay such borrowings with interest and
will be deemed to have repaid such borrowings (with interest) to the
extent of the amount from time to time standing to the credit of such
fund; and
(iii) if the Company is not contractually permitted to prepay any part of the
Initial Cost or the Additional Cost which comprises (a) loan(s) made by a
shareholder, the Company will establish a fund to repay such loan(s) with
interest and will be deemed to have repaid such loan(s) (with interest) to
the extent of the amount from time to time standing to the credit of such
fund;
"the Scheduler": the individual appointed in accordance with Clause 8.1, Clause
8.4, Clause 8.5, Clause 8.11 or Clause 10.4 who is to provide the services set
out in Clause 8.2;
"Selected Programme": means any Programme, Third Party Programme or so-called
"vignette" which is selected by the Scheduler for inclusion in the Transmission
Schedule and licensed to the Company by the Licensor pursuant to or by virtue of
any provision of this Agreement;
"the Service": means the television programme service consisting solely of:
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<PAGE>
(a) Programmes, Third Party Programmes and so-called "vignettes"; and
(b) infomercials, advertisements and promotional and publicity material
which is to be provided by the Company for reception within the Territory;
"Service Language": means any of the following languages: English, Flemish,
Dutch or any other language of any country within the Territory;
"the Shareholders' Agreement": means the agreement which is for the time being
in force between the holders of not less than ninety-five percent (95%) in
nominal value of the issued share capital of the Company and which inter alia
regulates the management and conduct of the business of the Company;
"Standard Television": means exhibition by conventional free VHF or UHF
television broadcast stations, the video and audio portions of which are
intelligibly receivable without charge by means of a conventional home roof-top
or television set built-in antenna;
"the Standard Television Rights": means the right to exhibit, or cause the
exhibition of, a Programme or a Third Party Programme by means of Standard
Television;
"the Term": means the period commencing on the date of signature hereof and
ending on the date on which any termination of this Agreement takes effect
pursuant to Clause 10;
"the Television Rights": means the Non-Standard Television Rights and the
Standard Television Rights;
"the Territory": means the countries of the United Kingdom, the Republic of
Ireland, Belgium, The Netherlands and Luxembourg together with any other
countries in which the Service may from time to time be provided by the Company
in accordance with the Business Plan and Shareholders' Agreement;
"Third Party Programme": means
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(a) any television programme which falls within the Programme Specification and
which is not a Playboy Programme or an Acquired Programme; or
(b) any Acquired Premium Movie,
in respect of which the Licensor or any Affiliate of the Licensor acquires upon
instruction from the Scheduler and/or the Company in accordance with Clause 8.6,
Clause 8.9 or 8.11 the Non-Standard Television Rights therein within the
Territory or the Company acquires the same in accordance with Clause 8.8, Clause
8.10, Clause 8.11 or Clause 10.4;
"Total Production Cost": means, in respect of each Premium Movie, the actual
cost of production of that Premium Movie (including without limitation the
aggregate of direct, out-of-pocket costs, charges and expenses paid to third
parties in connection with the acquisition of all underlying literary rights
with respect to the production of the Premium Movie, and in connection with the
preparation, production and completion of the Premium Movie including the costs
of materials, equipment, physical properties, any completion bond fee (net of
any rebate), personnel and services utilized in connection with the production
of the Premium Movie, and cost of customary production insurances and Playboy
Production Costs);
"Trademark Agreement": means the agreement between the Company and Playboy
Enterprises, Inc. of even date herewith relating to the use of the Trade Marks;
"the Trade Marks": shall have the meaning ascribed to it in the Trademark
Agreement;
"Transmission Period": means in respect of any Programme, or any Third Party
Programme acquired on behalf of the Company by the Licensor, the period
commencing upon the Availability Date in respect of that Programme or Third
Party Programme or (as the case may be) upon the date of any notice given by the
Company pursuant to Clause 2.2 in respect of that Programme or Third Party
Programme and ending upon the date on which the twenty-fourth (24th)
transmission of that Programme or Third Party Programme (or, in the case of a
Programme or Third Party Programme consisting of more than one episode, the
final episode of that Programme or Third Party Programme) in the Service during
that period takes place or (if earlier) the final day of the Playboy Licence
Period in respect of an Acquired Programme or Third Party Programme;
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<PAGE>
"the Transmission Schedule": means the schedule to be prepared by the
Scheduler in accordance with Clause 8.2 setting out the day, date and time
of transmission of each Selected Programme, each so-called "vignette" and
all interstitial material to be transmitted as part of the Service;
"the United Kingdom": means Great Britain, Northern Ireland (irrespective
of whether Northern Ireland is or remains part of the United Kingdom), the
Channel Islands and Isle of Man;
"Year": means the First Year and thereafter any calendar year.
1.2 In this Agreement references to a "programme" or "Programme" shall include
a reference to any associated sound recording comprising the soundtrack
thereto.
1.3 in this Agreement references to Clauses, sub-clauses, paragraphs and
Schedules shall be references to Clauses, sub-clauses and paragraphs of and
Schedules to this Agreement.
1.4 Whenever the Service is licensed or otherwise sold to a third party
(including but not limited to a cable operator) as part of a package of
satellite delivered television channels, then the Company shall negotiate
with that third party and/or with the providers of the other television
channels included in such package on an arm's length basis regarding the
allocation between the television channels (including but not limited to
the Service) included in such package of the revenues derived from the
relevant licence or sale.
1.5 Whenever any of the Television Rights (including but not limited to the
Non-Standard Television Rights) in a Programme (other than a Playboy
Programme) or a Third Party Programme within the Territory are acquired by
the Licensor or any Affiliate of the Licensor pursuant to Clause 8.6, 8.8,
8.9 or 8.11 and the relevant Television Rights are also acquired in respect
of any country or countries outside the Territory, then for the purposes of
sub-clauses 8.6(c), 8.8(c), 8.9(d) and 8.11.4(b) the Licensor shall on a
fair and equitable arm's length basis allocate the licence fee(s) paid by
the Licensor or its Affiliate for those Television Rights to the licensor
of that Programme or Third Party Programme between the Television Rights so
acquired by the Licensor within the Territory and the Television Rights so
acquired by the Licensor in respect of any country or countries outside the
Territory.
1.6 Whenever a Programme (other than a Playboy Programme) or a Third Party
Programme is acquired by the Licensor or any Affiliate of the Licensor
pursuant to Clause 8.6, 8.8, 8.9 or 8.11 and that
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<PAGE>
Programme or Third Party Programme is acquired as part of a package of
television programmed then for the purposes of sub-clauses 8.6(c), 8.8(c),
8.9(d) and 8.11.4(b) the Licensor shall on a fair and equitable arm's
length basis allocate the license fee(s) paid by the Licensor or its
Affiliate to the licensor of that package of television programmes between
that Programme or Third Party Programme and the other television programmes
included in that package.
1.7 If so requested by the Company in writing, the Licensor shall within
fourteen (14) days after the date of such request deliver to the Company a
certificate signed as being true and accurate by the Senior Financial
Officer of the Licensor and stating in respect of each Premium Movie
specified in such request (a) the Total Production Cost of that Premium
Movie and (b) the total amount of Playboy Production Costs included in that
Total Production Cost. At any time after delivery of that certificate the
Company may upon reasonable notice to the Licensor and during normal
business hours inspect the books and records of the Licensor and or any
Affiliate of the Licensor relating to the production of any Premium Movie
specified in that certificate for the purpose of verifying the accuracy of
that certificate. The provisions of this Clause shall not apply to any
Premium Movie in which the Television Rights within the Territory have been
granted to any third party pursuant to any legally binding agreement
entered into by the Licensor prior to the date of this Agreement.
1.8 Whenever reference is made in this Agreement to a period of less than
fourteen (14) days, a "day" shall for the purposes of calculating the
length of that period be deemed to mean any day other than a Saturday,
Sunday or public holiday in England or the United States of America.
2. Licence
2.1 The Licensor hereby grants to the Company by way of a sole and exclusive
licence under copyright during the Licence Period in respect of each
Programme or Third Party Programme (as the case may be) and within the
Territory:
(a) the sole and exclusive right to exercise the Non-Standard Television
Rights in and to each Programme on not more than twenty-four (24)
occasions during any Transmission Period relating to that Programme;
and
(b) all Television Rights and all other right title and interest acquired
by the Licensor in and to each Third Party Programme
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<PAGE>
PROVIDED ALWAYS THAT the Company shall not make any transmission of any
Programme, or any Third Party Programme acquired on its behalf by the
Licensor, otherwise than during a Transmission Period relating to that
Programme or Third Party Programme.
2.2 At any time after the end of the first Transmission Period in respect of a
Programme the Company may by notice in writing to the Licensor elect to
transmit that Programme during a further Transmission Period, then (subject
always to the proviso to this Clause and unless the Licensor notifies the
Company within seven (7) days after the date of receipt of the Company's
notice that that Programme is an Acquired Programme and that the Licensor
would be unable to perform its obligations under Clause 4.6 in relation to
that Programme during that further Transmission Period) the following
provisions shall apply:
(a) that Programme shall automatically be deemed to be a Selected
Programme during that further Transmission Period for all purposes of
this Agreement SAVE THAT that Programme shall not count towards the
Minimum Number of Hours in respect of any Year and the Company shall
pay a licence fee to the Licensor in respect of that Programme in
accordance with the provisions of Clause 7.7; and
(b) (unless the then current Scheduler has been appointed by the Company
under Clause 8.4, proviso (c) to Clause 8.5, Clause 8.11.4 or Clause
10.4) the Licensor shall procure that the Scheduler shall include that
Programme in the Transmission Schedule for transmission in the Service
during the further Transmission Period in respect of that Programme
PROVIDED ALWAYS THAT, if the parties are unable to agree upon the amount of
the license fee payable to the Licensor in respect of that Programme within
the 30 day period described in sub-clause 7.7(a), the Company may by notice
in writing to the Licensor decline to accept a further Transmission Period
of that Programme at the licence fee specified in paragraph (ii) of sub-
clause 7.7(a) and, if the Company does so decline, the provisions of sub-
clauses (a) and (b) of this Clause shall not apply to that Programme.
2.3 The Licensor further grants to the Company by way of a sole and exclusive
licence under copyright the sole and exclusive right during the Term and
within the Territory to exercise the Non-Standard Television Rights in and
to each so-called "vignette" delivered to the Company hereunder on not more
than (subject to the provisions of Clause 4.8) twenty-four (24) occasions.
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2.4 Notwithstanding the definition of the Territory, the licences granted to
the Company under Clauses 2.1 and 2.3 shall not extend to the Republic of
Ireland until the earlier of:
(a) the first anniversary of the first day of the first Licence Year; and
(b) the date on which the Licensor notifies the Company that those
licences have been extended to the Republic of Ireland.
3. Supply of Programmes
3.1 In order to assist the Company in marketing the Service and the Scheduler
in performing his duties under Clause 8, the Licensor shall:
(a) within fourteen (14) days after the date of this Agreement supply to
the Company and to the Scheduler a complete list of all of its
Programmes, which list shall include in respect of each Programme the
title, duration and number of episodes of that Programme, a brief
description of that Programme and the year in which that Programme
was produced and is attached as Schedule 5;
(b) not later than the first day of each Year supply to the Company and to
the Scheduler a list of all Programmes which have completed
production, and of all television programmes which have for any reason
become Programmes (for example, because the Licensor or any Affiliate
of the Licensor has acquired the Non-Standard Television Rights
therein), since the last such list (or the list supplied pursuant to
sub-clause 3.l(a)) was supplied, and the Licensor shall include in
that list in respect of each such Programme the information specified
in sub-clause (a) of this Clause;
(c) upon the Company's or the Scheduler's request, supply to the Company
and the Scheduler details (if available) of audience viewing ratings
achieved by any Programme on the last broadcast of that Programme by
the Licensor or any Affiliate or licensee of the Licensor anywhere in
the world; and
(d) within 21 days after any request by the Company or the Scheduler,
provide on loan a VHS viewing cassette of any Programme which may be
requested by the Company or the Scheduler.
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3.2 The Licensor shall not at any time during the Term licence any of the
Television Rights in any Premium Movie within the Territory to any third
party without first complying with the procedure set out in this Clause but
the provisions of this Clause (other than sub-clause (d)) shall not apply
to any Premium Movie in which the Television Rights within the Territory
have been granted to any third party pursuant to any legally binding
agreement entered into by the Licensor prior to the date of this Agreement.
Whenever the provisions of this Clause apply to a Premium Movie, the
Licensor shall send to the Company a viewing cassette of such Premium Movie
(if the Premium Movie is already produced at the time of sending the notice
hereunder) and a written notice (which notice shall specify the cost,
budget and storyline of the Premium Movie if the Premium Movie is not
available for viewing at the date of the notice) setting out the principal
terms on which the Licensor is proposing so to grant Television Rights
within the Territory in respect of each such Premium Movie. The following
provisions shall apply to each Premium Movie offered for licence within the
Territory by the Licensor in accordance with this Clause:
(a) the Company shall have twenty-eight (28) days from receipt of such
offer to accept such offer by notice in writing to the Licensor;
(b) if the Company shall fail to accept such offer within that 28 day
period and if the Licensor wishes to authorise a third party to
exercise the Television Rights in that Premium Movie within the
Territory, the Licensor shall be free to do so, and shall have no
further obligation to offer that Premium Movie for licence to the
Company, subject always to sub-clauses (c) and (d) of this Clause;
(c) if the Company shall fail to accept such offer within that 28 day
period and if the Licensor wishes to authorise a third party to
exercise any of the Television Rights in that Premium Movie within the
Territory, the Licensor shall not so authorise any third party upon
terms which are more favourable to that third party than the terms
offered by the Licensor to the Company pursuant to this Clause without
first offering by notice in writing to the Company to licence that
Premium Movie to the Company upon such more favourable terms. The
Company shall have fourteen (14) days from receipt of such offer in
which to accept such offer by notice in writing to the Licensor and,
if the Company fails to accept such offer within that 14 day period,
the Licensor shall (subject to sub-clause (d) of this Clause) be
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free to authorise such third party to exercise the Television Rights
in that Premium Movie within the Territory;
(d) notwithstanding any failure by the Company to accept any offer made by
the Licensor pursuant to this Clause or the absence of any obligation
on the Licensor to make any offer pursuant to this Clause, the
Licensor shall not authorise or permit any third party to broadcast,
transmit or exhibit within the Territory (whether pursuant to the
Standard Television Rights or the Non-Standard Television Rights) any
Premium Movie, any excerpt from any Premium Movie or any promotional
or advertising material or announcement publicising its transmission
of any Premium Movie in any form (other than in the form of an on-
screen credit and/or the display of the Licensor's logo in or
immediately after the closing titles) which allows or causes any of
the Trade Marks, the "Playboy" name or any logo, mark or symbol which
is associated with the "Playboy" name or brand to be seen or heard by
any member of the public at any time during any broadcast,
transmission or exhibition of that Premium Movie, any such excerpt or
any such promotional or advertising material or announcement;
(e) if the Company shall accept any offer made by the Licensor pursuant to
this Clause, that Premium Movie shall automatically become a Selected
Programme for the purposes of this Agreement and be licensed to the
Company as a Programme but on the terms of the offer accepted by the
Company.
3.3 The Licensor shall not supply any Programme or Third Party Programme
hereunder which would reasonably be designated regarded or treated as what
is popularly known as "XXX Rated" in the United States of America.
Programmes and Third Party Programmes supplied hereunder may include
material rated "NC-17" by the Motion Picture Association of America (CARA)
if the sexual content of such material is substantially similar to
programming produced by the Licensor or any Affiliate of the Licensor
itself unless such Programmes and/or Third Party Programmes will or might
in the opinion of the Company be deemed obscene for the purposes of the
Obscene Publications Act 1959 (or any modification re-enactment or
replacement thereof) or in breach of any regulatory rules guidelines or
codes applicable to the Service. In the event that the Company deems any
Programme or Third Party Programme obscene or in breach of any applicable
rule, guideline or code as aforesaid, the Company shall notify the Licensor
to that effect and give the Licensor, if so requested, an opportunity to
present arguments to the contrary to the board of directors of the Company.
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3.4 The Company undertakes that, unless it is permitted to do so by virtue of
any provision of this Agreement, it shall not any time during the Term
transmit in the Service or otherwise for reception in the Territory any
programme which is not a Programme or a Third Party Programme.
4. Undertakings by the Licensor
The Licensor hereby agrees and undertakes with the Company that:
4.1 Each and every Playboy Programme will throughout the Term, and each and
every Acquired Programme will throughout the Playboy Licence Period in
respect of that Acquired Programme, be available on a sole and exclusive
basis for delivery to and transmission by the Company within the Territory
pursuant to this Agreement. Accordingly, the Licensor shall not and shall
procure that each of its Affiliates shall not exercise, and shall not and
shall procure that each of its Affiliates shall not directly or indirectly
authorise license or permit any third party to exercise, the Non-Standard
Television Rights or the Standard Television Rights (or any of them) in or
to any Programme or Third Party Programme in any country within the
Territory at any time during the Term.
4.2 If the Licensor or any Affiliate of the Licensor is at any time during the
Term proposing or negotiating to acquire (whether by way of licence, by
operation of law or otherwise) the Non-Standard Television Rights or the
Standard Television Rights within the Licensor's Territory in any
television programme which is a Co-Production or which would, if the Non-
Standard Television Rights therein were so acquired, be an Acquired
Programme, then the Licensor shall, or shall procure that such Affiliate
shall, use its best endeavours to acquire in addition (whether by way of a
licence, by operation of law or otherwise) the Non-Standard Television
Rights in that television programme within each of the countries of the
Territory.
4.3 In each Year:
(a) the total number of Programme Hours of Programmes delivered to the
Company in that Year for first transmission in the Service shall not
be less than the Minimum Number of Hours in respect of that Year; and
(b) the total number of Programme Hours of Playboy Programmes and of
Playboy Acquired Programmes delivered to the Company in that Year for
first transmission in the Service
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shall not be less than eighty (80) per cent of the Minimum Number of
Hours in that Year; and
(c) the total number of Programme Hours of Playboy Acquired Programmes
delivered to the Company for first transmission in the Service shall
not exceed sixteen (16) per cent of the Minimum Number of Hours in
that Year.
4.4 In each Year none of the Selected Programmes or so-called "vignettes"
delivered to the Company for first transmission in the Service in that Year
shall have been delivered to the Company pursuant to this Agreement in any
previous Year and neither shall any of such Selected Programmes or so-
called "vignettes" have been broadcast, transmitted or exhibited in any
country within the Territory at any time prior to their delivery
hereunder by means of any form of Standard Television or Non-Standard
Television.
4.5 The standard, quality, freshness and commercial appeal of the Selected
Programmes, so-called "vignettes", promotional material and other
programming delivered to the Company pursuant to this Agreement for first
transmission in the Service shall not be inferior to the overall standard,
quality, freshness and commercial appeal of the programming included during
the period of twelve (12) months immediately preceding the first day of the
first Licence Year in the television service which is known as "Playboy TV"
and is provided within the Licensor's Territory by the Licensor and/or an
Affiliate of the Licensor ("the Playboy Service") or (if higher) to the
overall standard, quality, freshness and commercial appeal of the
programming from time to time included in the Playboy Service during the
Term.
4.6 No Acquired Programme, Third Party Programme or so-called "vignette" shall
be delivered to the Company by or on behalf of the Licensor for
transmission in the Service, or scheduled for transmission in the Service
by any Scheduler (other than a Scheduler appointed under Clause 8.4,
proviso (c) or (d) to Clause 8.5, Clause 8.11.4 or Clause 10.4), unless
(a) the unexpired portion of the Playboy Licence Period in respect of that
Acquired Programme, Third Party Programme or so-called "vignette" is at
least twenty-four (24) months commencing upon the first day of the calendar
month in which the first transmission by the Company of that Acquired
Programme, Third Party Programme or so-called "vignette" in the Service
takes place and (b) the Licensor has acquired the right, and the Company is
therefore entitled, to transmit that Acquired Programme, Third Party
Programme or so-called "vignette" in the Service on not less than twenty-
four (24) occasions.
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4.7 Without prejudice to and in addition to its obligations under Clause 4.3,
the Licensor shall:
(a) deliver to the Company for transmission in the Service on a timely
basis such quantity and duration of "vignettes", promotional material
and other programming as may be necessary to fill each hour of
transmission time on the Service during which a Programme, or a Third
Party Programme acquired by the Licensor, is transmitted; and
(b) ensure that the total running time of the "vignettes" delivered to the
Company for first transmission in the Service in each Year shall not
in any event be less than ten (10) per cent of the Minimum Number of
Hours in respect of that Year.
4.8 In the event that the Company requests the Licensor in writing to increase
the maximum number of transmissions of so-called "vignettes" which it is
entitled to make pursuant to this Agreement above twenty-four (24), the
Licensor shall be deemed to have agreed to such request unless the Licensor
notifies the Company within seven (7) days after the date of such request
that it is unable to do so without committing a breach of any agreement
between the Licensor and any third party (other than an Affiliate of the
Licensor).
5. Delivery Material
5.1 Following completion of the Transmission Schedule by the Scheduler for any
Quarter in any Year, the Licensor shall deliver to the Company, at such
place as the Company may from time to time direct by notice in writing, the
Delivery Material in respect of each Selected Programme included in that
Transmission Schedule (or licensed to the Company by virtue of the
acceptance of any offer made pursuant to Clause 3.2 (as the case may be))
no later than two months before the commencement of that Quarter. In the
event that the Licensor or any Affiliate of the Licensor has in its
custody, control or possession a dubbed or sub-titled version of any
Selected Programme in any of the Service Languages, the Licensor shall
deliver that dubbed or sub-titled version to the Company as part of the
Delivery Material in respect of that Selected Programme. The costs of
delivering Delivery Material to the Company pursuant to this Clause 5.1
shall be borne as follows:
(a) the cost of the blank tapes included in the Delivery Material and the
cost of transporting the Delivery Material shall be borne by the
Company; and
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(b) all other such costs (including but not limited to duplication costs
and labour costs) shall be borne by the Licensor.
5.2 It shall be the responsibility of the Company to examine any Delivery
Material made available by the Licensor for technical suitability and to
notify the Licensor in writing within 30 (thirty) days of receipt of the
Delivery Material of any defect that prevents use. The Licensor shall use
all reasonable endeavours at its expense to replace the relevant elements
of the Delivery Material within 21 (twenty-one) days of receipt of such
notice but, if no such replacement is possible within such twenty-one day
period or the Company is able to demonstrate that such replacement is also
defective to such a degree as to prevent use, the Licensor shall make
available to the Company (a) substitute Programme(s) or Third Party
Programmes(s) of comparable nature, quality and duration which shall have
been approved by the Company and upon (so far as is reasonably practicable)
all the same terms as applied to the Programme or Third Party Programme in
respect of which the Delivery Material is defective. The Delivery Material
(which term includes any such replacement material as is referred to above)
shall be deemed to have been accepted by the Company on the expiry of the
said period of thirty (30) days unless the Licensor is so notified.
5.3 If after the Company has accepted, or is deemed pursuant to Clause 5.2 to
have accepted, any Delivery Material in relation to a Selected Programme
the Company requests further Delivery Material to replace material which
has been erased or for any other reason is not usable for the purposes of
this Agreement, the Licensor shall at the Company's cost arrange for such
further Delivery Material to be delivered to the Company.
5.4 The supply to the Company of Delivery Material shall not imply a change of
ownership in the Delivery Material or the Selected Programmes contained
therein. The Company shall take reasonable precautions consistent with
those taken for the Company's own materials to safeguard the Delivery
Material against loss or damage.
5.5 The technical quality of Delivery Material delivered to the Company
hereunder shall not be inferior to the technical quality of the
transmission tapes or other material used for the transmission of
programming in the Playboy Service (as defined in Clause 4.5) PROVIDED THAT
the Licensor shall use its reasonable efforts to ensure that the technical
quality of such Delivery Material also meets the customary standards of
technical quality from time to time prevailing in the United Kingdom
television industry.
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6. Editing, Publicity, Sub-titling and Dubbing
6.1 Subject to the provisions of Clauses 6.2, 6.3 and 6.6, the Company shall
not without the prior written consent of the Licensor edit, abridge or in
any way alter or rearrange any Selected Programme and shall (save in the
event of an unexpected lack of time) broadcast each Selected Programme in
its entirety.
6.2 The Company may edit Selected Programmes for the purposes of:
6.2.1 meeting programme timing requirements provided that:
(a) in carrying out such editing the Company shall not impair the
technical quality, meaning or integrity of any Selected
Programme; and
(b) the Company shall not delete or fail to transmit any credits,
titles or copyright notices appearing in any Selected Programme
unless such failure is caused by unexpected lack of time;
OR
6.2.2 complying with any legislation or any rules regulations guidelines
or codes of any competent regulatory authority of any country within
the Territory having jurisdiction over the Service.
6.3 Subject to the provisions of Clause 6.8, the Company may at its own expense
interpolate advertisements in the Selected Programmes but shall only do so
during breaks in the Selected Programmes created or designated by the
Licensor provided that such breaks comply with all rules and regulations
relating to advertising which are applicable within the Territory. If the
Licensor fails to create or designate breaks in any Selected Programme
which comply with such rules and regulations, the Company shall be free to
interpolate advertisements in that Selected Programme during breaks created
by it but shall use all reasonable endeavours not to interrupt any Selected
Programme at a place or in a manner which causes its technical quality,
meaning or integrity to be impaired. The Licensor shall not supply to the
Company any Selected Programme (or any Delivery Material in relation
thereto) in which any advertisement or promotional material (other than
promotional material promoting the transmission of Programmes or Third
Party Programmes in the Service) is incorporated and, without prejudice to
any other right or remedy of the Company, the
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Company shall be entitled to delete from any Selected Programme any
advertisement or promotional material which is incorporated in that
Programme or Third Party Programme on delivery of the relevant Delivery
Material.
6.4 The Company may:
(a) broadcast and authorise third parties to broadcast sequences or
excerpts from any Selected Programme for advertising and publicity
purposes provided that no sequence so broadcast shall exceed two (2)
minutes in running time and no excerpts so broadcast shall exceed three
(3) minutes in running time; and
(b) exhibit excerpts from any Selected Programme to potential investors in
the Company, advertisers and similar bodies. The Licensor shall on a
timely basis following any request by the Company make available
excerpts selected by the Company and supply materials to the Company
for this purpose.
6.5 The Company may, and may authorise third parties to, publicise its
transmission of each Selected Programme in any medium or media (including
but not limited to newspaper, magazine, billboard, direct mail, television
and radio advertising and publicity) and may for that purpose use and
authorize the use of the title of the Selected Programme, the name and
likeness (in the form of photographs which shall be supplied for that
purpose by the Licensor) of each contributor to the Selected Programme (but
not so as to endorse the use of any goods or services) and all other
publicity material comprised in the Delivery Material.
6.6 The Licensor shall incorporate at appropriate intervals (which shall be
determined by the Licensor having due regard to the need to identify and
promote the Service and to the views and requests of the Company) in the
Delivery Material relating to Selected Programmes supplied by the Licensor
under this Agreement the logo used by the Company in connection with the
Service (which logo shall be in the form approved by the Licensor prior to
the Launch Date, such approval not to be unreasonably withheld) but, if the
Licensor shall fail to do so, the Company shall, without prejudice to any
of its other rights and remedies, be entitled to add such logo to Selected
Programmes.
6.7 Unless the Licensor shall have notified the Company prior to or
concurrently with delivery of the Delivery Material in respect of any
Selected Programme that the Licensor does not have the right to dub and/or
sub-title that Selected Programme, the Company shall also be entitled at
its own expense
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to, and to authorise any third party to, translate, dub and/or sub-title the
soundtrack of any Selected Programme into any or all of the Service Languages
and to produce a version or versions of any Selected Programme in any of the
Service Languages provided that the Company shall consult in good faith with the
Licensor with a view to ensuring that the meaning or integrity of any Selected
Programme is not impaired by any such dubbing or sub-titling. Ownership of all
dubbed and/or sub-titled versions and foreign language tracks created by or on
behalf of the Company pursuant to this Clause shall remain vested in the Company
during the Term and thereafter shall be transferred to the Licensor without
payment. The Company shall also make available to the Licensor at a price equal
to 50% of the cost of dubbing or sub-titling access to and use of such versions
and tracks during the Term.
6.8 Whenever the Company includes advertisements in the Service it shall:
(a) use all reasonable endeavours not to accept advertisements for products
and services which in any material way detract from the image
established by the overall editorial content, graphic appeal and
production qualities of the Playboy Programmes included in the Service
("the Playboy Image");
(b) not accept advertisements for:
(i) any of the categories of products and services listed in
Schedule 7; or
(ii) magazines which compete with any edition of the "Playboy"
magazine; or
(iii) related publications which are published or distributed in
printed form by any competitor of the Licensor or any Affiliate
of the Licensor (i.e. any person who is engaged in the
publication and distribution of any magazine which competes with
any edition of the "Playboy" magazine); or
(iv) any audio-visual products which compete with those produced,
sold or distributed by the Licensor or any Affiliate of the
Licensor within the Territory;
(c) if the Licensor notifies the Company that any advertisement
transmitted by the Company in the Service and specified by the
Licensor in such notice does detract in a material way from the
Playboy Image, only refuse to cease transmitting that advertisement in
the Service
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on reasonable grounds (having regard inter alia to its contractual
obligations to third parties in relation to that advertisement
provided that the Company shall, if it would otherwise be obliged to
cease transmitting that advertisement, use reasonable endeavours to
obtain a release from such contractual obligations).
6.9 The Company hereby grants to the Licensor without charge the right
throughout the Term to use Playboy Airtime for the purpose of advertising
"Playboy" publications, and to authorize any Permitted Advertiser to use
Playboy Airtime for the purpose of advertising any of its products and
services which such Permitted Advertiser is concurrently advertising or
committed to advertise in any edition of the "Playboy" magazine PROVIDED
THAT the Licensor shall not itself use or authorize any Affiliate of the
Licensor to use Playboy Airtime for the purpose of advertising any product
(including but not limited to any audio or audio-visual product) or any
service other than editions of the "Playboy" magazine (whether published by
or under licence from the Licensor or any Affiliate of the Licensor) and
related publications which are published or distributed in printed form.
For the purposes of this Clause:
(a) a "Permitted Advertiser" shall mean any person who has during the twelve
(12) months immediately preceding any use of Playboy Airtime by that
person purchased or agreed to purchase advertising space in any edition of
the "Playboy" magazine for the first time; and
(c) "Playboy Airtime" shall mean in respect of each hour of transmission time
on the Service a period of thirty (30) seconds during that hour which is
reserved for the transmission of advertisements.
All advertisements which are to be transmitted during Playboy Airtime pursuant
to this Clause shall be produced and delivered to the Company at the sole cost
and expense of the Licensor. All such advertisements shall be subject to the
terms and conditions (other than the Company's ratecard and discount policy)
upon which the Company is prepared to accept advertisements as stated from time
to time by the Company within its printed standard terms and conditions.
7. Payment
7.1 In consideration of the rights granted to the Company under this Agreement
and under the Trademark Agreement, the Company shall pay to the Licensor:
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(a) in each Year the Basic Licence Fee;
(b) in respect of each Year commencing after the Year in which the Return
of Investment Date falls, an amount equal to the amount by which the
lesser of:
(i) the Requisite Percentage of Available Net Profits in that Year;
and
(ii) the Requisite Percentage of Net Revenues in that Year
exceeds the Basic Licence Fee payable in respect of that Year; and
(c) the Bonus Licence Fee (if any) upon the terms and subject to the
conditions detailed in Clause 7.2.
7.2 In the event that the Return of Investment Date falls before the sixth
anniversary of the Launch Date, then the Bonus Licence Fee shall be payable
to the Licensor PROVIDED THAT:
(a) if at any time after the Return of Investment Date and prior to payment
of the Bonus Licence Fee in full any of the Company's shareholders (by
whatever means and for whatever reason) provide(s) additional funding
to the Company, payment of the balance of the Bonus Licence Fee shall
be deferred until after repayment of all such funding (plus interest
thereon) has (in the manner described and calculated in the definition
of "Return of Investment Date" in Clause 1) been received by the
relevant shareholder(s) in the Company; and
(b) the Bonus Licence Fee shall only be payable to the Licensor out of
Available Cash Flow and, to the extent that the Company does not as at
the end of any Quarter have Available Cash Flow out of which to pay the
Bonus Licence Fee, the Company shall have no liability to pay the Bonus
Licence Fee on the final day of that Quarter pursuant to Clause 7.4(b)
but the Bonus Licence Fee (or any unpaid balance thereof) shall be
payable pursuant to Clause 7.4(b) as and when there is Available Cash
Flow at the end of any subsequent Quarter.
7.3 The Basic Licence Fee in respect of each Year shall be payable as per the
attached schedule marked Schedule 8.
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Not later than thirty (30) days prior to the first day of each Licence
Year the Company shall supply to the Licensor a signed purchase order
committing in that Licence Year to pay to the Licensor the amount of the
Basic Licence Fee applicable to that Licence Year in consideration for and
subject to the Licensor delivering to the Company for that Licence Year
the portion of the Minimum Number of Hours of Programmes which is
applicable to that Licence Year for first transmission in the Service.
That purchase order will also contain a list of the Programmes to be
delivered for first transmission in that Licence Year if the Licensor has
previously supplied that list to the Company. The obligations of the
Company under this Paragraph of Clause 7.3 and the terms of any purchase
order delivered by the Company hereunder shall be read and construed
subject to all of the other provisions of this Agreement which shall, in
the event of any conflict, prevail. Without prejudice to the generality of
the foregoing, none of the provisions contained in this Clause 7.3 shall
affect the calculation of the amount of the Programming Premium payable in
respect of any Year or the Bonus Licence Fee (if any). For the purposes of
this Agreement, a "Licence Year" shall mean any consecutive period of
sixteen (16) months during the Term commencing upon June 15, 1995 and June
15 in each subsequent calendar year.
7.4 (a) In the event that a Programming Premium is payable to the Licensor in
respect of any Year commencing after the Year in which the Return of
Investment Date falls, the Company shall pay such Programming Premium
to the Licensor within thirty (30) days after the date on which the
amount of the Available Net Profits and the Net Revenues in that Year
have been determined by the auditors of the Company and included in
accounting statements approved by the directors of the Company.
(b) On the first day of each Quarter in each Year commencing after the
Return of Investment Date but in no event before the end of the fifth
Year, the Company shall, until it has made payment of the Bonus
Licence Fee in full, apply 100% of its Available Cash Flow in payment
of the Bonus Licence Fee to the Licensor.
(c) Only after 100% of the Bonus Licence Fee has been paid by the Company
may the Company being paying dividends to any shareholder in the
Company.
7.5 The license fees payable by the Company under this Clause 7 and under
Clause 8 are exclusive of any and all amounts of Value Added Tax payable
thereon, which amounts of Value Added Tax shall by paid by the Company
provided that an appropriate invoice shall have been rendered to the
Company by the Licensor. If the Company is compelled by law or required by
any present or future
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law, regulation, treaty or official directive to make any deduction or
withholding from any amount of such licence fees, the Company shall be
entitled to do so and shall not be required to pay any additional amount or
amounts to the Licensor as a result of, or in order to compensate the
Licensor for, any such deduction or withholding.
7.6 The Available Cash Flow of the Company as at the end of any Quarter shall
for the purposes of sub-clause 7.2(b) be determined by the directors of the
Company on a timely basis and a copy of such determination shall be
provided to the Licensor. If the Licensor disagrees with any such
determination, the Licensor may within 30 days after receipt of a copy
thereof notify the Company to that effect whereupon the Company shall
promptly refer the matter to its auditors (acting as experts and not as
arbitrators) for their determination which shall be final and binding upon
both parties. The costs of any such referral to the auditors shall be borne
by the Licensor unless the auditors find that the determination made by the
directors of the Company was materially incorrect in which case such costs
shall be borne by the Company.
7.7 If the Company elects to transmit a Programme during a further Transmission
Period pursuant to Clause 2.2 and provided that the Company does not
subsequently decline to accept a further Transmission Period of that
Programme pursuant to the proviso to Clause 2.2:
(a) the licence fee payable by the Company in respect of that further
Transmission Period shall be:
(i) such sum as may be agreed in writing between the parties within a
period of thirty (30) days after the date of the notice given by
the Company pursuant to Clause 2.2 in respect of that Programme;
or
(ii) in the absence of such agreement within that 30 day period, a sum
equal to forty (40) per cent of the Initial Licence Fee and for
this purpose "the Initial Licence Fee" shall be the lower of
US$13,158 per Programme Hour of that Programme and the amount
paid to the third party licensor of that Programme (in the case
of an Acquired Programme) in consideration for the right to
transmit that Programme in the Service within the Territory. Any
licence fee payable pursuant to this Clause shall be paid in six
(6) equal instalments within thirty (30) days after the final day
of every fourth month during the first two (2) years of the
further Transmission Period;
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(b) the Basic Licence Fee in respect of each Year shall be increased by
the aggregate of the licence fees which the Company is liable to pay
and reimburse to the Licensor in that Year pursuant to this Clause,
and the references to the Basic Licence Fee in sub-clause 7.l(b) and
in the definition of "the Bonus Amount" in Clause 1 shall, for the
purpose of calculating any Programming Premium payable to the Licensor
in respect of any Year and the Bonus Licence Fee (if any), mean the
Basic Licence Fee as increased pursuant to this sub-clause.
7.8 In relation to each payment which is due to the Licensor pursuant to this
Agreement, the Licensor shall deliver to the Company an invoice showing the
amount of such payment and the Company shall make each such payment which
is so invoiced in accordance with the relevant provision(s) of this
Agreement.
8. The Scheduler and Scheduling
8.1.1 During the first four (4) Years ("the Initial Period") the Licensor
shall, after consulting with the Company in good faith regarding its
proposed choice and taking into account any comments made by the
Company in relation thereto, appoint an individual from the
Licensor's staff based in Los Angeles to be the scheduler of the
Service. If the Scheduler appointed under this Clause 8.1 is an
employee of the Licensor, the Licensor shall be free to terminate
the employment of that Scheduler based upon the Licensor's normal
business practices whereupon the Licensor shall forthwith notify the
Company and the provisions of sub-clause 8.1.2 shall apply to the
appointment of a replacement Scheduler. In addition the Company may
by giving one month's notice in writing to the Licensor expiring at
any time after the first anniversary of the first day of the first
Licence Year and before the final day of the Initial Period require
the Licensor to replace any Scheduler appointed under this Clause
8.1 whereupon the provisions of sub-clause 8.1.2 or Clause 8.4 (as
the case may be) shall apply to the appointment of a replacement
Scheduler. The Company may not however exercise its right under the
immediately preceding sentence of this sub-clause on more than one
occasion during any twelve (12) month period during the Initial
Period.
8.1.2 If at any time during the Initial Period the Licensor terminates the
employment of any Scheduler appointed by it under this Clause 8.1 or
the Company exercises its right under sub-clause 8.1.1 to replace
any such Scheduler, the Licensor shall, after consulting with the
Company in good faith regarding its proposed choice and taking into
account any comments made by the Company in relation thereto, on a
timely basis appoint one of its employees to be the scheduler of the
Service as
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a replacement for the individual whose employment has been terminated by it
or who is to be replaced by virtue of the exercise by the Company of its
right under sub-clause 8.1.1.
8.2 The duties of the Scheduler shall include:
8.2.1 selecting the Programmes and Third Party Programmes for
transmission in the Service and preparing a quarterly Transmission
Schedule for the same in compliance with the Shareholders Agreement,
the Business Plan and this Agreement (including but not limited to
Clause 4 as well as the Minimum Number of Hours and Programme
Specification). The Scheduler will supply to the Company and to the
Licensor a copy of each quarterly Transmission Schedule not later
than 75 days prior to the first day of the relevant Quarter. The
Scheduler will only procure the acquisition of and schedule Third
Party Programmes in accordance with the terms of this Agreement;
8.2.2 ensuring that the Selected Programmes and all interstitial material
referred to in sub-clause 8.2.5 below are assembled in accordance
with the Transmission Schedule;
8.2.3 ensuring that no Selected Programme is scheduled for transmission in
the Service on more than fifteen (15) occasions during any Year
(which number shall be reduced or increased pro rata if the Minimum
Number of Hours is increased above or reduced below 114 pursuant to
Clause 8.6, 8.7, 8.8, 8.11 or 10.4);
8.2.4 supervising the design of the on-screen appearance of the Service;
8.2.5 at the cost of the Licensor procuring (a) the supply of or
commissioning where necessary all on-screen promotional and
interstitial material which is required in order to promote both the
Selected Programmes and the Service and in a form which is suitable
for transmission within the Territory and (b) the insertion of the
Company's logo in each Selected Programme.
8.3.1 Each Scheduler appointed by the Licensor under Clause 8.1 during the
Initial Period will be based in Los Angeles but the Licensor shall procure
that he or she will be available to the Company at the Company's offices
in the United Kingdom as and when reasonably required by the Company for
the proper discharge of the Scheduler's functions hereunder. The Licensor
shall also procure that each
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such Scheduler shall when not in the United Kingdom be generally readily
available for consultation with the Company and its staff.
8.3.2 All costs (including, without limitation, all remuneration, benefits and
bonuses) in connection with the engagement and provision of the services
of the Scheduler and all related support personnel and services and with
the performance of the Licensor's obligations under Clauses 8.1, 8.2 and
8.3 will be borne solely and exclusively by the Licensor (save only in the
circumstances set out in Clause 8.4, in sub-clause 8.5.3 and in provisos
(c) and (d) to Clause 8.5 and provided that all reasonable and vouchered
travelling and accommodation costs incurred by the Scheduler in travelling
to and whilst visiting the United Kingdom or elsewhere within the
Territory at the request of the Company shall be borne by the Company).
8.3.3 The services of each Scheduler appointed under Clause 8.1, Clause 8.4 or
Clause 8.5 shall (unless the Scheduler is engaged by the Company as an
employee of the Company pursuant to Clause 8.4 or proviso (c) or (d) to
Clause 8.5) be made available by the Licensor to perform inter alia the
duties set out in Clause 8.2 on a first call basis in connection with the
Service. The Licensor shall make available the services of each such
Scheduler, together with all support personnel and office services and
facilities reasonably required by that Scheduler, for such periods, at
such times during the Licensor's normal working hours and in such a manner
as may be necessary in order to enable that Scheduler to discharge his or
her obligations effectively and efficiently hereunder. The Licensor shall
(unless the Scheduler is engaged by the Company as an employee of the
Company pursuant to Clause 8.4 or proviso (c) or (d) to Clause 8.5)
procure that the Scheduler shall at all times perform his or her duties in
accordance with the provisions of this Agreement and the Shareholders'
Agreement.
8.4 If the Company wishes to replace any Scheduler appointed under Clause 8.1
with effect from any date after the final day of the Initial Period, it
may do so upon giving not less than one month's written notice to the
Licensor expiring at any time after the final day of the Initial Period.
If the Company gives such a notice, the Company shall nominate in writing
two or more individuals to act as Scheduler and, in respect of each
individual so nominated by it, the Company shall specify the parameters of
the financial terms on which it is proposing to engage that individual.
Within fourteen (14) days thereafter the Licensor must choose one of the
persons nominated and the Company will then engage at its own expense in
the capacity of Scheduler hereunder either the individual so chosen by the
Licensor or, if within that 14 day period the Licensor fails to choose any
of the individuals
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nominated, the individual chosen by the Company. The provisions of Clause
8.5 shall apply to the replacement of any Scheduler appointed under this
Clause 8.4.
8.5 If at any time after the first anniversary of the date upon which the
appointment of the Scheduler appointed under Clause 8.4 took effect either
party wishes to replace the Scheduler appointed under Clause 8.4 or any
successor thereof appointed under this Clause 8.5, it may (subject always
to the provisions of sub-clauses 8.11.4 and 10.4.4) do so upon giving
three months' written notice (a "Scheduler Replacement Notice") to the
other party in which event:
8.5.1 each party shall use its best endeavours to reach agreement with the
other party upon the appointment of a replacement Scheduler and, if
within that 3 month notice period such agreement is reached, the
agreed individual shall be appointed as the Scheduler;
8.5.2 if within that 3 month notice period the parties shall have been
unable to reach agreement, each party shall not later than the final
day of that 3 month period nominate in writing two individuals to
act as Scheduler, the name of each individual so nominated shall be
placed in a hat and the Chief Executive Officer of the Company shall
draw one name out of that hat. The individual whose name is drawn
out of the hat shall be appointed as the Scheduler;
8.5.3 if any Scheduler appointed under sub-clause 8.5.2:
(a) was nominated by the Company; and
(b) is not an employee of the Licensor
that Scheduler shall be engaged by the Company at its expense;
8.5.4 if at any time either party wishes to replace an individual
appointed under sub-clause 8.5.1 or 8.5.2, it shall follow the
procedure hereinbefore set out in this Clause 8.5
PROVIDED ALWAYS THAT:
(a) neither party may exercise the right to replace a Scheduler
appointed under this Clause 8.5 at any time prior to the first
anniversary of the date upon which the appointment of that Scheduler
took effect;
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(b) the Licensor may not exercise the right to replace a Scheduler
appointed under Clause 8.4 or under this Clause 8.5 in the
circumstances described in sub-clause 8.11.4 or 10.4.4 if:
(i) at any time prior to the date of any Scheduler Replacement Notice
given under this Clause 8.5, the Company has given a notice to
the Licensor under Clause 8.6 or Clause 8.11; or
(ii) as at the date of any Scheduler Replacement Notice given under
this Clause 8.5, the Licensor holds less than fifteen (15) per
cent in nominal value of the total issued ordinary shares in the
capital of the Company
and, if either paragraph (i) or (ii) above shall apply, the relevant
Scheduler Replacement Notice given by the Licensor under this Clause
8.5 shall have no force or effect; and
(c) if either paragraph (i) or (ii) of proviso (b) above shall apply as at
the date of any Scheduler Replacement Notice given by the Company
under this Clause 8.5 and if within the three month period specified
in that notice the parties shall have been unable to reach agreement
upon a replacement Scheduler, then the Company may nominate in writing
two or more individuals to act as Scheduler and, in respect of each
individual so nominated by it, the Company shall specify the
parameters of the financial terms on which it is proposing to engage
that individual whereupon the provisions of sub-clauses 8.5.1 to 8.5.3
shall not apply to the appointment of the replacement Scheduler.
Within fourteen (14) days thereafter the Licensor must choose one of
the persons nominated and the Company will then engage at its own
expense in the capacity of Scheduler hereunder either the individual
so chosen by the Licensor or, if within that 14 day period the
Licensor fails to choose any of the individuals nominated, the
individual chosen by the Company; and
(d) if as at the date of any Scheduler Replacement Notice given under this
Clause 8.5, the Licensor holds less than ten (10) per cent in nominal
value of the total issued ordinary shares in the capital of the
Company, the Company shall be freely entitled to replace the Scheduler
and engage at its expense a replacement Scheduler of its choice and
sub-clauses 8.5.1 to 8.5.3 and proviso (c) to this Clause 8.5 shall
not apply to the appointment of any such replacement Scheduler by the
Company.
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8.6 If the Net Revenue per Household received by the Company during the fourth
Year is less than One Pound and thirty-seven pence ((Pounds)1.37) then at
any time prior to the first day of the sixth Year the Company may, or if
the Company becomes entitled to (but does not) terminate this Agreement
pursuant to sub-clause 10.2(b), then at any time thereafter the Company
may, give notice to the Licensor (with a copy to the Scheduler) stating
that the Minimum Number of Hours is with effect from a date specified in
such notice which shall not fall less than ninety (9O) days after the date
of such notice ("the Applicable Date") to be reduced and specifying such
reduced Minimum Number of Hours in respect of each subsequent Year. If the
Company gives such a notice, then the following provisions shall apply:
(a) the aggregate Programme Duration of Programmes delivered to the
Company by the Licensor for first transmission in the Service during
each Year commencing after the Applicable Date shall comprise not less
than fifty-one (51) per cent of the aggregate Programme Duration of
all Programmes and all Third Party Programmes transmitted in the
Service for the first time during that Year;
(b) all Third Party Programmes broadcast by the Company for reception
within the Territory following the Applicable Date shall fall within
the Programme Specification;
(c) following the Applicable Date Third Party Programmes shall (subject to
the provisions of sub-clause (i) of this Clause 8.6) be acquired by
the Licensor acting upon instruction from the Scheduler or the Company
and as the agent of the Company on terms which shall first have been
approved by the Company in writing and the Company shall within 21
days of receipt of the Licensor's invoice with respect thereto
reimburse to the Licensor all licence fees which shall actually have
been paid by the Licensor to the relevant third party with the prior
written approval of the Company in accordance with this sub-clause and
in consideration for the right to transmit the relevant Third Party
Programme(s) in the Service within the Territory;
(d) the Basic Licence Fee payable by the Company in respect of each Year
commencing after the Year in which the Applicable Date falls shall be
reduced pro rata to an amount calculated by:
(i) multiplying the reduced Minimum Number of Hours specified in such
notice by the Basic Licence Fee which would have been payable by
the Company in respect
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of the relevant Year if no notice had been given by the Company
pursuant to this Clause; and
(ii) dividing the product of that multiplication by the number which
would have represented the Minimum Number of Hours in respect of
the Year in which the Applicable Date falls if no notice had been
given by the Company pursuant to this Clause;
(e) the Basic Licence Fee payable by the Company in respect of the Year in
which the Applicable Date falls shall be the aggregate of the
following amounts:
(i) an amount ("the First Amount") calculated by (A) dividing by 365
the amount of the Basic Licence Fee which would have been payable
by the Company in respect of that Year if no notice had been
given by the Company pursuant to this Clause and (B) multiplying
the product of that division by the total number of days during
that Year prior to (but excluding) the Applicable Date; and
(ii) an amount calculated by (A) subtracting the First Amount from the
amount of the Basic Licence Fee which would have been payable by
the Company in respect of that Year if no notice had been given
by the Company pursuant to this Clause, (B) dividing the figure
resulting from that subtraction by the number which would have
represented the Minimum Number of Hours in respect of that Year
if no notice had been given by the Company pursuant to this
Clause and (C) multiplying the product of that division by the
reduced Minimum Number of Hours specified in such notice in
respect of each subsequent Year;
(f) each Requisite Percentage shall with effect from the Applicable Date
be reduced pro rata to a percentage calculated in the manner detailed
in paragraphs (i) and (ii) of sub-clause (d) of this Clause save that
for the purposes of each such calculation the reference in paragraph
(i) of sub-clause (d) to "the Basic Licence Fee which would have been
payable by the Company" shall be read as a reference to the Requisite
Percentage of Available Net Profits or Net Revenues (as the case may
be) which applied for the purpose of calculating the Programming
Premium (if any) payable to the Licensor in respect of the immediately
preceding Year;
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(g) the Minimum Number of Hours in respect of the Year in which the
Applicable Date falls shall be the aggregate of the following numbers:
(i) a number calculated by (A) dividing by 365 the number which would
have represented the Minimum Number of Hours in respect of that
Year if no notice had been given by the Company pursuant to this
Clause and (B) multiplying the product of that division by the
total number of days during that Year prior to (but excluding)
the Applicable Date; and
(ii) a number calculated by (A) subtracting the total number of days
during that Year following (and including) the Applicable Date
from 365, (B) dividing the figure resulting from that
subtraction by 365 and (C) multiplying the product of that
division by the reduced Minimum Number of Hours specified in such
notice in respect of each subsequent Year;
(h) the maximum percentage (i.e. 36%) of Programme Hours of Acquired
Programmes and the maximum percentage of Playboy Acquired Programmes
(i.e. 16%) which in any Year commencing after the Applicable Date
the Licensor is entitled by virtue of sub-clauses 4.3(b) and 4.3(c) to
deliver to the Company for first transmission in the Service shall
each be reduced pro rata to a percentage calculated in the manner
detailed in paragraphs (i) and (ii) of sub-clause (d) of this Clause
save that for the purposes of this calculation the reference in
paragraph (i) of sub-clause (d) to "the Basic Licence Fee which would
have been payable by the Company" shall be read as a reference to the
maximum percentage of Programme Hours of Acquired Programmes or (as
the case may be) the maximum percentage of Playboy Acquired Programmes
which the Licensor was entitled to deliver to the Company in the
immediately preceding Year pursuant to sub-clause 4.3(b) or 4.3(c) for
first transmission in the Service;
(i) in the event that the Company gives a notice pursuant to this Clause
8.6 after the Company has become entitled (but has elected not) to
terminate this Agreement pursuant to sub-clause 10.2(b), then
following the Applicable Date:
(i) the provisions of sub-clause (c) of this Clause 8.6 shall cease
to apply, the Company shall be freely entitled at the Company's
expense to licence Third Party Programmes from third parties and
to schedule and transmit such Third Party
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Programmes in the Service and the Company shall assume sole
responsibility for such licensing and scheduling PROVIDED THAT
all Third Party Programmes so transmitted in the Service shall
fall within the Programme Specification and the Company shall
comply with the provisions of sub-clause (a) of this Clause 8.6
(as amended by paragraph (iii) below);
(ii) the Company shall be freely entitled to replace the Scheduler and
to engage at its expense a replacement Scheduler of its choice
and Clauses 8.1 and 8.5 shall not apply to the appointment of any
such replacement Scheduler;
(iii) the reference to "fifty-one (51) per cent" in sub-clause (a) of
this Clause 8.6 shall be read as a reference to "fifty-one (51)
per cent or such lesser percentage as the Licensor is able to
deliver to the Company for first transmission in the Service in
compliance with the provisions of Clause 4"; and
(iv) if in any Year commencing after the Applicable Date the aggregate
Programme Duration of Programmes transmitted by the Company in
the Service during that Year shall comprise less than twenty-five
(25) per cent of the aggregate Programme Duration of all
Programmes and all Third Party Programmes transmitted in the
Service during that Year, then the Licensor may within ninety
(90) days after the final day of that Year give notice to the
Company requiring the Company to remove the word "Playboy" from
both the name of the Service and the name of the Company and the
Company shall promptly comply with any such notice.
8.7 The Company shall be entitled at any time and from time to time after the
first anniversary of the first day of the first Licence Year:
(a) to notify the Licensor that in its reasonable opinion (whether based
upon the results of then current market research, feedback from
advertisers or potential advertisers, a failure to achieve the
objectives of any Business Plan and/or any other valid reason
specified in writing by the Company) the then current Minimum Number
of Hours is not sufficient and needs to be increased; and
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(b) pursuant to that notice to require the Licensor to deliver to the
Company with effect from a date specified in that notice which shall
fall not less than ninety (90) days after the date of that notice and
in each subsequent Year commencing after the effective date of that
notice such higher Minimum Number of Hours as may be specified by the
Company in that notice PROVIDED THAT the higher Minimum Number of
Hours so specified by the Company shall not exceed two hundred and
twenty-eight (228).
8.8 If the Company gives such a notice pursuant to Clause 8.7:
(a) the Licensor shall deliver such higher Minimum Number of Hours to
the Company in accordance with that notice provided that, if the
Licensor is unable to deliver such higher Minimum Number of Hours to
the Company without committing a breach of one of its other
obligations hereunder, it shall be entitled to refuse to do so by
giving notice in writing to the Company within 30 days after receipt
of such notice from the Company;
(b) if the Licensor does so refuse to deliver such higher Minimum Number
of Hours to the Company, then the Company shall be free to include
Third Party Programmes in the Service and, solely for the purpose of
calculating (i) any Programming Premium payable to the Licensor in
respect of the Year in which that notice took effect (the "Current
Year") and in respect of any subsequent Year commencing after the
Current Year, and (ii) the Bonus Licence Fee (if any), the Basic
Licence Fee in respect of the Current Year and in respect of each such
subsequent Year shall be deemed to have been increased by the
aggregate of all licence fees paid by the Company during the Current
Year or that subsequent Year (as the case may be) in consideration for
the right to include Third Party Programmes in the Service;
(c) if the Licensor does deliver such higher Minimum Number of Hours to
the Company, then with effect from the date specified in that notice
in accordance with sub-clause 8.7(b):
(i) the Company shall pay to the Licensor an additional licence fee
at the Hourly Rate (as defined in paragraph (iv) below) for each
Programme Hour in respect of those additional Playboy Programmes
which are delivered to the Company for first transmission in the
Service in any Year (an "additional" Playboy Programme being any
Playboy Programme over and above those Playboy Programmes which
are so delivered to the Company in that Year and whose aggregate
Programme
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Duration is ninety-one (91) Programme Hours) and that additional
licence fee will be added to and paid as part of the Basic Licence Fee
for that Year in accordance with Clause 7.3;
(ii) the Company shall within 21 days after receipt of the Licensor's
invoice with respect thereto reimburse to the Licensor such licence
fees as may actually have been paid to third parties in consideration
for the right to transmit any Acquired Programme(s) in the Service
within the Territory and with the prior written approval of the
Company provided that the provisions of this paragraph (ii) shall only
apply to those Acquired Programmes which are delivered to the Company
for first transmission in the Service and whose aggregate Programme
Duration exceeds twenty-three (23) Programme Hours in any Year;
(iii) the Basic Licence Fee in respect of each Year shall be increased by
the aggregate of the licence fees which the Company is liable to pay
and reimburse to the Licensor in that Year pursuant to paragraphs (i)
and (ii) of this sub-clause, and in respect of the Current Year (as
defined in sub-clause (b) above) and each subsequent Year commencing
after the Current Year the references to the Basic Licence Fee in sub-
clause 7.l(b) and in the definition of "the Bonus Amount" in Clause 1
shall, for the purpose of calculating any Programming Premium payable
to the Licensor in respect of the Current Year and any subsequent Year
commencing after the Current Year and the Bonus Licence Fee (if any),
mean the Basic Licence Fee as increased pursuant to this paragraph;
(iv) for the purpose of paragraph (i) of this sub-clause, "the Hourly Rate"
shall mean thirteen thousand one hundred and fifty-eight United States
Dollars (US$13,158);
(d) if the Licensor does deliver such higher Minimum Number of Hours to the
Company, the Company shall be entitled at any time thereafter to give notice
to the Licensor (with a copy to the Scheduler) stating that the Minimum
Number of Hours is with effect from a date specified in such notice which
shall fall not less than ninety (90) days after the date of such notice
("the Applicable Date") to be reduced and specifying such reduced Minimum
Number of Hours in respect of each subsequent Year PROVIDED THAT the reduced
Minimum Number of Hours so specified pursuant to this sub-clause shall not
be less than one hundred
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and fourteen (114). If the Company gives such a notice, the provisions
of sub-clauses 8.6(a) to (h) shall apply as if such notice had been
given under Clause 8.6 SAVE AND EXCEPT THAT sub-clauses 8.6(c) and (h)
shall not apply.
8.9 The Company may at any time by notice in writing to the Licensor require
the Licensor to acquire and schedule for transmission in the Service a
motion picture as an Acquired Premium Movie. Any such notice shall specify
the criteria which any motion picture so acquired by the Licensor would
have to satisfy ("the Criteria") including but not limited to the maximum
amount of the licence fee which the Company is prepared to pay in order to
acquire such a motion picture. The following provisions shall apply to the
acquisition of Acquired Premium Movies:
(a) the maximum number of Acquired Premium Movies which the Licensor can
be required to acquire in any Year and the maximum amount which the
Company may expend on such acquisitions in any Year shall be as
follows:
(i) in the First Year: one Acquired Premium Movie at a cost not
exceeding one hundred thousand pounds ((Pounds)100,000);
(ii) in the second Year: such number of Acquired Premium Movies as
the directors of the Company may determine at an aggregate cost
not exceeding four hundred thousand pounds ((Pounds)400,000) less
such amount as may have been expended by the Company in the First
Year on the acquisition of an Acquired Premium Movie;
(iii) in the third and each subsequent Year: such number of Acquired
Premium Movies and at such cost and aggregate cost as the
directors of the Company may determine;
(b) if the Company gives such a notice, the Licensor shall within fourteen
(14) days after the date of that notice nominate in writing the titles
of not less than three (3) motion pictures which satisfy the Criteria
and, if the Company selects one of those three (3) motion pictures (a
"Selected Title"), the Licensor shall use all reasonable endeavours to
acquire that Selected Title for transmission in the Service;
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(c) the Licensor shall only acquire a Selected Title for transmission in
the Service upon terms which shall first have been approved in writing
by the Company and, after having so acquired a Selected Title, shall
promptly schedule or procure the scheduling of that Selected Title for
transmission in the Service in accordance with the reasonable
requirements of the Company;
(d) if a Selected Title is so acquired by the Licensor and scheduled for
transmission in the Service, the Company shall within 21 days of
receipt of the Licensor's invoice with respect thereto reimburse to
the Licensor all licence fees which shall actually have been paid by
the Licensor with the prior written approval of the Company in
accordance with this sub-clause and in consideration for the right to
transmit the relevant Selected Title in the Service within the
Territory;
(e) if within ninety (90) days after the date of that notice the Licensor
shall have been unable so to acquire a Selected Title for transmission
in the Service or if the Licensor shall have failed to perform its
obligations under this Clause, the provisions of Clause 8.10 shall
apply.
8.10 If at any time when the Company is entitled to include Third Party
Programmes in the Service hereunder and/or the Company requests or
instructs the Licensor to obtain such Third Party Programmes on its behalf
in accordance with the terms hereof and the Licensor refuses, fails or
neglects to obtain the same or does not obtain them in a timely fashion
and/or on terms reasonably acceptable to the Company, then the Company
shall be entitled to license or procure the licensing of the same and to
schedule and transmit such Third Party Programmes in the Service.
8.11 If at any time during the Term the Company is obliged under the laws of any
country within the Territory to transmit in the Service a certain
percentage ("the Quota Percentage") of programmes which are European Works,
then the Company shall notify the Licensor in writing to that effect
specifying the Quota Percentage and the following provisions shall apply:
8.11.1 within thirty (30) days after the date of any such notice the
Licensor may by notice in writing to the Company elect with effect
from the date which falls sixty (60) days after the date of the
notice given by the Company ("the Applicable Date") to produce, co-
produce or acquire and supply to the Company for first transmission
in the Service in accordance with the provisions of this Agreement
(including but not limited to the provisions of Clause 4) such
number of Programme Hours of Programmes or Third Party Programmes
which are
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European Works as may be necessary to enable the Company to transmit in
the Service the Quota Percentage of programmes which are European Works.
8.11.2 if the Licensor elects under sub-clause 8.11.1 to acquire Third Party
Programmes, the Company may give notice to the Licensor stating that the
Minimum Number of Hours is with effect from the Applicable Date to be
reduced and specifying such reduced Minimum Number of Hours in respect of
each subsequent Year whereupon the provisions of sub-clauses 8.6(a) to
(h) shall apply as if such notice had been given under Clause 8.6 SAVE
AND EXCEPT THAT:
(a) the reference in sub-clause 8.6(a) to "fifty-one (51) per cent"
shall be read as a reference to the Quota Percentage for the
purposes of this Clause; and
(b) the references in sub-clause 8.6(c) to "Third Party Programmes"
shall be read as references to "Third Party Programmes which are
European Works".
8.11.3 if the Licensor does not so elect under sub-clause 8.11.1, the
provisions of sub-clause 8.11.2 shall apply SAVE AND EXCEPT THAT sub-
clauses 8.6(c) and 8.11.2(b) shall not apply and the Company shall
following the Applicable Date (subject only to its obligations under sub-
clauses 8.6(a) and (b)) be entitled at the Company's expense to licence
Third Party Programmes which are European Works from third parties and to
schedule and transmit such Third Party Programmes in the Service and
shall assume sole responsibility for such licensing and scheduling.
8.11.4 if the Licensor does not so elect under sub-clause 8.11.1, then the
following provisions shall also apply:
(a) the Company shall be freely entitled to replace the Scheduler
and to engage at its expense a replacement Scheduler of its
choice and Clauses 8.1 and 8.5 shall not apply to the
appointment of any such replacement Scheduler; and
(b) if the Licensor notifies the Company that it is able to license
to the Company any Programme which is a European Work in
addition to the Programmes which the Company is obliged to
transmit pursuant to Clause 8.6, then the Company shall not
unreasonably refuse to licence that Programme from the Licensor
at a licence
45
<PAGE>
fee not exceeding (i) US$13,158 per Programme Hour (in the case of
a Playboy Programme) or (ii) the actual amount paid to the third
party licensor of that Programme in consideration for the right to
transmit that Programme in the Service within the Territory (in
the case of an Acquired Programme).
9. Warranties
----------
9.1 The Licensor warrants to the Company in relation to each Selected
Programme that:
(a) the Licensor has obtained and paid for, all such rights in the Selected
Programme and has obtained and paid for all such releases licences and
consents in relation to the material incorporated in it as are
necessary to enable the Company to exercise the rights in the Selected
Programme granted to it under this Agreement;
(b) no material contained in the Selected Programme is or will be libellous
or otherwise defamatory of any person or obscene or constitute an
invasion of any rights of privacy;
(c) the exercise by the Company of the rights hereby granted in the
Selected Programme will not infringe the copyright, moral rights or any
other similar right of any person;
(d) the Licensor is not at the date of this Agreement aware of any legal
proceedings or any threat of legal proceedings or any claim by any
third party alleging that the Selected Programme infringes the rights
(whether of copyright or otherwise) of any third party or that the
exercise of the rights hereby granted in the Selected Programme will
infringe the rights (whether of copyright or otherwise) of any third
party;
(e) there are not and will not at any time during the Term be any charges,
liens, security interests or other encumbrances over or affecting the
Selected Programme which would preclude the exercise by the Company of
the rights hereby granted in the Selected Programme;
(f) the content of the Selected Programme will comply with all censorship
regulations and all broadcasting standards, regulations, codes and
guidelines as to Programme content which may be applicable to
television services such as the Service in each country within the
46
<PAGE>
Territory and may have drawn up and/or imposed on such television
services by any competent regulatory authority or body in any such
country; and
(g) all music synchronisation licence and recording and performance fees
and royalties, and all residuals, use fees and other monies payable in
connection with the Selected Programme or the rights upon which it is
based or the performances incorporated in it have been or will prior
to the delivery of the Delivery Material be paid and that no fees of
any description whatsoever will be payable by the Company in respect
of the exercise in the Territory of the rights hereby granted in the
Selected Programme other than performing rights in respect of music
contained in the Selected Programme.
9.2 Each party warrants to and undertakes with the other that:
(a) it has full right title and authority to enter into this Agreement and
to perform the obligations undertaken by it hereunder and that it has
not entered into any agreement with any third party which does or will
conflict with the terms hereof; and
(b) it will indemnify the other against all actions proceedings claims
costs and expenses (including without limitation legal fees) and any
other damage suffered by the other as a direct or reasonably
foreseeable result of a breach of any of the warranties, undertakings
or agreements on its part contained or made in this Agreement.
10. Term, Termination and Extension
-------------------------------
10.1 This Agreement shall become effective upon the date hereof and shall remain
in effect throughout the Term.
10.2 In addition to and not in substitution for any other right or remedy either
party shall have the right to terminate this Agreement with immediate
effect by written notice to the other party to that effect given at any
time if:
(a) the other party shall commit a material breach of any term or provision
of this Agreement, or (subject to the provisions of Clause 10.7) any
warranty made herein by the other party shall be found not to be true
and accurate in all material respects (a "default"), and such breach or
default if remediable shall not have been remedied by the other party
within
47
<PAGE>
twenty-eight (28) days after receipt of written notice specifying such
breach or default and requiring the same to be remedied; or
(b) the other party shall cease to carry on business or shall be unable to
pay its debts as they fall due for payment or if under the laws of any
jurisdiction a liquidator, administrator, receiver, or similar
official is appointed of the other party or in respect of any of its
assets or undertaking or if any liquidation, insolvency, winding-up,
administration or similar proceedings are instituted against the other
party under the laws of any jurisdiction PROVIDED ALWAYS THAT the
Licensor shall not be entitled to terminate this Agreement under this
sub-clause 10.2(b) if Flextech shall notify the Licensor of its offer
to acquire the Licensor's entire shareholding in the Company pursuant
to Clause 8.5 of the Shareholders' Agreement of even date herewith; or
(c) the other party is prevented by an event of Force Majeure from
performing its obligations, or if the party giving such notice of
termination is prevented by an event of Force Majeure from exercising
its rights, under this Agreement for a period in excess of one hundred
and eighty (180) consecutive days; or
(d) the Trademark Agreement shall be lawfully terminated by either party
thereto.
10.3 The Company shall in addition to the foregoing have the right to terminate
this Agreement by giving notice in writing to the Licensor if:
(a) the Company has given any notice pursuant to Clause 8.6 and if during
the first complete Year following the date of any such notice ("the
Relevant Year") the Net Revenue per Household received by the Company
is less than One Pound and thirty-seven pence ((Pounds)1.37) PROVIDED
THAT any such notice of termination must be given by the Company
within twenty-four (24) months after the final day of the Relevant
Year; or
(b) in any Year after the Licensor has given a notice of election pursuant
to sub-clause 8.11.1 the Licensor has been unable to licence to the
Company pursuant to this Agreement a sufficient Programme Duration of
Programmes or Third Party Programmes which are European Works in order
to enable the Company to comply with the Directive and with the laws
of each country within the Territory PROVIDED THAT any such notice of
termination
48
<PAGE>
must be given by the Company within twelve (12) months after the final
day of that Year; or
(c) the Licensor fails to give a notice of election under sub-clause
8.11.1 within the 30 day period referred to in that sub-clause
PROVIDED THAT any such notice of termination must be given by the
Company within twelve (12) months after the final day of that 30 day
period.
Any such termination shall take effect immediately upon the first
anniversary of the date of receipt by the Licensor of any such notice of
termination (such anniversary being hereinafter referred to as "the
Effective Date").
10.4 In the event that the Company terminates this Agreement in accordance with
the provisions of Clause 10.3 then:
10.4.1 the Company shall be entitled to continue to exercise its rights
under the Trademark Agreement until the Effective Date;
10.4.2 for the remaining year of this Agreement ending upon the Effective
Date, the Programme Duration of the Programmes in the Service will
comprise not less than 51% (in the case of a termination pursuant to
sub-clause 10.3(a)) or the Quota Percentage (in the case of a
termination pursuant to sub-clause 10.3(b) or (c)) of the total
Programme Duration of the Programmes and the Third Party Programmes
included in the Service during such year, and the Programming
Premium and the Basic Licence Fee payable by the Company during or
in respect of such year shall each be reduced pro rata to the
proportion which the Programme Duration of Programmes included in
the Service during the said year bears to the aggregate Programme
Duration of Programmes and Third Party Programmes included in the
Service during the said year;
10.4.3 the Company shall be freely entitled at the Company's expense to
licence Third Party Programmes from third parties and to schedule
and transmit such Third Party Programmes in the Service and shall
assume sole responsibility for such licensing and scheduling
PROVIDED THAT all Third Party Programmes so transmitted in the
Service shall fall within the Programme Specification and the
Company shall comply with the provisions of sub-clause 10.4.2;
49
<PAGE>
10.4.4 the Company shall be freely entitled to replace the Scheduler and to
engage at its expense a replacement Scheduler of its choice and
Clauses 8.1 and 8.5 shall not apply to the appointment of any such
replacement Scheduler;
10.4.5 for a period of eighteen (18) months commencing upon the Effective
Date the Licensor:
(a) shall not use or authorise or permit any third party to use any
of the Trade Marks within the Territory; and
(b) shall not authorise or permit any third party to broadcast,
transmit or exhibit (whether pursuant to the Standard
Television Rights or the Non-Standard Television Rights) within
the Territory any Programme, any excerpt from any Programme or
any promotional or advertising material publicising its
transmission of any Programme (i) in any form which allows or
causes the word "Playboy", any of the Trade Marks or any other
logo, mark or symbol which is associated with the "Playboy"
name or brand to be seen at any time during any broadcast,
transmission or exhibition of that Programme by any person
viewing such broadcast, transmission or exhibition or (ii)
which in any way suggests or implies that that Programme has
been produced by, or licensed to that third part by, the
Licensor or any Affiliate of the Licensor.
10.5 In the event that this Agreement is terminated by the Company pursuant to
sub-clause 10.3(a) and in the event that prior to the Effective Date the
Licensor has received or has become entitled to receive licence fees (other
than amounts paid by the Licensor to third party licensors for the right to
transmit Third Party Programmes in the Service and reimbursed to the
Licensor by the Company hereunder) pursuant to any provision of Clause 7,
Clause 8 or this Clause 10 (including but not limited to Clauses 7.1 to 7.4
inclusive, Clause 7.7 and Clause 8.8) amounting in the aggregate to less
than US$7.5 million ("the Minimum Amount"), then, for so long as the
programming included in the Service after the Effective Date is of the same
genre as the Programmes and Third Party Programmes delivered to the Company
hereunder prior to the Effective Date, the Company shall following the
Effective Date licence from the Licensor on a sole and exclusive basis
within the Territory and the Licensor shall deliver to the Company for
first transmission in the Service such number of Programme Hours of Playboy
Programmes selected by the Company as may be determined in accordance with
the provisions of Schedule 6, upon and subject to the following terms and
conditions:
50
<PAGE>
10.5.1 the Licensor may by notice in writing given to the Company within
thirty (30) days after the date of any notice of termination given
by the Company pursuant to Clause 10.3 decline to licence further
Playboy Programmes to the Company in the event that this Clause
should apply following the Effective Date and, if so, the Company
will have no obligation or liability to the Licensor pursuant to
this Clause;
10.5.2 if the Licensor does not give a notice to the Company pursuant to
Clause 10.5.1:
(a) the licence fees payable by the Company following the Effective
Date shall be at the rate of US$13,158 per Programme Hour or (in
the case of a Playboy Programme which the Company elects to
transmit during a further Transmission Period pursuant to Clause
2.2) determined in accordance with Clause 7.7;
(b) the maximum period during which the provisions of this Clause
10.5 shall continue in force following the Effective Date shall
be determined in accordance with the provisions of Schedule 6
but the provisions of this Clause shall in any event lapse once
the Licensor has received pursuant to Clause 7, Clause 8 and
this Clause licence fees amounting in the aggregate to the
Minimum Amount;
(c) subject to the provisions of sub-clauses (a) and (b) of this
Clause and notwithstanding the termination of this Agreement,
all Playboy Programmes licensed to the Company pursuant to this
Clause shall be licensed upon and subject to the same terms and
conditions (mutatis mutandis) as those which applied to the
Programmes licensed under Clause 2 prior to the Effective Date
including but not limited to those terms and conditions set out
in Clauses 3.3, 4.1, 4.4, 4.5 and 6.5; and
(d) the Company shall be entitled to transmit the Trade Marks only
in the form and the places in which they appear in Playboy
Programmes licensed to it pursuant to this Clause.
10.6 Following the date on which any termination of this Agreement takes effect
("the Termination Date"):
51
<PAGE>
10.6.1 subject only to Clause 10.5, the Company shall have no obligation to
licence or accept delivery of further Programmes or Third Party
Programmes from the Licensor, and the Licensor shall have no
obligation to deliver to the Company further Programmes or Third
Party Programmes, for first transmission in the Service;
10.6.2 the licence granted to the Company pursuant to Clause 2 in relation
to each Programme or Third Party Programme whose Transmission Period
has not ended prior to the Termination Date shall (subject to sub-
clauses 10.6.3 and 10.6.4) remain in force for a period of twenty-
four (24) months after the Termination Date (in the case of a
Playboy Programme) and for the full duration of the Playboy Licence
Period (in the case of an Acquired Programme or Third Party
Programme); and
10.6.3 notwithstanding the provisions of sub-clause 10.6.2, if this
Agreement was terminated by the Licensor pursuant to sub-clause
10.2(a), the Licensor may by giving notice in writing to the Company
within 30 days after the Termination Date terminate the licence
granted to the Company pursuant to Clause 2 in relation to each
Programme, and each Third Party Programme acquired on behalf of the
Company by the Licensor, with immediate effect whereupon the
Licensor shall within seven (7) days after the date of such notice
pay to the Company an amount equal to the aggregate of all Excess
Payments. For the purposes of this sub-clause, an "Excess Payment"
shall mean in respect of each Programme, or each Third Party
Programme acquired on behalf of the Company by the Licensor, whose
Transmission Period has not ended prior to the Termination Date an
amount equal to:
C
(A x B) x _ where:
D
A = US$13,158 or (in the case of a Third Party Programme) the
actual amount paid to the third party licensor of that Third
Party Programme in consideration for the right to transmit
the same in the Service within the Territory
B = the number of Programme Hour(s) of that Programme or Third
Party Programme
C = 24 (twenty-four) less the number of transmissions made by the
Company in the Service of that Programme or Third Party
Programme prior to the Termination Date
52
<PAGE>
D = 24 (twenty-four).
10.6.4 notwithstanding the provisions of sub-clause 10.6.2, the
Licensor may by giving notice in writing to the Company
within six (6) months after the Termination Date terminate
the licence granted to the Company pursuant to Clause 2 in
relation to each Playboy Programme with effect from the
expiry of the period of eighteen (18) months commencing upon
the Termination Date ("the Licence Termination Date")
whereupon the Licensor shall within seven (7) days after the
date of such notice pay to the Company an amount equal to the
aggregate of all Excess Payments. For the purposes of this
sub-clause, an "Excess Payment" shall mean in respect of each
Playboy Programme whose Transmission Period has not ended
prior to the Licence Termination Date an amount equal to:
(A x B) x C where:
-
D
A = US$13,158
B = the number of Programme Hour(s) of that Playboy
Programme
C = 24 (twenty-four) less the number of transmissions made
by the Company in the Service of that Playboy Programme
prior to the Licence Termination Date
D = 24 (twenty-four).
10.7 In the event that:
(a) any warranty made herein by the Licensor in relation to any
Selected Programme is found not to be true and accurate in
all material aspects (a "default"); and
(b) within twenty-eight (28) days after receipt of written notice
from the Company specifying such default the Licensor has
delivered to the Company for first transmission in the
Service a replacement Playboy Programme or (if the Selected
Programme in
53
<PAGE>
question was not a Playboy Programme) an Acquired Programme or
Third Party Programme of comparable quality, duration and
commercial appeal,
then without prejudice to any of its other rights and remedies in
respect of such default the Company shall not be entitled to terminate
this Agreement pursuant to sub-clause 10.2(a) as a result of such
default.
11. Assignment
Neither party may assign the whole or any part of this Agreement to
any third party without the prior written consent of the other party
PROVIDED THAT either party may assign the benefit of this Agreement to
any Associate (as defined in the Shareholders' Agreement of even date
herewith) without the consent of the other party but shall remain
liable for the performance of its obligations under this Agreement.
12. Notices
12.1 Any notice or other communication given or made under this Agreement
shall be in writing and, without prejudice to the validity of any
other method of service, may be delivered personally or by courier or
sent by facsimile transmission and by prepaid airmail letter,
addressed as follows:
(a) if to the Licensor to:
The President of the Licensor
9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
Facsimile transmission number: (0101 310) 246 4065
with a copy to the Senior Vice President, Legal and Business
Affairs at the same facsimile transmission number
(b) if to the Company, to:
Twyman House
16 Bonny Street
London NW1 9PG
54
<PAGE>
Facsimile transmission number: (0171) 911 0145
with a copy to:
The Chief Executive
Flextech plc
13 Albemarle Street
London W1X3HA
Facsimile transmission number: (0171) 499 7553
Head of Legal and Business Affairs
British Sky Broadcasting Limited
Grant Way
Isleworth
Middlesex TW7 5QD
Facsimile transmission number: (0171) 705 3254
or to such other address, or facsimile transmission number as the
relevant addressee may hereafter by notice hereunder substitute.
12.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission on the
first business day in the country of the intended recipient after the
date of transmission.
13. Waiver and Set-Off
------------------
13.1 No express or implied waiver by either party of any provision of this
Agreement or of any breach or default of either party shall constitute a
continuing waiver or a waiver of any other provision or (subject to the
other provisions of this Agreement) prevent either party from acting on
the same or any subsequent breach or default.
13.2 In the event that the Company becomes entitled to terminate this
Agreement pursuant to sub-clause 10.2(a) and (subject to Clause 10.7)
within thirty (30) days after becoming aware of
55
<PAGE>
such entitlement the Company does so terminate, then, without prejudice to
any other right or remedy of the Company and notwithstanding any other
provision of this Agreement, the Company shall be entitled without
prejudice to any right or remedy of the Licensor to withhold payment of any
or all amounts which may be or may thereafter become due to the Licensor
pursuant to Clause 7 or Clause 8 and, if the Company decides to exercise
such right, it shall promptly notify the Licensor of such decision.
14. Further Assurance
-----------------
The Licensor shall at the request and cost of the Company execute and
deliver all such further documents as the Company shall reasonably request
to confirm and evidence the grant of such Television Rights as are granted
to the Company pursuant to Clause 2.
15. No Partnership
--------------
This Agreement is made between principals and does not constitute a
partnership between the parties and neither of them shall hold itself out
as the agent or partner of the other.
16. Entire Agreement
----------------
This Agreement together with the Trademark Agreement and the Shareholders'
Agreement contains the entire understanding of the parties with regard to
the licensing of Programmes to the Company and may be changed or modified
only in writing signed on behalf of both parties.
17. Force Majeure
-------------
Neither party shall be liable for any failure to perform its obligations
under this Agreement to the extent that such failure is caused by an event
of Force Majeure.
18. Severability Registration and Notification
------------------------------------------
18.1 Should any provision of this Agreement be held by any competent court or
authority to be invalid or unenforceable such provision shall (without
prejudice to the remaining provisions) have no effect but the parties shall
use all reasonable endeavours to replace the invalid or unenforceable
56
<PAGE>
provision by a valid provision, the effect of which shall be the closest
possible to the intended effect of the invalid or unenforceable
provision.
18.2 Notwithstanding any other provision of this Agreement or any arrangement
of which this Agreement forms part, any provision which may cause this
Agreement and/or such arrangement to be registrable under the Restrictive
Trade Practices Act 1976 shall be of no effect until the day after such
day as particulars of this Agreement and/or such arrangement shall have
been furnished to the Director General of Fair Trading.
18.3 If either of the parties is advised by its lawyers that this Agreement
should be notified to the European Commission under Council Regulation
17/62, the other party shall on request co-operate in procuring such
notification as soon as practicable.
19. Headings
--------
The headings to the Clauses and sub-clauses in this Agreement are
intended to make reference easier but not to affect its construction.
20. Governing Law
-------------
20.1 This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the
exclusive jurisdiction of the English Courts as regards any claim or
maker arising in relation to this Agreement.
20.2 The Licensor hereby appoints O'Melveny & Myers of 10 Finsbury Square,
London EC2A 1LA England as its authorised agent for the purpose of
accepting service of process for all purposes in connection with this
Agreement.
AS WITNESS the hands of the duly authorised representatives of the parties the
day and year first above written
57
<PAGE>
SCHEDULE I
----------
The Programme Specification
---------------------------
The Service is a television program service for adults featuring programming
that is sexually oriented but of a non-pornographic nature.
Programming included in the Service will depict nudity and will allow strong or
explicit language. Playboy will not deliver and the Company will not transmit
programming containing scenes which depict violent behaviour, particularly the
glorification of violence or gratuitous violence. Generally speaking, Playboy
will not deliver and the Company will not transmit programming containing
depictions of rape, non-consensual intercourse or other non-consensual sexual
activity. Generally speaking, Playboy will not deliver and the Company will not
transmit programming containing scenes of bondage, incest, sadism or masochism,
bestiality, extreme sexual explicitness or the graphic close-up of genitals.
Child pornography is never to be shown on the Service, and, even if an actor is
over 18 years of age, if that actor is portrayed as under 18, such showing is
prohibited.
Within the above guidelines, the Programmes and Third Party Programmes delivered
to the Company by Playboy hereunder shall consist of motion pictures (including
those made initially for television exhibition, for home video or for theatrical
release), miscellaneous specials (both in the half-hour and hour length),
dramatic series, game shows, magazine shows (as that term is generally used in
American television), comedy shows, Playmate specials featuring specific
Playmates, music specials, sexual advice specials, Playboy Video Centrefold
specials and Playmate of the Year specials. The vignettes delivered by Playboy
hereunder shall also comply with the above guidelines.
No Programme or Third Party Programme delivered by the Licensor under this
Agreement will have a running time of less than 22 minutes.
58
<PAGE>
SCHEDULE 2
----------
Delivery Material
-----------------
1. (a) The Licensor will supply a Beta SP master videotape for each Selected
Programme, each so-called "vignette" and all promotional and
interstitial material, together with a schedule of the running order
in which these elements are to be broadcast. The Company will at its
cost assemble the nightly programming block from these materials.
(b) Each master videotape supplied by the Licensor shall be of broadcast
quality and in either the NTSC or PAL standard. Where such a videotape
is delivered in the NTSC standard, the Company shall create the
necessary PAL transfer but the Licensor shall reimburse to the Company
within 30 days after receipt of an invoice in respect thereof the
actual out-of-pocket cost incurred by the Company in doing so.
(c) If the Licensor supplies NTSC-standard materials and the Company
converts them to PAL, the Licensor shall remain the owner of such PAL-
standard materials, which shall be on loan to the Company for the Term
or (if later) until the end of the Transmission Period in respect of
the relevant Programme or Third Party Programme and shall thereafter
be returned to the Licensor.
(d) Each master videotape supplied by the Licensor shall comply with the
following specification:
Vision
------
Line up - One minute of Colour Bars 100% luminance, 75% Chroma.
EBU(75/0/100/0)
Ten seconds of Black before Start of each Selected Programme
No pedestal on black
Each Selected Programme should start at Time Code 10:00:00:00
Audio
-----
Time Code should be continuous throughout the line up and programme
and for at least 30 seconds after end of programme
59
<PAGE>
Line up with Colour Bars - Zero Level Tone on linear tracks ('4' PPM)
Maximum peak programme level +8dB above line up.
2. A music cue sheet in customary form and all billings information and credit
requirements.
3. All advertising and promotional material (whether audio, audio-visual or
visual material) which is available for use by the Company including but
not limited to a plot or episodic synopsis, black and white stills, colour
transparencies, a colour trailer and interstitial, "filler" and "behind the
scenes" material.
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SCHEDULE 3
----------
Basic Licence Fees
------------------
1. In this Schedule the following expressions shall have the following
meanings:
(a) "the Apportionment" means an amount calculated by:
(i) subtracting from 365 the total number of days during the
First Year (including the Launch Date);
(ii) multiplying the figure resulting from that subtraction by
US$1,000,000 (one million United States dollars);
and (iii) dividing the product of that multiplication by 365.
(b) "the Increment": means in respect of the second, third, fourth, fifth
and sixth Years an amount calculated as follows:
A x US$100,000
-
365
where A is the total number of days during the First Year (including
the Launch Date);
(c) "the Initial Amount": means in respect of each Year the amount set out
below opposite that Year:
<TABLE>
<CAPTION>
Year Amount (US$)
---- ------------
<S> <C>
First Year US$1,000,000 less the Apportionment
Second Year US$1,000,000 }
Third Year US$1,100,000 } plus in each case
Fourth Year US$1,200,000 } the Increment
Fifth Year US$1,300,000 } for that Year
Sixth Year US$1,400,000 }
</TABLE>
61
<PAGE>
Seventh Year US$1,500,000
and each
subsequent Year
2. In respect of each Year the Basic Licence Fee shall be the Initial Amount
in respect of that Year subject always to:
(a) reduction in accordance with Clause 8.6, sub-clause 8.8(d) or Clause
8.11 or following any notice of termination of this Agreement given by
the Company pursuant to Clause 10.3; and
(b) increase in accordance with sub-clause 7.7(b), sub-clause 8.8(b) or
sub-clause 8.8(c).
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<PAGE>
SCHEDULE 4
----------
Net Revenue per Household
-------------------------
1. In this Schedule a "Household" means in respect of any Year:
(a) during which (or any part of which) the Service is being transmitted
by means of a medium-powered satellite (such as, by way of example, an
Astra satellite), any person in the United Kingdom who on 1 January or
31 December (as the case may be) in that Year is equipped with a
satellite dish and any other receiving or decoding equipment (other
than viewing cards and other decryption equipment and devices which
are only available to paying subscribers) and/or (if the Service is
transmitted by means of a compressed signal) decompression equipment
which is necessary in order to receive and view a television channel
transmitted in an unencrypted form by means of the same satellite as
that by which on 1 January or 31 December (as the case may be) in that
Year the Service is being transmitted or by means of any other
satellite which is compatible with that satellite; and/or
(b) any person in the United Kingdom whose home has by 1 January or 31
December (as the case may be) in that Year been connected to a
Relevant System and for this purpose a "Relevant System" means any
cable television system in the United Kingdom by means of which the
Service is as at 1 January or 31 December in that Year (as the case
may be) being re-transmitted by any means for reception by subscribers
to that cable television system.
2. The "Net Revenue per Household" in respect of any Year shall be calculated
by dividing the Net Revenues of the Company in respect of that Year by the
average number of Households in respect of that Year. The average number of
Households shall be calculated by aggregating the total numbers of
Households on 1 January and on 31 December in that Year and by dividing the
resulting figure by two.
3. The number of Households which on 1 January and 31 December in each Year
fall within paragraph l(a) of this Schedule shall be determined by
reference to the relevant figure published or provided by Broadcasters'
Audience Research Board Limited (or any replacement or successor body) as
at 1 January or 31 December in that Year (as the case may be) or as at the
date which
63
<PAGE>
is closest to 1 January or 31 December in that Year and for which such a
figure is available by 31 March in the immediately following Year.
4. The number of Households which on 1 January and 31 December in each Year
fall within paragraph l(b) of this Schedule shall be determined by
reference to the relevant figure(s) published or provided by the Cable
Communications Association (or any replacement or successor body or by the
operators of Relevant Systems) as at 1 January or 31 December in that Year
(as the case may be) or as at the date which is closest to 1 January or 31
December in that Year and for which such figure(s) is or are available by
31 March in the immediately following Year.
64
<PAGE>
SCHEDULE 5
----------
List of existing Programmes
---------------------------
65
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Series 350 29 30 14.5 1990-1994
America Uncovered 4 30 2 1983-1987
Archival Reel 58 60 58 1970's
The Club 6 30 3 1991
Comedy After Hours 6 30 3 1987
Consenting Adults 3 30 1.5 1984
Do it Now 3 30 1.5 1983
Duelling for Playmates 12 30 6 1983-1984
Eden 26 30 13 1992-1993
Erotic Images 5 60 5 1984-1985
Everything Goes 23 30-60 12 1982-1984
Fantasies 20 30 10 1986-1988
For a Good Time, Call... 4 30 2 1992
Friday Files 6 30-60 3.5 1983
Girls of the Comedy Store 3 60 3 1983-1985
Great American Stripoff 18 60 18 1983-1985
Hot List 3 30 1.5 1987-1988
Hot Rocks 28 30-60 15 1990-1994
Inside Out 26 30 13 1990-1991
Inside Playboy 7 30 3.5 1984
It Happened One Night 5 30-60 3 1994
Late Night I 26 60 26 1989-1990
Late Night II 26 30 13 1991
Late Night III 26 30 13 1992
Late Night IV 26 30 13 1995
Loving 5 30 2.5 1982
Pillow Previews 10 30 5 1984-1985
Playboy After Dark 52 60 52 1968-1970
Playboy Video Magazine 48 60 48 1982-1988
Playboy's Erotic Fantasies 26 30 13 1994
Playboy's Love & Sex Test 26 30 13 1992
Playmate Guide to Physical Fitness 6 30 3 1982-1983
Prime Cuts 4 30 2 1985
Private Moments 6 30 3 1983-1984
Private Party Jokes 7 30 3.5 1987-1988
Ribald Classics 5 30-60 4.5 1983-1992
Secret Confessions & Fantasies 26 30 13 1992-1993
Sexcetera 64 60 64 1983-1988
Shake it, Sexy 6 30 3 1983
Who's on Top 24 30 12 1993
World of Playboy 34 30 17 1991-1995
Women on Sex 48 30 24 1983-1988
- -------------------------------------------------------------------------------------------------------------
Sub Total Series 539.5
- ---------------------------------------------------------------------------------------
* As is television industry practice, a "60-minute" program is typically 44-
45 minutes long (to account for commercial breaks), and a "30-minute"
program is typically 22 minutes long. Similarly, throughout this document, a
60-minute episode length will refer to 45 minutes of actual programming, and
a 30-minute episode length will refer to 22 minutes of actual programming.
With respect to movies, running times are actual.
</TABLE>
<PAGE>
DENTON HALL
<TABLE>
<CAPTION>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
- --------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials 101 Ways to Excite Your Lover 1 60 1 1991
20th Century Beauty 1 60 1 1991
Anna Goes Australian 1 30 0.5 1987
Around the World with Donna Wanna 1 30 0.5 1993
Arousal, Foreplay, and Orgasm with
Dr. Ruth Westheimer 1 60 1 1994
Art of Sensual Massage 1 60 1 1986
Bedtime Stories 1 60 1 1987
Best of Playboy 2 60 2 1988
Best of Sexy Lingerie 1 60 1 1992
Best of Video Calendar 1 60 1 1992
Best of Wet & Wild 1 60 1 1992
Best of the Playboy Channel 1 90 1.5 1988
Big Ed Show 1 60 1 1990
Blonde, Brunette, and Redhead 1 30 0.5 1989
Blonde Bombshells 1 30 0.5 1989
Body Flash 1 30 0.5 1985
Bunny Memories 1 60 1 1986
Bunny of the Year 1974 1 60 1 1974
Bunny of the Year 1976 1 90 4.5 1976
Cheech and Chong Interview 1 60 1 1984
College Girls 1 60 1 1993
Comedy on Campus 1 90 1.5 1986
Comedy Roast Don Adams 1 60 1 1985
Comedy Roast Tommy Chong 1 60 1 1986
Comedy Theatre: The Great Lounge
Comedians 1 60 1 1985
Comedy Theatre: Henny Youngman 1 60 1 1985
Comedy Theatre: Mort Sahl 1 60 1 1985
Comedy Theatre: Phyllis Diller 1 60 1 1985
Comedy Theatre: Shecky Green 1 60 1 1985
Celebrity Video Centerfold: Patti Davis 1 60 1 1995
Celebrity Video Centerfold:
Jessica Hahn 1 60 1 1993
Celebrity Centerfold: LaToya Jackson 1 60 1 1994
Celebrity Video Centerfold:
Dian Parkinson 1 60 1 1994
Dear Homos 1 30 0.5 1983
Dorothy Stratten: The Untold Story 1 60 1 1985
Eden 1 1 120 2 1992
Eden 2 1 120 2 1992
Eden 3 1 120 2 1992
Eden 4 1 120 2 1993
Eden 5 1 120 2 1993
Eden 6 1 120 2 1993
Erotic Escapades 1 30 0.5 1994
Erotic Fantasies I 1 60 1 1992
Erotic Fantasies II 1 60 1 1993
Erotic Fantasies III 1 60 1 1993
Erotic Weekend Getaways 1 60 1 1992
Fabulous Forties 1 60 1 1994
Fantasies I 1 90 1.5 1987
Fantasies II 1 60 1 1990
Farmer's Daughters 1 60 1 1987
Girls of the Cabaret Royale 1 60 1 1991
Girls of Europe I 1 30 0.5 1987
Girls of Europe II 1 30 0.5 1987
Girls of Hawaiian Tropic 1 60 1 1994
Girls of Hooters 1 60 1 1994
Girls of Jamaica 1 30 0.5 1992
------------------------------------------------------------------------------------------------------
</TABLE>
* SEE NOTE
<PAGE>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials, Girls of Rock 'n Roll 1 6O 1 1985
continued Girls of Spring Break 1 60 1 1991
Girls of the Big West 1 30 0.5 1990
Girls of the Moulin Rouge 1 30 0.5 1985
Great American Stripoff 1994 1 60 1 1994
History of Striptease 1 60 1 1994
Hollywood Hookers 1 60 1 1983
Hot, Sexy & Safer with Suzi Landolphi 1 60 1 1993
Hot Rock in Reno 1 120 2 1983
How to Reawaken Your Sexual Powers 1 60 1 1992
Hugh M. Hefner: Birthday Footage 1 330 5.5 1979-1986
Hugh M. Hefner: Miscellaneous Footage 1 90 1.5 1974-1995
Hugh M. Hefner: Once Upon a Time 1 90 1.5 1992
Inside Out I 1 9O 1.5 1992
Inside Out II 1 90 1.5 1993
Inside Out III 1 90 1.5 1993
Inside Out IV 1 90 1.5 1994
International Playmates 1 60 1 1993
Intimate Workout for Lovers 1 60 1 1991
International Beauty Pageant Promo Reel 1 30 0.5 1992
Japanese Erotica 1 30 0.5 1989
Jerry Lee Lewis in Concert 1 60 1 1886
Les Filles Fatales 1 30 0.5 1983
Lisa Lyons Lifestyles 1 30 0.5 1990
Love, Sex, and Religion 1 30 0.5 1984
Love, Sex & Intimacy for New Relationships 1 60 1 1993
Madcap Marathon 1 60 1 1980
Making of...Girls of Cabaret Royale 1 60 1 1991
Making of...Girls of Spring Break 1 30 0.5 1991
Making of...Playmate Challenge Cup 1 30 0.5 1984
Making of...Sexy Lingerie III 1 60 1 1992
Maui Playmate Challenge 1 60 1 1994
Miss Playboy International Beauty Pageant 1987 1 60 1 1987
Nancy Friday's Interviews 1 30 0.5 1982
Nancy Friday's Private Lives 1 120 2 1983
New Year's Eve at the Mansion 1982 1 30 0.5 1982
New Year's Eve at the Mansion 1983 1 30 0.5 1983
New Year's Eve at the Mansion 1984 1 30 0.5 1884
New Year's Eve at the Mansion 1985 1 30 0.5 1985
New Year's Eve at the Mansion 1986 1 30 0.5 1986
Pat McCormick Unleashed I 1 60 1 1980
Pat McCormick Unleashed II 1 60 1 1980
Playboy Club's 24th Anniversary Show 1 60 1 1984
Playboy Follies I 1 60 1 1983
Playboy Follies II 1 60 1 1985
Playboy Jazz Festival 1982 1 180 3 1982
Playboy Video Centerfold: Sherry Arnett 1 60 1 1985
Playboy Video Centerfold: Teri Weigel 1 60 1 1985
Playboy Video Centerfold: Rebekka Armstrong 1 60 1 1986
Playboy Video Centerfold: Luann Lee 1 60 1 1986
Playboy Video Centerfold: Lynne Austen 1 60 1 1987
Playboy Video Centerfold: Fawna MacLaren/35th Anniv. 1 60 1 1988
Playboy Video Centerfold: Dutch Twins 1 60 1 1989
Playboy Video Centerfold: Peggy McIntaggart 1 60 1 1989
Playboy Video Centerfold: Karen Foster/Deborah Driggs 1 60 1 1990
Playboy Video Centerfold: Kerry Kendall 1 60 1 1990
Playboy Video Centerfold: Tawnni Cable 1 60 1 1990
Playboy Video Centerfold: Julie Clark 1 60 1 1990
Playboy Video Centerfold: Morgan Fox 1 60 1 1991
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* SEE NOTE
<PAGE>
<TABLE>
<CAPTION>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
- --------------------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials Playboy Video Centerfold: Pamela Anderson 1 60 1 1991
continued Playboy Video Centerfold: Tiffany Sloan 1 60 1 1992
Playboy Video Centerfold: Anna Marie Goddard/40th Anniv. 1 60 1 1994
Playboy's 20th Anniversary Show 1 60 1 1974
Playboy's 25th Anniversary Show 1 60 1 1979
Playboy's 35th Anniversary Special 1 30 0.5 1989
Playboy's 35th Anniv.: World of Hugh M. Hefner 1 90 1.5 1988
Playboy's 35th Anniv.: Hugh M. Hefner's Birthday 1 90 1.5 1988
Playboy's 35th Anniv.: Midsummer Night's Dream Parties 1 60 1 1985-1993
Playboy's 40th Anniversary Playmate Search 1 60 1 1993
Playboy's Guide to Amsterdam 1 60 1 1983
Playboy's Guide to the Land of G'Day 1 60 1 1989
Playboy's Hidden Camera 1 60 1 1994
Playboy Photographers 1 30 0.5 1989
Playmate Bloopers 1 30 0.5 1992
Playmate Party 1 60 1 1977
Playmate Playoffs 1 60 1 1986
Playmate Challenge Cup 1 60 1 1984
Playmate Guide to Physical Fitness 1 60 1 1983
Playmate Music Videos I 1 30 0.5 1989
Playmate Music Videos II 1 30 0.5 1992
Playmate of the Year 1984: Barbara Edwards 1 60 1 1984
Playmate of the Year 1987: Donna Edmondson 1 60 1 1987
Playmate of the Year 1988: India Allen 1 60 1 1988
Playmate of the Year 1989: Kimberley Conrad 1 60 1 1989
Playmate of the Year 1990: Renee Tenison 1 60 1 1990
Playmate of the Year 1991: Lisa Matthews 1 60 1 1991
Playmate of the Year 1992: Corrina Harney 1 60 1 1992
Playmate of the Year 1993: Anna Nicole Smith 1 60 1 1993
Playmate of the Year 1994: Jenny McCarthy 1 60 1 1994
Playmate of the Year 1990 Special 1 90 1.5 1990
Playmate Profiles: You Ought to Be In Pictures 1 30 0.5 1988
Playmate Rafting Adventure 1 30 0.5 1984
Playmate Review Hotline I 1 60 1 1992
Playmate Review Hotline II 1 60 1 1993
Playmate Review Hotline III 1 60 1 1994
Playmate Review 1 60 1 1983
Playmate Review II 1 60 1 1984
Playmate Review III 1 60 1 1985
Playmate Review 1992 1 60 1 1992
Playmate Review 1993 1 60 1 1993
. Playmate Six Pack 1 60 1 1992
Playmate Sneak Preview 1 30 0.5 1990
Playmate Spectacular I 1 30 0.5 1989
Playmate Spectacular II 1 30 0.5 1990
Playmate Sports Spectacular 1 60 1 1992
Playmate Video Calendar 1988 1 60 1 1987
Playmate Video Calendar 1989 1 60 1 1988
Playmate Video Calendar 1990 1 60 1 1989
Playmate Video Calendar 1991 1 60 1 1990
Playmate Video Calendar 1992 1 60 1 1991
Playmate Video Calendar 1993 1 60 1 1992
Playmate Video Calendar 1994 1 60 1 1993
Playmate Video Calendar 1995 1 60 1 1994
Playmate Video Calendar Preview Show 1 30 1 1988
Playmate Video Calendar Preview Show 1 30 1 1989
Playmate Video Calendar Preview Show 1 30 1 1990
Playmate Video Calendar Preview Show 1 30 1 1991
Playmate Video Calendar Preview Show 1 30 1 1992
Playmate Video Calendar Preview Show 1 30 1 1993
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* see note
<PAGE>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Data
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials Playmate Video Calendar Preview Show 1 30 1 1994
continued Playmates at Play 1 60 1 1989
Playmates Home Video Party 1 30 0.5 1990
Playmates in the Movies 1 30 0.5 1989
Playmates in Paradise 1 60 1 1992
Playmates of the Year: the '8O's 1 60 1 1989
Playmates: the Early Years 1 60 1 1991
Playmates: Where are they Now I 1 30 0.5 1988
Playmates: Where are they Now II 1 30 0.5 1988
Private Diaries 1 60 1 1994
Private Pleasures 1 30 0.5 1993
Roller Disco and Pajama Party 1 60 1 1981
Romantic Visions I 1 30 0.5 1985
Romantic Visions II 1 30 0.5 1985
Secret Confessions I 1 60 1 1993
Secret Confessions II 1 60 1 1994
Secret Confessions III 1 60 1 1994
Secret Moment 1 30 0.5 1984
Secrets of EuroMassage 1 60 1 1989
Secrets of Making Love to the Same Person Forever I 1 60 1 1990
Secrets of Making Love to the Same Person Forever II 1 60 1 1992
Sensual Fantasy for Lovers 1 60 1 1993
Sensual Pleasures of Oriental Massage 1 60 1 1991
Sex Under Hot Lights 1 60 1 1994
Sex & Sensuality Test 1 60 1 1982
Sexy Lingerie I 1 60 1 1988
Sexy Lingerie II 1 60 1 1990
Sexy Lingerie III 1 60 1 1991
Sexy Lingerie IV 1 60 1 1991
Sexy Lingerie V 1 60 1 1992
Sexy Lingerie VI: Night Dreams 1 60 1 1993
Sexy Lingerie VII: Dreams & Desires 1 60 1 1994
Spring Break Madness 1 30 0.5 1989
Spring Fling 1 60 1 1983
Sunday's Child I 1 30 0.5 1983
Sunday's Child II 1 30 0.5 1983
Sunday's Child III 1 30 0.5 1983
Sunday's Child IV 1 30 0.5 1983
Sunday's Child V 1 30 0.5 1983
Sunday's Child VI 1 30 0.5 1983
Sunshine Girls 1 30 0.5 1988
Taking it Off 1 30 0.5 1989
Taste of Playboy 1 90 1.5 1983
Twenty-Nine Minutes 1 60 1 1990
Ultimate Sensual Massage 1 60 1 1991
Valentine's Day Footage 1990 1 60 1 1990
Valentine's Day Footage 1991 1 90 1.5 1991
The Wedding (Hugh M. Hefner/Kimberley Conrad) 1 60 1 1989
Wet & Wild I 1 60 1 1989
Wet & Wild II 1 60 1 1990
Wet & Wild III 1 60 1 1991
Wet & Wild IV 1 60 1 1992
Wet & Wild V 1 60 1 1993
Wet & Wild VI: The Locker Room 1 60 1 1994
Wet & Wild VII: On Vacation 1 60 1 1995
Windy City Comedy Blowout 1 60 1 1987
Women of Color 1 60 1 1993
Women of Radio 1 60 1 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Sub Total Specials 233
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* see note
<PAGE>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Movies Affairs of the Heart 1 90 1.5 1994
After Dark I (Title TBD) 1 90 1.5 1995
After Dark II (Title TBD) 1 90 1.5 1995
After Dark III (Title TBD) 1 90 1.5 1995
After Dark IV (Title TBD) 1 90 1.5 1995
After Dark V (Title TBD) 1 90 1.5 1995
After Dark VI (Title TBD) 1 90 1.5 1995
After Dark VII (Title TBD) 1 90 1.5 1995
After Dark VIII (Title TBD} 1 90 1.5 1995
After Dark IX (Title TBD) 1 90 1.5 1995
After Dark X (Title TBD) 1 90 1.5 1995
American Blonde 1 90 1.5 1994
Animal Instinct 1 60 1 1993
Aroused 1 90 1.5 1995
Birds in Paradise I 1 90 1.5 1986
Birds in Paradise II 1 90 1.5 1986
Blind Spot 1 60 1 1993
Blonde Justice III 1 90 1.5 1993
Bonnie III 1 60 1 1994
Bonnie IV 1 90 1.5 1994
Candy the Stripper 1 90 1.5 1987
Carnival in Rio 1 60 1 1987
Cheating 1 90 1.5 1995
Comapnion 1 90 1.5 1995
Coven I 1 90 1.5 1994
Coven II 1 90 1.5 1994
Dominoes 1 60 1 1993
Dr. Yes: The Hyannis Affair 1 120 2 1985
Erotic Showcase I 1 90 1.5 1993
Erotic Showcase II 1 90 1.5 1993
Erotic Showcase II 1 90 1.5 1993
Forever Young 1 90 1.5 1994
Hardcore 1 90 1.5 1995
Icewoman I 1 90 1.5 1993
Icewoman II 1 90 1.5 1994
I Like to Play Games 1 90 1.5 1994
Immortal Desire 1 60 1 1993
Intimate Journey 1 60 1 1995
Letting Go 1 90 1.5 1995
Love & Desire 1 60 1 1991
Lover's Leap 1 90 1.5 1994
Lusty Liaisons I 1 90 1.5 1983-1992
Lusty Liaisons II 1 90 1.5 1983-1992
Man & Woman 1 90 1.5 1994
Mask 1 60 1 1993
Masseuse II 1 90 1.5 1994
Matter of Cunning 1 90 1.5 1986
Naked Reunion 1 60 1 1994
New Lovers 1 60 1 1993
Night Train 1 90 1.5 1994
On the Edge 1 90 1.5 1994
Oral Obsession 1 90 1.5 1994
Parlor Games 1 60 1 1993
Passionate Interludes I 1 90 1.5 1986-1988
Passionate Interludes II 1 90 1.5 1986-1988
Playtime 1 90 1.5 1994
Prostitutes of Paris 1 60 1 1983
Romancing Sarah 1 90 1.5 1995
Sexual Healing 1 90 1.5 1994
Scoring 1 90 1.5 1995
- -------------------------------------------------------------------------------------------------------------
* see note
</TABLE>
<PAGE>
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Movies Sex II 1 90 1.5 1994
continued Silent Strangers 1 90 1.5 1995
Starlet 1 60 1 1993
Steamy Windows 1 60 1 1994
Suite 18 1 90 1.5 1994
Supermodel I 1 90 1.5 1994
Supermodel II 1 60 1 1994
Swap II 1 120 2 1994
Tales of Erotica 1 120 2 1993
Tempted 1 90 1.5 1995
Undress to Thrill 1 90 1.5 1994
Vagablonde 1 90 1.5 1994
Watch Me 1 90 1.5 1995
Young Lady Chatterly II 1 90 1.5 1985
- -------------------------------------------------------------------------------------------------------------
Sub Total Movies 104.5
- ---------------------------------------------------------------------------------------
TOTAL ALL PROGRAMMING 877.0
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 6
----------
Clause 10.5
-----------
1. In this Schedule the following expressions shall have the following
meanings:
(a) "the Annual Quota": the maximum number of Programme Hours of Playboy
Programmes which the Company shall be obliged to licence from the
Licensor in each year following the Effective Date and which shall be
fifty (50) Programme Hours per year;
(b) "the Shortfall": the amount by which the aggregate amount of the
licence fees (other than amounts paid by the Licensor to third party
licensors for the right to transmit Third Party Programmes in the
Service and reimbursed to the Licensor by the Company hereunder)
received by the Licensor prior to the Effective Date pursuant to
clauses 7, 8 and 10 is less than the Minimum Amount.
2. The total number of Programme Hours of Playboy Programmes which is to be
licensed by the Company pursuant to Clause 10.5 ("the Total Number") shall
be calculated by dividing the Shortfall by 13,158 (thirteen thousand one
hundred and fifty-eight).
3. The maximum period during which the provisions of Clause 10.5 shall
continue in force following the Effective Date shall be determined by
dividing the Total Number by the Annual Quota.
73
<PAGE>
SCHEDULE 7
----------
Clause 6.8
----------
Categories that are not acceptable for advertising are firearms (or ads from any
gun lobby organization) and other weapons, explosives or fireworks, massage
parlours, telephone sex lines, sex clubs, sexually explicit (e.g. adult
bookstore, X or NC-17 or similarly rated hardcore) audio-visual products, sex
toys, materials depicting graphic sexual conduct, violence, sadism,
sadomasochism, bondage, incest, bestiality or child pornography, classified
advertising, psychics or similar, religious organizations and cults.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 8
----------
- ----------------------------------------------------------------------------------------
1995 1996 1997
- ----------------------------------------------------------------------------------------
DATE PAYMENT DATE PAYMENT DATE PAYMENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 15 100,000 January 15 100,000 January 15 100,000
- ----------------------------------------------------------------------------------------
September 15 100,000 February 15 100,000 February 15 100,000
- ----------------------------------------------------------------------------------------
November 15 50,000 March 15 100,000 March 15 100,000
- ----------------------------------------------------------------------------------------
April 15 100,000 April 15 100,000
- ----------------------------------------------------------------------------------------
May 15 150,000 May 15 200,000
- ----------------------------------------------------------------------------------------
June 15 200,000 June 15 225,000
- ----------------------------------------------------------------------------------------
November 15 100,000 November 15 100,000
- ----------------------------------------------------------------------------------------
December 15 175,000 December 15 200,000
- ----------------------------------------------------------------------------------------
TOTAL 1995 250,000 TOTAL 1996 1,025,000 TOTAL 1997 1,125,000
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
1998 1999 2000
- ----------------------------------------------------------------------------------------
DATE PAYMENT DATE PAYMENT DATE PAYMENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 15 100,000 January 15 100,000 January 15 100,000
- ----------------------------------------------------------------------------------------
February 15 100,000 February 15 100,000 February 15 100,000
- ----------------------------------------------------------------------------------------
March 15 100,000 March 15 100,000 March 15 200,000
- ----------------------------------------------------------------------------------------
April 15 200,000 April 15 200,000 April 15 200,000
- ----------------------------------------------------------------------------------------
May 15 200,000 May 15 200,000 May 15 200,000
- ----------------------------------------------------------------------------------------
June 15 200,000 June 15 275,000 June 15 250,000
- ----------------------------------------------------------------------------------------
November 15 125,000 November 15 150,000 November 15 175,000
- ----------------------------------------------------------------------------------------
December 15 200,000 December 15 200,000 December 15 200,000
- ----------------------------------------------------------------------------------------
TOTAL 1998 1,225,000 TOTAL 1999 1,325,000 TOTAL 2000 1,425,000
- ----------------------------------------------------------------------------------------
-----------------------------
2001 AND EACH YEAR THEREAFTER
DATE PAYMENT
-----------------------------
<C> <C>
January 15 150,000
-----------------------------
February 15 175,000
-----------------------------
March 15 200,000
-----------------------------
April 15 200,000
-----------------------------
May 15 200,000
-----------------------------
June 15 200,000
-----------------------------
November 15 175,000
-----------------------------
December 15 200,000
-----------------------------
TOTAL EACH YEAR 1,500,000
-----------------------------
</TABLE>
75
<PAGE>
SIGNED by )
ANTHONY J. LYNN ) /s/ Anthony J. Lynn
for and on behalf of )
THE LICENSOR )
SIGNED by )
)
for and on behalf of ) /s/ Roger Luard
THE COMPANY )
76
<PAGE>
FROM: PLAYBOY ENTERTAINMENT GROUP, INC
of 9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
("the Licensor")
TO: PLAYBOY TV UK/BENELUX LIMITED
of Twyman House
16 Bonny Street
London NW1 9PG
("the Company")
Dated 2nd of February 1996 but made
effective from 1st November 1995
Dear Sirs,
We refer to the Programme Supply Agreement which you are proposing to enter into
with us today ("the Agreement"). Words and expressions used in this letter
agreement and defined in the Agreement shall have the respective meanings
ascribed to them in the Agreement.
In consideration of the Company agreeing to pay to us upon signature hereof the
sum of (Pounds)1 (receipt of which is hereby acknowledged) and of the Company
hereby agreeing to enter into the Agreement today, the Licensor hereby agrees
and undertakes with the Company that the Licensor shall notwithstanding the
provisions of the Agreement:-
(a) licence and deliver to the Company in the First Year and in the second Year
such number (which shall be in excess of the Minimum Number of Hours in
respect of the First Year and in respect of the second Year) of Programme
Hours of Programmes as may from time to time be required by the Scheduler
for first transmission in the Service ("the Additional Programme Hours");
and
(b) perform its obligations under paragraph (a) above at no additional cost,
charge or expense to the Company over and above (i) the Basic Licence Fee
payable under the Agreement in respect of the First Year and the second
Year and (ii) any costs and expenses of the kind payable by the Company
under Clauses 5 and 6 of the Agreement which shall during the First Year
and the second Year also be payable in relation to the Additional Programme
Hours, but otherwise it is hereby agreed by the parties that all of the
terms and conditions of the Agreement (including without limitation the
provisions of Clauses 2 and 4 of the Agreement) shall apply to the
licensing, supply and delivery by the Licensor of the Additional Programme
Hours under this letter agreement.
In the event of any conflict between the terms of this letter agreement and the
terms of the Agreement, the terms of this letter agreement shall prevail.
1
<PAGE>
This letter agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the exclusive
jurisdiction of the English Courts as regards any claim or matter arising in
relation to this letter agreement. The Licensor hereby appoints O'Melveny &
Myers of 10 Finsbury Square, London EC2A 1LA as its authorised agent for the
purpose of accepting service of process for all purposes in connection with this
letter agreement.
Please signify your agreement to and acceptance of the foregoing by signing and
returning to us the enclosed duplicate of this letter.
Yours faithfully,
/s/ Anthony J. Lynn
................................
for and on behalf of
PLAYBOY ENTERTAINMENT GROUP, INC
Agreed and Accepted:
/s/ Roger Luard
................................
for and on behalf of
PLAYBOY TV UK/BENELUX LIMITED
2
<PAGE>
This Agreement is entered into this 2nd day of February 1996, but made effective
from 1st November 1995 by and between:
(1) Harris Trust and Savings Bank of 111 West Monroe Street, Chicago, Illinois
60603, United States of America ("Harris");
(2) LaSalle National Bank of 120 La Salle Street, Chicago, Illinois 60603,
United States of America ("LaSalle");
(3) Continental Shelf 16 Limited a company registered in England under no.
3005499 whose address is Twyman House, 16 Bonny Street, London NWl 9PG
("Flextech");
(4) Precis (1378) Limited a company registered in England under number 3092549
whose address is 6 Centaurs Business Park, Grant Way, Isleworth, Middlesex
TW7 5QD ("Sky");
(5) Playboy TV UK/Benelux Limited of Twyman House, 16 Bonny Street, London NW1
9PG ("the Joint Venture")
WHEREAS the parties are entering into this Agreement pursuant to an agreement
dated 2nd February 1996 between Playboy Entertainment Group, Inc. ("Playboy"),
Playboy Enterprises, Inc. ("Playboy Enterprises"), Flextech, Sky and the Joint
Venture ("the Head Agreement").
NOW IT IS HEREBY AGREED as follows:
1. For the purposes of this Agreement:
(a) all capitalised words and expressions used but not defined in this
Agreement shall be defined as in the Head Agreement;
1
<PAGE>
(b) the expression "the Lenders" shall mean each of Harris and La Salle and
their respective assigns and successors in title under the Loan Documents;
(c) the expression a "Default" shall mean any default by Playboy Enterprises in
or in respect of any of its obligations under the Loan Documents or any
other occurrence which in either case results in action by or on behalf of
either or both of the Lenders to foreclose upon, assert control over, take
possession of, sell or otherwise enforce its or their security over the
Collateral or any part thereof;
(d) the expression "Programming Collateral" shall mean the entire right title
and interest of Playboy and each Affiliate of Playboy (including but not
limited to Playboy Enterprises), and of their successors in title and
assigns, in and to the Programmes, Third Party Programmes, any Future
Programmes, the Trade Marks and any Delivery Material in respect of any of
the Programmes, Third Party Programmes or Future Programmes;
(e) the expression "Collateral" shall mean the Programming Collateral and the
respective Interests (as defined in the Shareholders' Agreement) of Playboy
and Playboy Enterprises in the Joint Venture;
(f) the expression "Affiliate of Playboy" shall mean any person which is from
time to time either directly or indirectly controlling, controlled by or
under common control with Playboy and for this purpose "control" means in
relation to a person the power of another person ("the Controlling Person")
to secure, whether by the holding of shares or the possession of voting
rights in or in relation to that person or any other person or the
provisions of any agreement or otherwise, that the affairs of that person
are conducted in accordance with the wishes of the Controlling Person;
(g) the expression a "Future Programme" shall mean any Programme or Third Party
Programme which (notwithstanding the absence of any obligation on the
2
<PAGE>
Lenders to fund the creation or distribution of new Programmes or
Third Party Programmes) comes into existence at any time after any
Default.
2. In consideration of Flextech, Sky and the Joint Venture each agreeing to
observe and comply with the provisions of the Shareholders' Agreement, the
Trademark Agreement, the Programme Agreement and/or the Head Agreement
which it is bound to observe and comply with, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, each of the Lenders hereby undertakes and covenants with
Flextech, Sky and the Joint Venture that the Lenders shall:
(a) promptly notify Flextech, Sky and the Joint Venture of the occurrence of
any Default;
(b) in the event of any Default forebear from exercising (other than in
compliance with the provisions of Clause 3) any of their rights against, in
or to the Programmes and Third Party Programmes then in existence, any
Future Programmes or the Trade Marks, or any of them, or any Delivery
Material in relation to any of the Programmes or Third Party Programmes, or
any Future Programmes;
(c) not, at any time whilst the Collateral is pledged to it, take any action
(other than in compliance with the provisions of Clause 3) which would
interfere with the performance by Playboy or Playboy Enterprises of their
respective obligations under the Programme Agreement or under the Trademark
Agreement or the exercise by the Joint Venture of any of its rights under
the Programme Agreement or under the Trademark Agreement with respect to
the Programmes and Third Party Programmes then in existence or any Future
Programmes or with respect to the Trade Marks
provided that neither Flextech nor Sky nor the Joint Venture is in default of
and shall comply with all of their respective payment obligations under the
Shareholders'
3
<PAGE>
Agreement and the Programme Agreement in accordance with their terms, and
subject always to the provisions of Clause 3.
3. Notwithstanding anything in this Agreement to the contrary:
(a) action may be taken by or on behalf of any one or more of the Lenders
to foreclose upon, assert control over, take possession of, sell or
otherwise enforce its liens or security interests on the Collateral or
any part thereof PROVIDED HOWEVER THAT (subject to the provisions of
Clause 4):
(i) any such action shall be taken subject to the terms of the sole
and exclusive license granted to the Joint Venture under the
Programme Agreement in and to each Programme and Third Party
Programme within the territory ("the Territory") of the United
Kingdom, the Republic of Ireland, Belgium, the Netherlands and
Luxembourg (and each other country to which the Lenders have
agreed with Playboy in writing) and subject also to the terms of
the exclusive license granted to the Joint Venture to use the
Trade Marks within the Territory under the Trademark Agreement;
(ii) following the taking of any such action the Lenders shall either
(A) permit and make available to the Joint Venture (or such
person as the Joint Venture may direct the Lenders in
writing) access (in each case to the extent that it is
within the rights of the Lenders to do so) to the Delivery
Material required to be furnished by Playboy to the Joint
Venture under the Programme Agreement; or
(B) (in the case of any sale or disposition of the Programming
Collateral (or any part thereof) to any person under or by
virtue of such action) require that person to permit and
make available
4
<PAGE>
to the Joint Venture (or such person as the Joint Venture may
direct the Lenders in writing) access to the Delivery Material
required to be furnished by Playboy to the Joint Venture under
the Programme Agreement;
(b) neither the Lenders, nor any person who acquires any rights in any
Programming Collateral under or by virtue of any disposition or other
enforcement of the Lenders' rights therein, assumes liability for any
positive obligations of Playboy under the Programme Agreement
including without limitation the obligations of Playboy to provide a
Scheduler, to create or physically deliver Delivery Material to the
Joint Venture, to create or fund the creation of Programmes or
Delivery Material or to acquire or fund the acquisition of Third Party
Programmes (it being understood and agreed that in the event of a
Default the Lenders have no obligation to consent to, and shall be
entitled to take steps to prevent, the creation by Playboy (or any
other person acting on behalf of Playboy) of any Future Programmes or
any Delivery Material in relation to any Future Programmes).
4. Provisos (i) and (ii) to sub-clause 3(a) above shall continue to apply if
and so long as:
(a) all payments due and to become due (if any) to Playboy under the
Programme Agreement after the Joint Venture has been notified of any
Default by the Lenders shall (subject to laws which provide third
party priorities or otherwise provide to the contrary, to the order of
any court of competent jurisdiction, to the provisions of Clause 5
below and to Playboy Enterprises continuing to perform its obligations
under the Trademark Agreement in accordance with its terms and to the
extent to which Playboy is continuing to perform its obligations under
the Programme Agreement in accordance with its terms) have been made
directly to the Lenders or their designee (to the extent so requested
by the Lenders in writing to the Joint Venture); and
5
<PAGE>
(b) in the event that any payments made by the Joint Venture to the
Lenders or their designee pursuant to sub-clause 4(a) above are not in
an amount sufficient to reimburse the Lenders for their reasonable
out-of-pocket costs and expenses (if any) of permitting access to the
Delivery Material in accordance with proviso (ii) to sub-clause 3(a)
above, the Lenders shall have received within twenty-one (21) days
after having notified the Joint Venture to that effect such additional
amount as will so reimburse them.
5. In the event that the Joint Venture pays any additional amount to the
Lenders pursuant to sub-clause 4(b) above, the Lenders agree that the Joint
Venture shall be entitled to deduct such additional amount from any
payment(s) which subsequently become(s) due to Playboy under the Programme
Agreement.
6. Except where any governmental department, agency or regulatory body
requires a Lender to assign to a governmental department, agency or
regulatory body the promissory notes evidencing that Lender's credit to
Playboy so as to maintain that Lender's liquidity, each of the Lenders
undertakes that it shall not assign any of its rights under any of the Loan
Documents to any person unless that person shall first have entered into an
agreement with Flextech, Sky and the Joint Venture which is substantially
similar in form and substance to this Agreement.
7. This Agreement shall be construed and the rights and obligations of the
parties hereunder determined in accordance with the law of the State of
Illinois, United States of America. The parties hereby consent to the non-
exclusive jurisdiction of the federal courts of the federal districts
having jurisdiction over the State of Illinois located in Cook County.
6
<PAGE>
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be entered
into as of the date set forth above.
HARRIS TRUST AND SAVINGS BANK
/s/R. L. Dell'Artino
By:__________________________
Its: Vice President
LASALLE NATIONAL BANK
/s/Robert Kastenholz
By:__________________________
Its: Senior Vice President
CONTINENTAL SHELF 16 LIMITED
By:__________________________
Its:
PLAYBOY TV UK/BENELUX LIMITED
By:__________________________
Its:
PRECIS (1378) LIMITED
By:__________________________
Its:
7
<PAGE>
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be entered
into as of the date set forth above.
HARRIS TRUST AND SAVINGS BANK
By:__________________________
Its:
LASALLE NATIONAL BANK
By:__________________________
Its:
CONTINENTAL SHELF 16 LIMITED
/s/Roger Luard
By:__________________________
Its:
PLAYBOY TV UK/BENELUX LIMITED
/s/Roger Luard
By:__________________________
Its:
PRECIS (1378) LIMITED
/s/D. Chance
By:__________________________
Its:
8
<PAGE>
AGREEMENT
---------
This Agreement is entered into this 2nd day of February 1996, but made effective
from 1st November 1995, by and between Playboy Entertainment Group, Inc.
("Playboy"), Playboy Enterprises, Inc. ("Playboy Enterprises"), Continental
Shelf 16 Limited ("Flextech"), Precis (1378) Limited ("Sky") and Playboy TV
UK/Benelux Limited (the "Joint Venture").
WHEREAS, Playboy, Playboy Enterprises, Flextech, Sky and the Joint Venture
intend to enter into today that certain Programme Supply Agreement (the
"Programme Agreement"), that certain Shareholders' Agreement (the "Shareholders'
Agreement") and that certain Trademark Agreement (the "Trademark Agreement");
and
WHEREAS, Playboy Enterprises has entered into, among other things, a loan and
security agreement and related agreements (the "Loan Documents") with the Harris
Trust and Savings Bank and the LaSalle National Bank (collectively, the
"Lenders" which expression shall include their successors in title and assigns)
pursuant to which the Lenders have or will cause to make a loan or a series of
loans and other financial accommodations to Playboy Enterprises; and
WHEREAS, to secure Playboy Enterprises' obligations under the Loan Documents,
Playboy Enterprises has or intends to pledge certain assets to the Lenders as
collateral for the aforementioned loans (the "Bank Collateral"); and
WHEREAS, included among the Bank Collateral pledged or to be pledged to the
Lenders in accordance with the Loan Documents are or may be those certain
"Programmes" and "Third Party Programmes" as those terms are defined in Section
1.1 of the Programme Agreement and the "Trade Marks" as that term is defined in
Section 1.1 of the Trademark Agreement; and
WHEREAS, Flextech and Sky have sought assurances from Playboy and Playboy
Enterprises as to their rights in and to the Programmes and the Third Party
Programmes as set forth in the Programme Agreement and in and to the Trade Marks
as set forth in the Trademark
1
<PAGE>
Agreement in the event of any default by Playboy Enterprises under the Loan
Documents or any other occurrence which results in any action by or on behalf of
the Lenders to foreclose upon or assert control over the Bank Collateral; and
WHEREAS, the parties herein deem it necessary to enter into this Agreement
immediately prior to executing the Shareholders' Agreement, the Programme
Agreement and the Trademark Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
set forth below and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Notwithstanding the provisions of the Shareholders' Agreement, the
Programme Agreement and the Trademark Agreement but subject to the
performance by Playboy and Playboy Enterprises of their obligations under
paragraph 2 and sub-paragraph 3(a) hereof:
(a) Flextech and Sky hereby consent to the pledging to the Lenders of any
or all of the shares in the capital of, and the other Interests (as
defined in the Shareholders' Agreement) in, the Joint Venture held by
Playboy and/or Playboy Enterprises.
(b) Each of Flextech and Sky hereby waives any rights which it might have
pursuant to the Shareholders' Agreement to treat the pledging of any
such shares to the Lenders as the deemed service by Playboy of a
Transfer Notice (as defined in the Shareholders' Agreement) provided
that nothing contained in this Agreement shall preclude either of
Flextech and Sky from exercising any rights which it may have, whether
under the Shareholders' Agreement or otherwise, in the event that any
of the Lenders propose(s) to Transfer (as defined in the Shareholders'
Agreement) any shares in the capital of the Joint Venture to any
person.
2
<PAGE>
(c) Each of Flextech and Sky hereby undertakes that it shall not Transfer
any of its shares in the capital of the Joint Venture to any person
other than Playboy or Playboy Enterprises unless Flextech and Sky (as
the case may be) shall have obtained from any such person (a copy of
which shall be delivered promptly to Playboy and Playboy Enterprises) a
consent, waiver and undertaking substantially similar in form and
substance to the consent, waiver and undertaking hereinabove given in
sub-paragraphs l(a), (b) and (c).
(d) The Joint Venture hereby consents to the pledging to the Lenders as
part of the Bank Collateral of the following:
(i) the Programmes, the Third Party Programmes and the Trade Marks;
and
(ii) the benefit of the Programme Agreement and the Trade Mark
Agreement.
2. In consideration of Flextech, Sky and the Joint Venture each agreeing today
to enter into the Shareholders' Agreement, the Trademark Agreement and/or
the Programme Agreement and of the consents and waiver given by Flextech,
Sky and the Joint Venture under paragraph 1 hereof, Playboy shall not later
than 1st November 1995 obtain from each of the Lenders and deliver to
Flextech, Sky and the Joint Venture a forbearance agreement duly executed by
each of the Lenders in the form attached to this Agreement (the "Forbearance
Agreement").
3. The obligations of Playboy and Playboy Enterprises under this Agreement
shall be continuing in nature such that:
(a) in the event that Playboy Enterprises enters into any such other or
further secured lending agreements with institutions other than the
Lenders; or
3
<PAGE>
(b) in the event that any of the Lenders assigns any of its rights under
any of the Loan Documents to any person (other than any governmental
department, agency or regulatory body as described in the exception to
paragraph 6 of the Forbearance Agreement)
Playboy and Playboy Enterprises shall promptly obtain from any such
lender(s) or assignee(s) and deliver to Flextech, Sky and the Joint Venture
an agreement substantially similar in form and substance to the Forbearance
Agreement.
4. Playboy and Playboy Enterprises hereby jointly and severally warrant and
represent to Flextech, Sky and the Joint Venture that the entry into the
Loan Documents and the pledging of the Bank Collateral to the Lenders will
not (unless any of the Lenders default in the performance of their
obligations to Flextech, Sky and the Joint Venture under the Forbearance
Agreement) interfere in any material respect with the performance by Playboy
or Playboy Enterprises of their respective obligations (if any) under the
Programme Agreement or under the Trademark Agreement or the exercise by the
Joint Venture of any of its rights under the Programme Agreement or under
the Trademark Agreement with respect to the Programmes and Third Party
Programmes or with respect to the Trade Marks.
5. The obligations and liability of Playboy and Playboy Enterprises under this
Agreement shall be joint and several.
6. This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the exclusive
jurisdiction of the English Courts as regards any claim or matter arising in
relation to this Agreement. Playboy hereby appoints O'Melveny & Myers of 10
Finsbury Square London EC2A 1LA, England as its authorised agent for the
purpose of accepting service of process for all purposes in connection with
this Agreement.
7. In the event of any inconsistency between the provisions of this Agreement
on the one hand and the provisions of the Shareholders' Agreement, the
Programme Agreement
4
<PAGE>
and the Trademark Agreement on the other hand, the provisions of this
Agreement shall prevail.
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be entered
into as of the date set forth above.
PLAYBOY ENTERTAINMENT PLAYBOY ENTERPRISES, INC.
GROUP, INC.
By: /s/ Myron DuBow By: /s/ Robert D. Campbell
---------------------------------- -----------------------------------
Its: Senior Vice-Pres. Its: Treasurer
PLAYBOY TV UK/BENELUX LIMITED CONTINENTAL SHELF 16 LIMITED
By: /s/ Roger Luard By: /s/ Roger Luard
--------------------------------- -----------------------------------
Its: Its:
PRECIS (1378) LIMITED
By: /s/ D. Chance By:
--------------------------------- -----------------------------------
Its: D. Chance Its:
5
<PAGE>
APPENDIX
--------
This Agreement is entered into this day of 1995,
by and between:
(1) Harris Trust and Savings Bank of 111 West Monroe Street, Chicago, Illinois
60603, United States of America ("Harris");
(2) LaSalle National Bank of 120 La Salle Street, Chicago, Illinois 60603,
United States of America ("LaSalle");
(3) Continental Shelf 16 Limited a company registered in England under no.
3005499 whose address is Twyman House, 16 Bonny Street, London NW1 9PG
("Flextech");
(4) Precis (1378) Limited a company registered in England under number 3092549
whose address is 6 Centaurs Business Park, Grant Way, Isleworth, Middlesex
TW7 5QD ("Sky");
(5) Playboy TV UK/Benelux Limited of Twyman House, 16 Bonny Street, London NW1
9PG ("the Joint Venture")
WHEREAS the parties are entering into this Agreement pursuant to an agreement
dated 1995 between Playboy Entertainment Group, Inc. ("Playboy"),
Playboy Enterprises, Inc. ("Playboy Enterprises"), Flextech, Sky and the Joint
Venture ("the Head Agreement").
NOW IT IS HEREBY AGREED as follows:
1. For the purposes of this Agreement:
6.
<PAGE>
(a) all capitalised words and expressions used but not defined in this
Agreement shall be defined as in the Head Agreement;
(b) the expression "the Lenders" shall mean each of Harris and La Salle
and their respective assigns and successors in title under the Loan
Documents;
(c) the expression a "Default" shall mean any default by Playboy
Enterprises in or in respect of any of its obligations under the Loan
Documents or any other occurrence which in either case results in
action by or on behalf of either or both of the Lenders to foreclose
upon, assert control over, take possession of, sell or otherwise
enforce its or their security over the Collateral or any part thereof;
(d) the expression "Programming Collateral" shall mean the entire right
title and interest of Playboy and each Affiliate of Playboy (including
but not limited to Playboy Enterprises), and of their successors in
title and assigns, in and to the Programmes, Third Party Programmes,
any Future Programmes, the Trade Marks and any Delivery Material in
respect of any of the Programmes, Third Party Programmes or Future
Programmes;
(e) the expression "Collateral" shall mean the Programming Collateral and
the respective Interests (as defined in the Shareholders' Agreement)
of Playboy and Playboy Enterprises in the Joint Venture;
(f) the expression "Affiliate of Playboy" shall mean any person which is
from time to time either directly or indirectly controlling,
controlled by or under common control with Playboy and for this
purpose "control" means in relation to a person the power of another
person ("the Controlling Person") to secure, whether by the holding of
shares or the possession of voting rights in or in relation to that
person or any other person or the provisions of any agreement or
otherwise, that the affairs of that person are conducted in
accordance with the wishes of the Controlling Person;
7.
<PAGE>
(g) the expression a "Future Programme" shall mean any Programme or Third
Party Programme which (notwithstanding the absence of any obligation
on the Lenders to fund the creation or distribution of new Programmes
or Third Party Programmes) comes into existence at any time after any
Default.
2. In consideration of Flextech, Sky and the Joint Venture each agreeing to
observe and comply with the provisions of the Shareholders' Agreement, the
Trademark Agreement, the Programme Agreement and/or the Head Agreement
which it is bound to observe and comply with, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, each of the Lenders hereby undertakes and covenants with
Flextech, Sky and the Joint Venture that the Lenders shall:
(a) promptly notify Flextech, Sky and the Joint Venture of the occurrence
of any Default;
(b) in the event of any Default forebear from exercising (other than in
compliance with the provisions of Clause 3) any of their rights
against, in or to the Programmes and Third Party Programmes then in
existence, any Future Programmes or the Trade Marks, or any of them,
or any Delivery Material in relation to any of the Programmes or Third
Party Programmes, or any Future Programmes;
(c) not, at any time whilst the Collateral is pledged to it, take any
action (other than in compliance with the provisions of Clause 3)
which would interfere with the performance by Playboy or Playboy
Enterprises of their respective obligations under the Programme
Agreement or under the Trademark Agreement or the exercise by the
Joint Venture of any of its rights under the Programme Agreement or
under the Trademark Agreement with respect to the Programmes and Third
Party Programmes then in existence or any Future Programmes or with
respect to the Trade Marks
8.
<PAGE>
provided that neither Flextech nor Sky nor the Joint Venture is in
default of and shall comply with all of their respective payment
obligations under the Shareholders' Agreement and the Programme
Agreement in accordance with their terms, and subject always to the
provisions of Clause 3.
3. Notwithstanding anything in this Agreement to the contrary:
(a) action may be taken by or on behalf of any one or more of the Lenders
to foreclose upon, assert control over, take possession of, sell or
otherwise enforce its liens or security interests on the Collateral or
any part thereof PROVIDED HOWEVER THAT (subject to the provisions of
Clause 4):
(i) any such action shall be taken subject to the terms of the sole
and exclusive license granted to the Joint Venture under the
Programme Agreement in and to each Programme and Third Party
Programme within the territory ("the Territory") of the United
Kingdom, the Republic of Ireland, Belgium, the Netherlands and
Luxembourg (and each other country to which the Lenders have
agreed with Playboy in writing) and subject also to the terms of
the exclusive license granted to the Joint Venture to use the
Trade Marks within the Territory under the Trademark Agreement;
(ii) following the taking of any such action the Lenders shall either
(A) permit and make available to the Joint Venture (or such
person as the Joint Venture may direct the Lenders in
writing) access (in each case to the extent that it is within
the rights of the Lenders to do so) to the Delivery Material
required to be furnished by Playboy to the Joint Venture
under the Programme Agreement; or
9.
<PAGE>
(B) (in the case of any sale or disposition of the Programming
Collateral (or any part thereof) to any person under or by
virtue of such action) require that person to permit and make
available to the Joint Venture (or such person as the Joint
Venture may direct the Lenders in writing) access to the
Delivery Material required to be furnished by Playboy to the
Joint Venture under the Programme Agreement;
(b) neither the Lenders, nor any person who acquires any rights in any
Programming Collateral under or by virtue of any disposition or other
enforcement of the Lenders' rights therein, assumes liability for any
positive obligations of Playboy under the Programme Agreement
including without limitation the obligations of Playboy to provide a
Scheduler, to create or physically deliver Delivery Material to the
Joint Venture, to create or fund the creation of Programmes or
Delivery Material or to acquire or fund the acquisition of Third Party
Programmes (it being understood and agreed that in the event of a
Default the Lenders have no obligation to consent to, and shall be
entitled to take steps to prevent, the creation by Playboy (or any
other person acting on behalf of Playboy) of any Future Programmes or
any Delivery Material in relation to any Future Programmes).
4. Provisos (i) and (ii) to sub-clause 3(a) above shall continue to apply if
and so long as:
(a) all payments due and to become due (if any) to Playboy under the
Programme Agreement after the Joint Venture has been notified of any
Default by the Lenders shall (subject to laws which provide third
party priorities or otherwise provide to the contrary, to the order of
any court of competent jurisdiction, to the provisions of Clause 5
below and to Playboy Enterprises continuing to perform its obligations
under the Trademark Agreement in accordance with its terms and to the
extent to which Playboy is continuing to perform its obligations under
the Programme Agreement in accordance with its terms)
10
<PAGE>
have been made directly to the Lenders or their designee (to the
extent so requested by the Lenders in writing to the Joint Venture);
and
(b) in the event that any payments made by the Joint Venture to the
Lenders or their designee pursuant to sub-clause 4(a) above are not in
an amount sufficient to reimburse the Lenders for their reasonable
out-of-pocket costs and expenses (if any) of permitting access to the
Delivery Material in accordance with proviso (ii) to sub-clause 3(a)
above, the Lenders shall have received within twenty-one (21) days
after having notified the Joint Venture to that effect such additional
arnount as will so reimburse them.
5. In the event that the Joint Venture pays any additional amount to the
Lenders pursuant to sub-clause 4(b) above, the Lenders agree that the Joint
Venture shall be entitled to deduct such additional amount from any
payment(s) which subsequently become(s) due to Playboy under the Programme
Agreement.
6. Except where any governrnental department, agency or regulatory body
requires a Lender to assign to a governmental department, agency or
regulatory body the promissory notes evidencing that Lender's credit to
Playboy so as to maintain that Lender's liquidity, each of the Lenders
undertakes that it shall not assign any of its rights under any of the Loan
Documents to any person unless that person shall first have entered into an
agreement with Flextech, Sky and the Joint Venture which is substantially
similar in form and substance to this Agreement.
7. This Agreement shall be construed and the rights and obligations of the
parties hereunder determined in accordance with the law of the State of
Illinois, United States of America. The parties hereby consent to the non-
exclusive jurisdiction of the federal courts of the federal districts
having jurisdiction over the State of Illinois located in Cook County.
11
<PAGE>
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be entered
into as of the date set forth above.
HARRIS TRUST SAVINGS BANK
By: /s/ R.L. Dell'Artino
------------------------
Its: Vice President
LASALLE NATIONAL BANK
By: /s/ Robert Kastenholz
------------------------
Its: Senior Vice President
CONTINENTAL SHELF 16 LIMITED
By:
------------------------
Its:
PLAYBOY TV UK/BENELUX LIMITED
By:
------------------------
Its:
PRECIS (1378) LIMITED
By:
------------------------
Its:
12
<PAGE>
Exhibit 10.10(a)
MEMORANDUM OF AGREEMENT
PLAYBOY CHANNEL--JAPAN
The following sets forth the mutual understanding as of July 31, 1995, of
Playboy Entertainment Group, Inc. ("Playboy") and Tohokushinsha Film Corporation
("Tohokushinsha") with respect to the material terms of their agreement to form
and operate a programming service venture (the "Venture") in Japan, which
agreement, including the terms described in this Memorandum of Agreement and
such additional terms as the parties may mutually agree, after good faith
negotiations, will be set forth in a Shareholders' Agreement, a Program Supply
Agreement and a Trademark License Agreement (collectively, the "Definitive
Agreements"). Those material terms are as follows:
PURPOSE OF VENTURE: The Venture will own and operate a subscriber-based adult
oriented television service in Japan. The name of the adult oriented television
service will be "The Playboy Channel" (the "Channel"). For purposes hereof and
of the Definitive Agreements (other than the purpose of defining the Channel),
an "adult programming service" is any block of programming that (a) represents
at least 60% of the hours of programming between 5:00 p.m. and 3:00 a.m. on a
channel (irrespective of such channel's method of distribution), and (b)
regularly contains nudity, depicts sexual acts and is adult-oriented.
FORMATION: The Venture will be organized as a corporation under the laws of
Japan on the following basis ("Y" means-Japanese Yen; "M" means millions):
OWNERSHIP: 80.125% to Tohokushinsha and 19.875% to Playboy.
PAID-IN-CAPITAL: Y120,000,000, of which Tohokushinsha will contribute 80.125%
(Y96,150,000) and Playboy will contribute 19.875% (Y23,850,000). Playboy's
contribution of Y23,850,000 will be the first and last capital contribution that
Playboy will be required to make, except as otherwise expressly provided herein.
Because Playboy is required by law to make payment in full for its shares at the
time of their issuance, rather than allowing for the execution of a promissory
note or other arrangement as consideration, Tohokushinsha will advance to
Playboy the funds for such capital contribution, which advance will be recouped
by Tohokushinsha from any monies due Playboy from the Venture or Tohokushinsha.
DISTRIBUTIONS: Notwithstanding the above, it is agreed that (a) the venturers
will be entitled at all times to a percentage
EXECUTED AGREEMENT
<PAGE>
interest of the net profits of the Venture distributable to its shareholders in
accordance with their respective ownership percentage interest in the Venture,
and (b) if a Liquidity Event (as defined below) occurs, Playboy will be entitled
to 30% of any net proceeds therefrom distributed to the Venture's shareholders
less an amount that is the greater of (i) the number of shares that constitutes
10.125% of the stock on a fully diluted basis, without giving effect to the
Liquidity Event, at the time of the Liquidity Event (i.e., as if additional
authorized, but unissued, shares had been issued in an amount equal to 10.125%
of the outstanding shares), times the per share Initial Value (as defined in
Issued Shares below), plus accrued interest thereon at the Japanese Prime
Lending Rate as announced by The Industrial Bank of Japan for domestic lending
from the date of initial capitalization, or (ii) the Book Value (which shall be
defined for all purposes herein as the difference between total assets and total
liabilities (after giving effect to taxes, interest and depreciation) as
reflected in the Venture's financial records and determined as of the date
immediately prior to the date of such transaction in accordance with Japanese
generally accepted accounting principles consistently applied) of 10.125% of the
Venture on a fully diluted basis without giving effect to such Liquidity Event;
provided, however, that for the purpose of calculating the foregoing reduction,
in no event shall such Book Value of 10.125% of the Venture be greater than the
net proceeds of the Liquidity Event that would be distributable to a holder of
10.125% of the then currently issued and outstanding shares.
The venturers will cause the Venture to distribute promptly to the venturers all
Excess Cash (as defined below), including, but not limited to, Excess Cash
resulting from the net proceeds of a Liquidity Event. For purposes hereof,
"Liquidity Event" means any of the following: (i) a sale of all or part of the
assets of the Venture, (ii) a public offering of shares in the Venture, whether
or not the offered shares are newly issued for such purpose, (iii) a merger or
other reorganization if after such event the equity interests in the surviving
corporation or other entity is held other than by Tohokushinsha and Playboy in
the proportions each held shares in the Venture immediately prior to such event,
or (iv) a total or partial liquidation of the Venture. For purposes hereof,
"Excess Cash" means that amount in excess of amounts reserved for payment of
current and anticipated liabilities, including any liabilities owed to
Tohokushinsha and any Base Trademark Royalties and Program License Fees (as
defined below) payable to Playboy, or otherwise needed for use in the operation
of the Venture's business for the current period, as determined in good faith by
the Board of Directors.
The Venture will not declare any dividend or make any distribution on its shares
so long as there remains outstanding any indebtedness of the Venture or of
Playboy to Tohokushinsha.
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Issued Shares: 2,400, with an initial value of Y50,000 per share (the "Initial
Value").
Authorized Capital: Y120 M; unless required by Japanese regulators to increase
in connection with the Venture's application for DTH (as defined below). If
Playboy and Tohokushinsha are so required by Japanese regulators to make
additional capital contributions to the Venture, such additional capital
contributions will be made by each venturer in accordance with its respective
ownership percentage interest in the Venture. At Playboy's request (to the
extent that there are insufficient funds then owing to Playboy from the
Venture), Tohokushinsha will advance to Playboy the funds for such additional
capital contribution, which advance will be recouped by Tohokushinsha from any
monies due Playboy from the Venture or Tohokushinsha.
Powers: The Venture will have all customary powers of a business corporation,
including the power to issue securities to the public.
Additional Rights Re Shares: Without limiting the requirements described below
regarding approval of any direct or indirect transfer of shares in the Venture,
the parties shall have preemptive rights and "come-along" rights and
participation rights on customary terms in the event that either party desires
to sell some or all of such party's shares in the Venture pursuant to a bona
fide third-party offer or pursuant to a public offering of shares by such party.
Playboy will have the right to come-along or otherwise participate in any such
transaction up to 30% thereof.
"DIRECT-TO-HOMES" TRANSMISSION ("DTH"): The Channel initially will be offered to
cable systems, hotels and multiple-dwelling closed-circuit systems. The Venture
will use its reasonable efforts to obtain a license to transmit "direct-to-
homes" via direct broadcast satellite or other direct-to-homes delivery systems.
The parties expect to make such application as soon as feasible, and, in good
faith based upon reasonable business criteria (taking into account only the
interests of the Venture), will mutually determine when the Venture will seek
such license, and, if a license is obtained, when such transmissions will
commence. If the government refuses to grant such a license due to the Venture's
exhibition of non-Playboy programming, the Venture will use reasonable efforts
to conform such programming so that the DTH license may be obtained, so long as
such conformance is not materially financially detrimental to the Venture.
CORPORATE GOVERNANCE: The Venture will have four directors, one of whom will be
appointed by Playboy and three by Tohokushinsha. Meetings of the Board will
require not less than 30 days' prior
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written notice. Japanese broadcast law requires that all directors of companies
providing DTH service be Japanese nationals. Accordingly, prior to the Venture
making application to provide DTH service, Playboy will appoint Japanese
nationals in place of any of its non-qualified directors. The following events
will require the approval of each party: amendments to charter documents, merger
or other reorganization, issuance of additional shares, declaration of
dividends, distributions, stock splits, reverse stock splits or redemption of
shares, acting in a manner which is materially inconsistent with an approved
Business Plan or an annual budget, or otherwise materially outside the ordinary
course of business, a public offering of shares by the Venture, entering into
any other businesses, and extending the Channel to different media or to
different territories (without prejudice to Playboy's separate right as Licensor
under the Trademark License Agreement and Program Supply Agreement to withhold
consent, in its sole discretion, to any territorial expansion of the Channel),
loans by the Venture to any Shareholder, or termination, dissolution or
liquidation of the Venture other than as expressly provided below. The parties
will negotiate in good faith regarding further reasonable corporate governance
provisions for the protection of the minority shareholder in connection with the
Definitive Agreements. Each venturer will have the right to examine the books
and records of the Company and, in addition, Playboy at its own cost will have
the annual right to audit or cause an audit of the books and records of the
Venture by a Japanese licensed accountant (other than the Venture's accountant)
during the Venture's normal business hours upon not less than ten (10) business
days prior written notice to Tohokushinsha within ninety (90) days after
Playboy's receipt of the Venture's audited annual financial statements for the
year then ended. Each shareholder of the Venture shall bear its own costs of
attendance at Board meetings. There will be an operating advisory committee
comprised of four members, two of whom will be appointed by each of the parties
hereto. Decisions of the operating advisory committee must be unanimously agreed
to by the parties.
VENTURE OPERATING COSTS: Tohokushinsha or related entities will lend funds to
the Venture as necessary to cover the cash requirements of the Venture to the
extent that such cash requirements cannot be covered out of the Venture's cash
flow, the Venture's capital or any third-party borrowings of the Venture. Such
loans to the Venture will bear interest at the Prime Lending Rate in Japan for
domestic lending as announced from time to time by The Industrial Bank of Japan.
Funds advanced by Tohokushinsha and its related entities shall be evidenced by
promissory notes of the Venture payable upon the demand of Tohokushinsha;
provided, however, that Tohokushinsha shall not make demand thereon or be
entitled to receive payment therefor until and unless and only to the extent
that there is sufficient Excess Cash. Playboy will
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not be obligated to guarantee loans made to the Venture by third parties or by
Tohokushinsha or its related entities. The term "related entities" will include
any lenders controlled by, controlling or under common control with,
Tohokushinsha.
TRADEMARK LICENSE: Playboy will cause Playboy Enterprises, Inc. to grant to the
Venture a license in the form of the trademark license agreement attached hereto
as Exhibit A (the "Trademark License Agreement") to use the trademarks "Playboy"
and the "Rabbit Head Design" and such combination or additional trademarks as
described in and pursuant to the Trademark License Agreement (the "Trademarks"),
in, and in connection with, the Channel and the marketing and promotion of the
Channel. This grant of license will be made to the Venture on an exclusive basis
with respect to television services only, and only for use in the country of
Japan. The only exceptions to the foregoing exclusivity will be customary
presentation and logo credits to "Playboy" and "The Playboy Channel" in the
title and end credits sequences of programs licensed to others as permitted
hereunder and the other exceptions described in the Trademark License Agreement.
The Venture will not sub-license the Trademarks except with the consent of
Playboy. Until the Definitive Agreements are executed, references in the
Trademark License Agreement to the Shareholders' Agreement and the Program
Supply Agreement will be deemed to be a reference to the applicable provisions
of this Memorandum of Agreement.
BASE TRADEMARK ROYALTY: For the right to use the Playboy Trademarks as set forth
above, the Venture will pay Playboy a base trademark royalty equal to 2.5% of
Adjusted Gross Revenues ("Base Trademark Royalty"). "Adjusted Gross Revenues"
shall mean the gross revenues actually received by the Venture from subscribers
to the Channel (including pay per view revenues) and all other revenues from
operation of the Channel by the Venture less (a) consumption and other taxes
(other than income taxes), (b) the costs of collection (not including any
"overhead" type charges of the Venture or Tohokushinsha) of the gross revenues
and (c) costs paid by the Venture of protecting the Trademarks in Japan
applicable to the Venture as provided in the Trademark License Agreement.
Notwithstanding the foregoing, for the purpose of calculating the Base Trademark
Royalty, the term "Adjusted Gross Revenues" will not include revenues derived
from home shopping and advertising.
BONUS TRADEMARK ROYALTY: At the end of any applicable year, the Venture will pay
to Playboy certain bonus trademark royalties based upon the formula set forth in
Exhibit B attached hereto and incorporated herein by reference, which will be
calculated on a quarterly basis during such year and on a year-end annual basis
as set forth in the Trademark License Agreement (the "Bonus Trademark Royalty").
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PROGRAMMING RESTRICTIONS: Non-Playboy supplied programming is to be consistent
with the quality and content standards of Playboy as evidenced by the
programming exhibited on Playboy TV in the United States. In no event will the
Venture utilize non-Playboy supplied programming which, if such programming were
subject to Japan's voluntary rating system, would not be rated, or which would
violate the prohibitions set forth in Section 4.1 of the Trademark License
Agreement. The percentage of edited versions of what would otherwise (i.e.,
absent the editing) constitute in the United States X or NC-17 or similarly
rated programming shall be reasonably consistent with the then prevailing
percentage of such programming on Playboy TV in the United States. In addition,
the Venture will consider in good faith any comments Playboy may have with
respect to other matters regarding programming content, format and other
material elements of the Channel's transmission format, but the judgment of the
Venture will be binding, subject to any specific requirements or restrictions
contained herein or in the Trademark License Agreement.
At Playboy's option, Playboy shall have the right to cause the Venture to hire,
at reasonable compensation and at the Venture's expense, an individual to
evaluate all non-Playboy supplied programming for purposes of insuring
compliance with the programming and advertising restrictions herein and in the
Trademark License Agreement (the "Program Evaluator"). Playboy shall designate
the individual it desires to have serve as such Program Evaluator, which
designation shall be subject to Tohokushinsha's good faith approval not to be
unreasonably withheld. The Program Evaluator shall have access all non-Playboy
programming and materials to be exhibited on the Channel reasonably in advance
of the scheduling of such exhibition. The Program Evaluator shall report
directly to a Playboy or Playboy Enterprises, Inc. executive to be designated by
Playboy. If the Program Evaluator determines any program or other material to be
unacceptable, he shall immediately notify both Playboy and the Venture, the
Venture shall immediately refrain from any use of such program or material and
the Venture shall either (i) propose alternative or edited programming that
addresses and eliminates the Program Evaluator's concerns or (ii) if the Venture
disputes the assertion that such program or material violates applicable
restrictions, the parties will submit such dispute to mediation and arbitration
as set forth below. Pending resolution of any such dispute, no use shall be made
of the program or material in question. Playboy shall at any time have the right
to cause the Venture to fire any such Program Evaluator and hire a replacement,
provided that such replacement shall be subject to Tohokushinsha's good faith
approval not to be unreasonably withheld. If the parties are unable to agree
with respect to the hiring or replacement of any Program Evaluator, the matter
shall be submitted to mediation and arbitration as set forth below.
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Prior to the appointment of any Program Evaluator, or at any time thereafter,
the Venture will submit to Playboy for its inspection and at its expense,
representative samples of all items and materials to be exhibited on the Channel
as may be reasonably requested by Playboy for purposes of determining compliance
with the terms hereof. Playboy shall have three (3) business days to notify
Tohokushinsha in writing of any objection to any such items or materials or the
same shall be deemed approved. If Playboy objects to any program or material or
part thereof as being violative of the terms hereof, the Venture shall
immediately cease any use thereof pending resolution by the parties or pursuant
to mediation and arbitration as provided for below. The Venture will not market,
promote, distribute, sell, telecast, cablecast or otherwise exploit any product
or service that is produced or licensed by and that carries the brand name or
logo of any other men's sophisticate magazine, such as Penthouse or Hustler. The
Venture will also be subject to the restrictions on advertising (including home
shopping) on and or for the Channel set forth in Section 4.2 of the Trademark
License Agreement.
SUPPLYING OF PROGRAMS: Subject to any rights existing in favor of others as of
the date hereof as described in Exhibit C attached hereto (the "Existing
Rights"), Playboy will make available to the Venture all of its program
inventory and, in any event, in each of the indicated years of operation,
Playboy will make available to the Venture and the Venture will license from
Playboy not less than the following number of program hours:
1st Year - 120 Hours
2nd Year - 130 Hours
3rd Year - 150 Hours
4th Year - 160 Hours
5th Year - 170 Hours
Subsequent Years - 180 Hours
All programs offered to the Venture will be of the same general type, and at
least the same level of production value, as programs exhibited on Playboy TV in
the United States. Notwithstanding the foregoing, Playboy will not be obligated
to supply those motion pictures produced by Playboy that (a) have a negative
cost in excess of $1 million, which minimum amount will be adjusted annually by
an amount equal to the increase in the Consumer Price Index for Los Angeles
County for the applicable year, (b) are plot driven, (c) have at least two
recognizable names, (d) are at least 80 minutes in length and (e) are licensed
on a multiple territory basis which includes Japan; it being agreed that,
subject to the Existing Rights, Tohokushinsha shall have a right of first
negotiation for a period of thirty (30) days and first refusal (i.e., the right
to match any offer which Playboy is willing to accept which is less favorable to
Playboy
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than the last offer by Tohokushinsha during such first negotiation period) with
respect to any such film which satisfies the requirements of (a)-(d) above, but
which is offered by Playboy for license in Japan on a single territory basis (as
opposed to on a multiple territory basis which includes Japan), and if
Tohokushinsha elects to exercise such first negotiation right it must be for all
of the rights which Playboy is offering for license in such film in Japan (for
example, if Playboy is offering the film for licensing on a "all rights" basis,
then such first negotiation shall be for the acquisition of "all rights"; or for
example, if Playboy has licensed all theatrical rights to the film as part of a
multiple territory license, but the television rights are available for
licensing on a Japan only basis, then such rights of first negotiation and first
refusal shall apply to such television rights). If any such film is licensed by
the Venture, the Venture will have the option to apply the portion of the fee
paid for such film attributable to the television exhibition rights thereto
toward the aggregate Minimum Guaranteed Program License Fee payable for the
minimum number of program hours the Venture is obligated to license for the
applicable year, as provided below. If the Venture elects to so apply such fee,
the number of hours of programming will correspondingly be applied against the
minimum number of program hours that Playboy is required to make available to
the Venture.
Not more than 25% of the program hours offered by Playboy will be "filler," that
is, programs of 10 minutes or less in length. The following will not apply
toward the minimum number of program hours to be offered by Playboy each year:
programs exhibited or transmitted in Japan via any form of television during the
immediately preceding three-year period; programs for which the cost of making
changes for compliance with the Japanese broadcast code would not be
commercially reasonable; and programs previously offered to and accepted by the
Venture. With respect to programs that were previously offered and accepted, or
programs exhibited or transmitted during the immediately preceding three-year
period, the Venture may at its option license such programs at a reduced rate
equal to 60% of the otherwise applicable program license fees, and, in such
event, (i) the program license fees actually paid for television rights for such
programs shall apply toward the aggregate Minimum Guaranteed Program License
Fees (as defined below) payable for the minimum number of program hours the
Venture is obligated to license for the applicable year, as set forth below, and
(ii) the number of hours of such programming so licensed will correspondingly be
applied against the minimum number of program hours that Playboy is required to
make available to the Venture.
PROGRAM LICENSE TERMS: In each of the indicated years of operation set forth
above, the Venture will license from Playboy the corresponding indicated minimum
number of program hours
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specified above under "Supplying of Programs." Such licenses will be for
television rights only, for a one year period from first availability, for
twenty (20) exhibition days per program, with up to three (3) exhibitions in any
one consecutive twenty-four (24) hour period counted as a single exhibition day.
Subject to the Existing Rights and any future licenses to JSB (which future
licenses shall not allow for an expansion of the adult programming licensed by
Playboy to JSB beyond twenty-five (25) hours per year), during the term of the
Venture, Playboy will not enter into any license agreement with any third party
which allows for the television exhibition in Japan of any program in Playboy's
inventory (other than pictures which are the subject of the third sentence under
"Supplying of Programs") (i) on a competing adult programming service prior to
the expiration of a period of twelve (12) months after the expiration of the one
year license period for such program or (ii) on any non-adult programming
service prior to the expiration of a period of six (6) months after expiration
of the one year license period for such program. Playboy reserves and shall be
free to exercise, license and otherwise exploit all rights, other than
television rights, in and to its program inventory at any time; provided that no
license of home video rights shall provide for a holdback of the right to
license television rights to any program for a period of more than one year
after home video availability for that program. Subject to the applicable
exhibition holdback periods specified in the third sentence of this section,
Playboy shall have the right to license television rights to the programs in the
Playboy inventory to third parties; provided that any such licensing of Playboy
inventory to any such third party must be (i) for exhibition on a so-called
"unbranded" basis (i.e., such licenses shall not allow the use of the Playboy
Trademarks in connection with such programs or the advertising thereof other
than in customary production, presentation and logo credits in advertising for,
and in the title or end sequences of, such programs) and (ii) pursuant to an
agreement which also provides for the licensing of home video or other rights in
addition to such television rights. Notwithstanding the foregoing restrictions
on Playboy's right to license program inventory to others or any other provision
hereof, if the Venture is permitted to enter the DTH market but Tohokushinsha
determines (in violation of the terms hereof) that the Venture will forego the
DTH market, then the Venture's rights with respect to any Playboy programming
inventory and Trademarks, including rights pursuant to then existing program
licenses hereunder, shall automatically be converted to non-exclusive rights for
all uses licensed hereunder, other than for the DTH market, and Playboy shall
thereafter have the exclusive rights to use or license such programming and
Trademarks in the DTH market notwithstanding any subsequent entry by the Venture
in the DTH market. In the event that Japanese subtitled or dubbed materials are
created pursuant to Playboy's license agreements with any third party, to the
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extent that Playboy controls the rights thereto, Playboy will provide to the
Venture access to such materials; provided, however, that the Venture will pay
Playboy for any out of pocket costs incurred in making such materials available.
Playboy will request applicable third party licensees to make such materials
available to the Venture.
PROGRAM LICENSE FEES: The Venture will pay Playboy or its designated affiliate a
per-program license fee (the "Program License Fee") equal to the greater of (i)
US $.05 per subscriber per hour, or (ii) the highest fee per program hour paid
by the Venture to any other program supplier during the preceding twelve-month
period to the Venture (excluding any fee per program hour paid to any program
supplier which supplied to the Venture not more than two (2) programs which in
the aggregate do not exceed four (4) hours of programming at such fee during
such twelve-month period). Notwithstanding the foregoing, Playboy shall be
entitled to receive a minimum guaranteed program license fee ("Minimum
Guaranteed Program License Fee") for each hour of Playboy programming adjusted
annually as follows:
Year 1 Y300,000
Year 2 Y330,000
Year 3 Y360,000
Year 4 Y390,000
Year 5 Y420,000
Year 6 Y450,000
Year 7 Y465,000
Year 8 and each year thereafter Y480,000
Playboy shall receive with respect to each program hour, (a) the greater of (x)
the amount of the Minimum Guaranteed Program License Fee noted above or (y) an
amount calculated pursuant to clause (i) or (ii) of the first sentence of this
Section, whichever is applicable, plus (b) a percentage of the Venture's share
of revenues from pay-per-view transactions, which percentage will be negotiated
in good faith prior to the entry of the Venture into the pay-per-view business.
For the purpose of this Program License Fee computation on a per-program basis:
1. The "applicable number of subscribers" will be determined as follows: the
sum of (a) the number of subscribers to the Channel existing at the end of the
month immediately preceding the first month in which the relevant program became
available to the Channel for exhibition and (b) the number of subscribers
existing at the end of the fifth month following the first month of such
program's availability, which sum is to be divided by two.
2. The subscriber count per hotel will be computed using the higher of a 60%
occupancy rate and the occupancy rate agreed to in the particular hotel license
agreement.
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3. Program length will be prorated as follows:
a. programs of 11-40 minutes in length will be treated as 30-minute programs.
b. programs of 41-70 minutes in length will be treated as 60-minute programs.
c. programs of 71-100 minutes in length will be treated as 90-minute
programs.
d. "filler" programs will be offered by Playboy in blocks of 60 minutes and
shall be applied toward program length for Program License Fee calculation
purposes only in such blocks.
4. Program License Fee computations will be performed by the Venture within 30
days following the end of the fifth month following the first month of each
program's availability to the Channel.
The Venture will withhold from all sums (including any Base and Bonus Trademark
Royalties and Program License Fees) otherwise payable to Playboy hereunder an
amount equal to any advances of capital made by Tohokushinsha to or on behalf of
Playboy, and apply such withheld sums to same. Playboy hereby irrevocably
instructs and authorizes the Venture to withhold such sums and to pay such sums
directly to and in accordance with the instructions of Tohokushinsha.
The Venture undertakes that the aggregate Program License Fees payable to
Playboy for the first 120 hours of programs supplied by Playboy will not be less
than Y36 M.
The Venture will prepare and furnish Program License Fees and Base and Bonus
Trademark Royalty statements to Playboy for each quarter within 60 days after
the end of such quarter. The Venture will also prepare and furnish to each
venturer unaudited monthly management financial statements and audited annual
financial statements. Such audited annual financial statements shall be prepared
in accordance with Japanese generally accepted accounting principles
consistently applied.
ADVERTISING: When and if the Venture commences the practice of carrying
advertising on the Channel, the Venture will make available without cost to
Playboy and its affiliates an aggregate of six (6) minutes per calendar day (at
exhibition times mutually agreed upon by the parties in good faith) of free
advertising time for products bearing Playboy-owned trademarks (other than
television programming) sold by Playboy and its affiliates, of which three (3)
minutes shall be transmitted within the hours of 9:00 p.m. to 12:00 midnight
local Japanese time, or, at Playboy's
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option, some or all of such three (3) minutes may be transmitted within a block
of Playboy supplied programming not transmitted during the period of 9:00 p.m.
to 12:00 midnight. Each such advertisement will be consistent with the format
generally used by the Channel (e.g., thirty (30) second spots).
PAYMENTS: (a) The Venture will pay Playboy the Program License Fees, Base
Trademark Royalties and Bonus Trademark Royalties as follows:
(i) The Minimum Guaranteed Program License Fees payable for the minimum number
of program hours in each year will be due on the first day of such year but may
be paid in equal quarterly installments on the first business day of each
quarter of such year;
(ii) The actual amount of Program License Fees earned during each quarter will
be computed as of the last day of such quarter and the Venture will pay the
excess (if any) of such amount over the amount paid with respect to such quarter
pursuant to sub-paragraph (i) above within 60 days after the last day of such
quarter;
(iii) The Base Trademark Royalties earned during each quarter will be computed
as of the last day of such quarter and paid within 60 days after the last day of
such quarter; and
(iv) The Bonus Trademark Royalties earned during each quarter will be computed
as of the last day of such quarter and, after taking into account any year-end
adjustments to such quarterly calculations necessitated by the year-end annual
basis calculation pursuant to Section 3.2(b) of the Trademark License Agreement,
the aggregate amount of the Bonus Trademark Royalties earned during each year
will be paid within 60 days after the last day of such year.
(b) All the above payments will be made by wire transfer of immediately
available funds, net of any withholding required by applicable law. Playboy will
from time to time designate one or more accounts into which such payments will
be made.
(c) All the above payments will be made in U.S. Dollars using the yen to
dollar conversion rate at the Telegraph Transfer Sell price published daily by
The Industrial Bank of Japan then in effect upon the due date of such payment.
(d) Any payment not made when due will bear interest from the date due to and
including the date payment is made in full at a rate equal to the average of the
reference rate charged by The Bank of America, N.A., and the Japanese prime rate
charged
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by the Industrial Bank of Japan to domestic customers in effect during such
period.
(e) All other terms of payment of the Program License Fees, the Base Trademark
Royalties and the Bonus Trademark Royalties will be negotiated by the parties
and reflected in the Definitive Agreements.
THIRD PARTIES: Playboy will be responsible for payment of all third-party
payments arising out of or in connection with agreements entered into by Playboy
in connection with programs furnished by Playboy hereunder, including royalties,
residuals and participations.
NON COMPETE: The parties agree that Tohokushinsha will not have an equity
interest in a competing adult programming service (as defined above) during the
lifetime of the Venture. However, Tohokushinsha will have the right to
distribute a competing adult programming service; provided that such
arrangement will require the consent of Playboy if the aggregate of any
distribution fees and other compensation (excluding compensation received for
services and materials provided at market rates by Tohokushinsha such as uplink
and transponder fees) is in excess of 25% of the gross revenues derived from
such distribution, in which event Playboy shall then have the right to receive
30% of the aggregate of such distribution fees and other compensation in excess
of such 25% (however named or described) paid to Tohokushinsha. If the aggregate
of such distribution fees and other compensation payable to Tohokushinsha equals
or is less than 25% of the gross revenues derived from distribution of such
competing service, Tohokushinsha must notify Playboy of the existence of such
arrangement but Playboy shall have no rights in or to such distribution fee or
other compensation. Tohokushinsha will have the right to acquire programming
from third parties and to license same to the Venture upon the terms applicable
to transactions with related entities set forth below; provided, however, that
Tohokushinsha must refrain from licensing such a program to a competing adult
programming service for a period of twelve (12) months after its last exhibition
on the Channel and to any non-adult programming service for a period of six (6)
months after its last exhibition on the Channel.
DELIVERY: For each Playboy-supplied program licensed by the Venture, Playboy, at
its expense, will make physical delivery of broadcast quality program masters in
customary format and meeting customary technical specifications for Japan to a
shipper designated by the Venture (the cost of such shipment to be a Venture
expense), as well as all other customary delivery items. The tape stock for
master tapes only will be supplied by Playboy on a loan basis. The Venture will
pay the cost of conforming program masters to import regulations and Japanese
broadcast code
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requirements regarding content, where commercially reasonable to do so (and if
not commercially reasonable, will select substitute programs), and dubbing
and/or subtitling costs. The Venture will give Playboy access to dubbed tracks
for its use, subject to payment of costs, including third-party payments
resulting from Playboy's use thereof, such as duplication and delivery. The
Venture will not otherwise have the right to edit the Playboy-supplied programs
without Playboy's prior consent. At the termination of the Venture all modified
or altered versions of programs will, at the election of Playboy, (i) revert to
and become the property of Playboy upon its payment of an amount equal to 40% of
the cost of such modifications or alterations, or (ii) be destroyed.
PROGRAM BLOCKS: The Channel will run Playboy-supplied programs in time blocks
separate from time blocks for non-Playboy-supplied programs, such time blocks to
be separately identified to viewers through the use of "bumpers" or "walls" of
such duration and manner to be mutually determined by the parties. "Filler"
programs supplied by Playboy without a Playboy or related logo or presentation
credit may be run in either the Playboy or non-Playboy time blocks. Subject to
the provisions of the "Programming Restrictions" section above, scheduling
decisions will be made by the management of the Venture. Playboy executives will
have access to executives of the Venture to discuss scheduling.
RELATED PARTIES. The Venture may enter into contracts and other arrangements,
including, without limitation, facilities and services agreements, with a
venturer or entities controlling, controlled by or under common control with, or
an officer, director or shareholder of, a venturer ("Related Parties") provided
such arrangements are on commercially reasonable terms and conditions consistent
with those then prevailing in the industry and no less favorable to the Venture
as then prevailing market terms with non-affiliated third parties; it being
understood and agreed, however, that the restrictions set forth in this sentence
shall not apply to the Definitive Agreements. It is contemplated that the
Venture will contract with Tohokushinsha for uplink and transponder procurement
services; post-production services, including localization; program acquisition
services; advertising agency services; and other appropriate facilities and
services.
RESTRICTIONS ON TRANSFER: So long as the Venture's shares are not publicly
traded, direct or indirect transfer of shares will require the approval of 85%
of all of the members of the Board of Directors, except that a transfer to an
entity controlled by, which controls, or which is under common control with a
venturer will be unrestricted, but the original venturer shall remain
responsible and liable for such transferee's compliance with all
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of the transferor's obligations hereunder and in the Definitive Agreements. In
any event, all terms and conditions which bind a venturer will bind such
venturer's successors, assignees and transferees. Such restrictions will be
noted by a legend affixed to all share certificates issued by the Venture and
will be included in the Articles of the Venture.
BUSINESS PLAN: The Venture will prepare and furnish to its venturers a business
plan for its first four years of operations and a series of annual budgets for
each year of operations covered by such business plan (the "Initial Business
Plan"), all of which must be approved by the venturers (such approval may not be
unreasonably withheld) prior to commencement of the Venture's operations. At
least three (3) months prior to the expiration of any business plan, the Venture
will prepare and furnish a business plan (including appropriate annual budgets)
for the following three-year period thereafter (a "Three-year Plan") and each
such Three-year Plan must be approved by both parties hereto (such approval may
not be unreasonably withheld). If such approval is not obtained from both
parties within forty-five (45) days after its receipt of any such Three-year
Plan, both parties will submit the dispute to mediation and, if required, to
binding arbitration in accordance with the procedures set forth herein. Each
Three-Year Plan will conform to the format and level of detail of the Initial
Business Plan. Any amendments to the Initial Business Plan and each Three-Year
Plan must be mutually agreed by the venturers.
TERMINATION OF VENTURE: (a) The Venture may only be terminated as follows: (i)
at any time by mutual agreement of the parties; (ii) by Tohokushinsha upon its
good faith determination that continuation of the Venture is commercially
impracticable due to market forces or government action or regulations; (iii) by
either party upon the breach of the other party of any of its material
obligations under the Definitive Agreements (after notice thereof and reasonable
opportunity to cure); (iv) by either party upon the bankruptcy, insolvency,
general assignment for the benefit of creditors or similar event of, or the
appointment of a trustee, receiver or similar person for, the Venture or the
other party; provided, that the insolvency of the Venture shall not be a basis
for termination so long as Tohokushinsha provides funds to the Venture to enable
it to meet its obligations as they become due; (v) otherwise as required under
Japanese law; provided, that to the fullest extent permitted, the parties waive
any other grounds or basis for termination of the Venture under Japanese law to
the extent more extensive than those set forth in this paragraph (a), including,
but not limited to, any provision providing for the termination, dissolution,
liquidation or other winding up of the Venture upon the vote of a specified
percentage of the members of the Board of Directors or the shareholders; and
(vi) by either party upon a
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Two-Year Event of Termination (defined below) as provided in paragraph (c)
below. Notwithstanding the foregoing, prior to the end of the sixth year of the
Venture, neither party may terminate the Venture except pursuant to clauses (i),
(iii), (iv) and (v) above.
(b) Promptly following any proper election to terminate the Venture, the Program
Supply Agreement (subject to paragraphs (d) and (g) below) and the Trademark
License Agreement will automatically terminate and the Venture will be wound up
and dissolved. After payment or other satisfaction of all liabilities of the
Venture, the remaining tangible assets of the Venture will be liquidated and the
proceeds distributed to the shareholders.
(c) Beginning at the end of the sixth year of the Venture, the following shall
constitute a "Two-Year Event of Termination": (i) for any two consecutive years
(including, by way of clarification and not limitation, the fifth and sixth
years of the Venture) the actual operating income of the Venture for each such
year is more than 20% less than that which was projected for such applicable
year in the applicable Three-Year Plan, and (ii) for the same two consecutive
years described in (i), the Bonus Trademark Royalty actually paid to Playboy in
each of such two consecutive years is less than 90% of the Bonus Trademark
Royalty projected for each such year as described in the applicable Business
Plan, as it may be amended prior to the date with respect to which such
calculation of Bonus Trademark Royalty is made, ("Anticipated Annual Bonus
Trademark Royalty") and the Venture fails to pay within sixty (60) days
following receipt from Playboy of a notice of termination an amount equal to the
difference between (A) the amount of Bonus Trademark Royalty actually paid for
such year by the Venture and (B) the greater of (x) the Anticipated Annual Bonus
Trademark Royalty or (y) the minimum Anticipated Annual Bonus Trademark Royalty
which shall be equal to the following amounts for the year indicated:
Year 5 Y50,000,000
Year 6 Y55,000,000
Year 7 Y60,000,000
Year 8 and thereafter, such minimum Anticipated Annual Bonus Trademark
Royalty as may be mutually agreed by the parties in subsequent
Business Plans, as the same may be amended from time to time
(d) If Playboy terminates the Venture due to a Two-Year Event of Termination
and, as of such termination, Tohokushinsha has not recouped all funds furnished
to the Venture through capital contributions and loans, notwithstanding the
termination of the Definitive Agreements thereby, Playboy will enter into a new
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Program Supply Agreement such that Tohokushinsha shall have access to
programming thereunder on an non-exclusive basis until the earlier of (i) the
second anniversary of such termination by Playboy or (ii) the date on which
Tohokushinsha has recouped all such funds. In addition, if Playboy terminates
the Venture due to a Two-Year Event of Termination, Playboy will forfeit its
equity interest in the Venture by transferring all of its shares in the Venture
to Tohokushinsha without consideration therefor.
(e) If Tohokushinsha terminates the Venture other than due to Playboy's material
breach or bankruptcy and continues the business of the Venture, Tohokushinsha
will buy all Playboy's shares in the Venture for the Book Value of such shares.
(f) If Tohokushinsha terminates the Venture (other than due to Playboy's
material breach or bankruptcy) and, pursuant to negotiations entered into within
seventy-five (75) days and sale concluded within nine (9) months of the date of
such termination, sells all or a part of the business of the Venture to an
entity or person other than an entity controlling, controlled by or under common
control with Tohokushinsha, Tohokushinsha will buy a corresponding percentage of
Playboy's shares in the Venture as follows: for the greater of (i) the sum of
(A) 19.875% of the fair market value of the total consideration received by
Tohokushinsha in such sale, and (B) 10.125% of the fair market value of the
total consideration received by Tohokushinsha in such sale less an amount equal
to the greater of (1) the number of shares that constitutes 10.125% of the stock
on a fully diluted basis, without giving effect to such sale (i.e., as if
additional authorized, but unissued, shares had been issued in an amount equal
to 10.125% of the outstanding shares), times the per share Initial Value, plus
accrued interest thereon at the Prime Lending Rate in Japan for domestic lending
from the date of initial capitalization, or (2) the Book Value of 10.125% of the
Venture on a fully diluted basis, without giving effect to such sale (provided,
however, that for the purpose of calculating the foregoing reduction, in no
event shall such Book Value of 10.125% of the Venture be greater than 10.125% of
the fair market value of the total consideration received by Tohokushinsha in
such sale), and (ii) the Book Value of 30% of the Venture less an amount equal
to the greater of (A) the number of shares that constitutes 10.125% of the stock
on a fully diluted basis, without giving effect to such sale (i.e., as if
additional authorized, but unissued, shares had been issued in an amount equal
to 10.125% of the outstanding shares), times the per share Initial Value, plus
accrued interest thereon at the Prime Lending Rate in Japan for domestic lending
from the date of initial capitalization, or (B) the Book Value of 10.125% of the
Venture on a fully diluted basis, without giving effect to such sale. The amount
payable pursuant to the foregoing sentence will be
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decreased by any amount previously received by Playboy pursuant to paragraph (e)
above.
(g) For purposes of this Memorandum of Agreement, the phrase "terminate the
Venture" and other phrases referring to the termination or dissolution of the
Venture means the termination of the relationships between the parties set forth
in the Definitive Agreements, except as otherwise expressly agreed by the
parties in writing in connection with a termination of the Venture (e.g., where
the parties have agreed or may agree to continue certain rights or obligations
of a party after such termination). Termination of the Venture may, but will not
necessarily, require the winding-up and dissolution of the corporation formed
for the Venture; provided, however, that if the Venture is terminated by
Tohokushinsha other than in accordance with the terms hereof or of the
Definitive Agreements or is terminated and a substantially similar business is
not continued by Tohokushinsha or sold to a third party, Playboy will have the
right to compel a winding-up and dissolution of the corporation and the
distribution of the proceeds thereof in accordance with applicable law. If the
corporation is not wound-up or dissolved immediately following the termination
of the Venture, the name of the corporation will be changed to omit any
references to Playboy or any of its trademarks.
RIGHT OF FIRST REFUSAL: If Playboy has elected to terminate the Venture (other
than by mutual agreement or due to Tohokushinsha's material breach or
bankruptcy) or is in material breach of this Memorandum of Agreement or the
Definitive Agreements, as applicable, and so long as Tohokushinsha is not in-
material breach of this Memorandum of Agreement or the Definitive Agreements,
as applicable, Tohokushinsha will have a right of first refusal as to any
transaction offered to, or solicited by, Playboy (that Playboy is prepared to
accept) with regard to the transmission or other exploitation of the Playboy
Channel or other adult programming service in Japan for a period of eighteen
(18) months after such termination of the Venture. The existence or exercise of
such right will not in any way affect the other rights or remedies of the
parties under this Memorandum of Agreement or the Definitive Agreements.
GOVERNING LAW: With respect to matters involving the Venture's programming and
intellectual property and the license thereof, this Memorandum of Agreement and
the Definitive Agreements shall be governed by and construed under the laws of
the State of California. Otherwise, with respect to all other matters,
including, without limitation, matters of corporate governance and
capitalization, this Memorandum of Agreement and the Definitive Agreements shall
be governed by and construed under the laws of Japan without reference to
conflicts of law principles.
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CONFIDENTIALITY: Each of the parties agrees to preserve the confidentiality of
this Memorandum of Agreement and all of its terms herein and all non-public or
proprietary information relating to the other party, its affiliates and their
respective businesses, whether or not disclosed in connection with the
negotiation of this Memorandum of Agreement or the Definitive Agreements or in
connection with the operation of the Venture's business. The parties intend to
issue two press releases regarding the execution of this Memorandum of Agreement
and the commencement of the Channel and will issue such releases as mutually
acceptable to the parties. Except as otherwise agreed herein, neither party
shall disclose any such information or the fact that they have entered into this
Memorandum of Agreement; provided, however, that should disclosure (whether by
press release or otherwise) of the existence and terms of this Memorandum of
Agreement or other information be required under applicable United States or
Japanese law, required in order to enforce the provisions hereof or be made upon
the mutual consent of both parties, the parties will mutually cooperate in the
preparation of such disclosure or press release and no disclosure or press
release shall be made without the consent of both parties except where, after
good faith effort to obtain such consent, a party is advised by counsel that
such disclosure is legally required or is necessary to enforce this Memorandum
of Agreement.
MEDIATION AND ARBITRATION: (a) Any dispute arising out of or relating to this
Memorandum of Agreement will be resolved in accordance with the procedures
specified herein which will be the sole and exclusive procedures for the
resolution of any such disputes. The parties intend that these provisions shall
be valid, binding, enforceable and irrevocable and shall survive any termination
of this Memorandum of Agreement or the Definitive Agreements.
(b) The parties will attempt in good faith to resolve any dispute arising out of
or relating to this Memorandum of Agreement promptly by negotiation between
executives who have authority to settle the controversy. All reasonable requests
for information made by one party to the order will be honored.
(c) If the dispute has not been resolved by negotiation within 15 business days,
the parties will endeavor to resolve such dispute by mediation under the Center
for Public Resources Mediation Procedure for Business Disputes. Unless the
parties agree otherwise, the mediator will be selected from the Center for
Public Resources Panel of Neutrals with notification to Center for Public
Resources.
(d) (i) Any controversy or claim arising out of or relating to this Memorandum
of Agreement or the breach, termination or
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validity thereof, which remains unresolved thirty (30) business days after
appointment of a mediator, will be settled by final and binding arbitration in
accordance with the Center for Public Resources Non-Administered Arbitration
Rules, by a sole arbitrator; provided, however, that if either party will not
participate in a non-binding procedure, the other may initiate binding
arbitration before expiration of the above period. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. (S) 1-16, and judgment
upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of arbitration will be Los Angeles, California.
The arbitrator is not empowered to award punitive, consequential or incidental
damages and each party hereby irrevocably waives any right to recover such
damages, with respect to any dispute resolved by arbitration.
(ii) The arbitrator will have the authority to include, as an item of damages,
the costs of arbitration, including legal fees and expenses, incurred by the
prevailing party and to apportion such costs among the parties on a claim by
claim basis as such party prevails thereon. For purposes of the foregoing, the
"prevailing party" will mean the party whose final settlement offer (or other
position or monetary claim) prior to the start of arbitration is closest to the
judgment awarded by the arbitrator, regardless of whether such judgment is
entered into in favor of or against such party.
(iii) The statute of limitations of the State of California applicable to the
commencement of a lawsuit will apply to the commencement of an arbitration
hereunder, except that no defenses will be available based upon the passage of
time during any negotiation or mediation called for by the preceding paragraphs.
(e) All negotiations pursuant to paragraphs (b) and (c) above are confidential
and will be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.
(f) Each party agrees that service by registered or certified mail, return
receipt requested, delivered to such party at the address provided on the
signature page hereof will be deemed in every respect effective service of
process upon such person for all purposes of these provisions relating to
mediation and arbitration. Each party submits to the jurisdiction of the courts
of the State of California, United States of America, and any federal court
located within said state for the purpose of any suit, action, proceeding or
judgment with respect to this Memorandum of Agreement, regardless of where any
alleged breach or other action, omission, fact or occurrence giving rise thereto
occurred. Each party hereby waives any claim that any suit, action or proceeding
brought in California has been brought in any inconvenient forum.
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BINDING AGREEMENT: The parties contemplate (and hereby agree to use their
reasonable efforts) promptly negotiating in good faith and executing the
Definitive Agreements, and such other related agreements as may be required,
embodying the foregoing and other customary terms and conditions. However, until
such Definitive Agreements or other related agreements are executed, this
Memorandum of Agreement constitutes a binding agreement between the parties and
their entire understanding of the material terms and conditions regarding the
Venture, subject to any modifications or additions as may be agreed by the
parties in writing. This Memorandum of Agreement has been duly authorized by all
required corporate actions and each signatory hereto has all power and authority
to bind its respective corporation.
COUNTERPARTS: This Memorandum of Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
The parties indicate their agreement to the foregoing by signing in the space
provided below.
AGREED TO AND ACCEPTED:
TOHOKUSHINSHA FILM CORPORATION
By: /s/ Tetsu Uemura
---------------------------
Address: 17-7 Akasaka 4-chome
Minato-ku
Tokyo 107, Japan
Attention: Managing Director
PLAYBOY ENTERTAINMENT GROUP, INC.
By: /s/ Anthony J. Lynn
---------------------------
Address: 9242 Beverly Boulevard
Beverly Hills, California 90210
Attention: President
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<PAGE>
EXHIBIT A
Form of Trademark License Agreement
<PAGE>
------------------------
TRADEMARK LICENSE AGREEMENT
------------------------
BETWEEN
PLAYBOY ENTERPRISES, INC.
AS LICENSOR
AND
THE PLAYBOY CHANNEL JAPAN, INC.
AS LICENSEE
Dated as of _________________, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Page No.
--------
1. DEFINITIONS..................................................... 1
2. GRANT OF LICENSE................................................ 2
3. TRADEMARK ROYALTIES............................................. 5
4. QUALITY CONTROL................................................. 8
5. TITLE AND PROTECTION OF THE TRADEMARKS; USE OF THE
TRADEMARKS...................................................... 9
6. OWNERSHIP OF THE TRADEMARKS..................................... 11
7. INFRINGEMENTS................................................... 12
8. INDEMNIFICATION................................................. 13
9. TERMINATION..................................................... 14
10. EFFECTS OF TERMINATION.......................................... 15
11. EQUITABLE RELIEF................................................ 16
12. MISCELLANEOUS................................................... 16
(i)
<PAGE>
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made and entered
into as of __________________, 1995 between PLAYBOY ENTERPRISES, INC. (the
"Licensor") and THE PLAYBOY CHANNEL JAPAN INC. (the "Licensee").
RECITALS
--------
WHEREAS, Licensor is the owner of certain rights in and to the trademarks
identified in Schedule I hereto;
WHEREAS, pursuant to the Shareholders' Agreement and the Program Supply
Agreement (each, as defined below), Licensor wishes to permit Licensee to use
the Trademarks (as defined below) in connection with a television service and
certain programs transmitted in such service, on the terms and subject to the
conditions of this Agreement; and
WHEREAS, Licensee acknowledges the reputation and quality of goods and
services heretofore sold or distributed under the Trademarks and the Licensor's
desire to safeguard, promote and enhance that reputation by ensuring the future
quality of goods and services sold or distributed under the Trademarks.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and intending to be legally bound, the parties agree as
follows:
1. DEFINITIONS.
In this Agreement (including the Recitals hereto) the following terms shall
have the following meanings:
"License Year" means each calendar year during the term hereof; provided,
that the first License Year shall commence on the date hereof and end at
midnight on December 31, 1996; further provided, that if the expiration or
termination of this Agreement is effective other than at the end of a calendar
year, then the final period of less than a calendar year ending at midnight on
the effective date of such expiration or termination shall be deemed to be the
final License Year.
"License Quarter" means each three (3) month period commencing each January
1, April 1, July 1 and October 1 of each License Year; provided, that the first
License Quarter of the first License Year shall commence on the date hereof and
end at midnight on the last day prior to the commencement of the next regular
License Quarter; further provided, that if the expiration or termination of this
Agreement is effective other than at the end of such a three month period, then
the final period of less than three (3) months ending at midnight on the
effective date of such expiration or termination shall be deemed to the final
License Quarter.
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<PAGE>
"Playboy Program" means any Program supplied by Licensor under the Program
Supply Agreement.
"Program" means any television program which is, or is scheduled to be,
broadcast or transmitted in the Service, including, but not limited to, any
Playboy Program.
"Program Supply Agreement" means the Program Supply Agreement of even date
herewith between Playboy Entertainment Group, Inc. and Licensee or in the
absence of a fully-executed Program Supply Agreement, the applicable provisions
of that certain Memorandum of Agreement of even date herewith.
"Service" means the television program service which is to be provided for
reception within the Territory by Licensee in accordance with the Shareholders'
Agreement and the Program Supply Agreement.
"Shareholders' Agreement" means the Shareholders' Agreement of even date
herewith among Playboy Entertainment Group, Inc., Tohokushinsha Film Corporation
and Licensee relating to the formation and governance of Licensee or in the
absence of a fully-executed Shareholders' Agreement, the applicable provisions
of that certain Memorandum of Agreement of even date herewith.
"Television Service" means any television service or channel (other than
the Service) which is (i) broadcast, distributed or transmitted by any means
(including but not limited to all forms of terrestrial, satellite and cable
television transmission, broadcast and delivery) whether now known or hereafter
invented, and (ii) received in the Territory.
"Territory" means the nation of Japan.
"Trademarks" means the trademarks registered or for which there are pending
applications, as listed in Schedule I and, subject to the provisions of the
second sentence of Section 2.7 below, any Additional Marks (as defined in
Section 2.7) included as Trademarks pursuant to Section 2.7.
"Transmission Period" has the meaning set forth in the Program Supply
Agreement.
2. GRANT OF LICENSE.
2.1 Grant of Exclusive License.
(a) Upon and subject to the terms and conditions set forth in this
Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts, an
exclusive license to use the Trademarks in the Territory in relation to the
broadcast, transmission and distribution of the Service and the Programs as
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<PAGE>
part of the Service, and in relation to the promotion and marketing of the
Service and the Programs as part of the Service in any media whatsoever.
Notwithstanding the foregoing, Licensee shall not have any right to use any of
the Trademarks on or in connection with any Program that is not a Playboy
Program except as the name of the Service. Further, Licensee shall not have the
right to use the Trademarks on or in connection with any product, goods or
services except the Service and the Programs as part of the Service.
(b) During the term of this Agreement, Licensor shall not itself use or
authorize any other person to use the Trademarks or any confusingly similar
designation within the Territory in relation to any Television Service;
provided, however, that (i) use of the Trademarks or any confusingly similar
designation in customary production, presentation and logo credits in
advertising for and the title or end credits sequences of programs licensed to
others in the Territory as permitted under the Program Supply Agreement shall be
permitted and shall not constitute a breach of this sub-paragraph (b), and (ii)
use of the Trademarks or any confusingly similar designation in relation to any
Television Service, or any programs or other items of any description included
in any Television Service, which is intended solely for reception in any country
or countries outside the Territory but which is also received in the Territory
shall not constitute a breach of this sub-paragraph (b) so long as (1) that
Television Service was transmitted in a manner not intended for general
reception in the Territory and (2) Licensor did not have actual knowledge at the
time it granted the respective license that the Television Service was generally
and regularly received in the Territory.
(c) Notwithstanding the provisions of sub-paragraphs (a) and (b) above to
the contrary, the license granted hereunder shall become non-exclusive in the
Territory without any further action on the part of either Licensor or Licensee
if the Licensee fails to enter the Direct-to-Homes ("DTH") market in violation
of the terms of the Shareholders' Agreement (all as more fully described in the
Shareholder's Agreement); provided, however, that Licensee shall not have any
license with respect to the DTH market and Licensor shall have the exclusive
right to use and/or License the use of the Trademarks in the DTH market in the
Territory. All the other terms and conditions of this Agreement shall continue
in full force and effect.
2.2 All Other Rights Retained by Licensor. All rights not expressly
granted to Licensee hereunder are reserved to Licensor for its own use and
benefit. Without limiting the generality of the foregoing, nothing in this
Agreement shall prevent Licensor from doing any or all of the following: (a)
subject to Section 2.1(b)(ii), using or granting one or more others the right or
license to use the Trademarks on or in connection with a Television Service in
any area of the world other than the
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<PAGE>
Territory; (b) using or granting one or more others the right or license to use
the Trademarks on or in connection with any service (other than a Television
Service) or goods in any or all areas of the world including the Territory; and
(c) retaining and exercising the exclusive rights hereby reserved to Licensor to
design, manufacture, advertise, promote, sell and distribute and license the
design, manufacture, advertising, promotion, sale and distribution of any and
all products and services in any or all areas of the world including the
Territory other than a Television Service in the Territory.
2.3 Restriction on Sub-Licensing. Licensee shall not be entitled to grant
any sub-license of any of the rights granted under Section 2.1 without, in each
case, the express prior written approval of Licensor.
2.4 Duration of License. The license granted under Section 2.1 shall
continue in force until any termination of this Agreement in accordance with the
provisions of Section 9.
2.5 Restriction on Scope of Service. During the term of this Agreement,
Licensee shall not be involved in providing a television program service using
the Trademarks which is intended for general reception, whether by use of
decoder devices or otherwise, outside the Territory.
2.6 Restrictions on Modifications of Trademarks. Licensee shall not use,
cause or authorize to be used any word, device, design, slogan or symbol
confusingly similar to any or all of the Trademarks. During the term of this
Agreement, any or all of the following shall not be used by Licensee on or in
connection with the Service or the Programs without, in each case, Licensor's
express prior written consent:
(a) permutations of any or all of the Trademarks; or
(b) secondary or combination marks including or derived from any of
the Trademarks; or
(c) new words, devices, designs, slogans or symbols derived from any
of the Trademarks; or
(d) new words, devices, designs, slogans or symbols created especially
for use with the Service or the Programs as part of the Service which do not
derive from, include or represent a permutation of any of the Trademarks
("Licensee Originated Marks").
Notwithstanding the foregoing, Licensor shall not withhold consent for any
Licensee Originated Mark unless it reasonably determines that such Licensee
Originated Mark or Licensee's intended use thereof would be detrimental to the
Trademarks or Licensor. In addition, except as provided in the
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<PAGE>
next sentence, upon termination of the Venture, Licensee shall cease all use of
all Licensee Originated Marks and all rights therein shall automatically be
transferred to and vest equally in Licensor and Licensee; provided that neither
Licensor nor Licensee shall make any use of any such Licensee Originated Marks
without the prior written consent of the other. Notwithstanding the provisions
of the immediately preceding sentence, upon termination of the Venture Licensee
shall have the right to continue to use, and shall own all rights in, any
Licensee Originated Mark which (i) Licensee creates and utilizes during the term
of this Agreement for the express purpose of differentiating non-Playboy
supplied programming transmitted over the Service from Playboy supplied
programming (for example Licensee Originated Marks created for the purpose of
identifying program blocks of non-Playboy supplied programming) and (ii) do not
derive from or include, is not confusingly similar to, and was not used during
the term hereof in combination with any of the Trademarks.
2.7 License of Additional Trademarks. Licensor hereby agrees to include as
Trademarks licensed hereunder (i) any trademarks or permutations, secondary,
combination or derivative marks owned by Licensor and used in connection with
the broadcast, transmission, advertising or promotion of the Playboy Channel
television service in the United States provided that the same are, in
Licensor's reasonable determination, at such time applicable to the Service
and/or the Playboy Programs and are available for use by Licensee pursuant
hereto and are available for registration by Licensor in the Territory, and (ii)
any other mark to which Licensor consents pursuant to Section 2.6(a), (b) or (c)
above (all of such marks referred to in (i) and (ii) being herein sometimes
referred to as "Additional Marks"). The parties understand and agree that,
notwithstanding anything to the contrary contained herein, no Additional Marks
or Licensee Originated Marks shall be subject to any of the representations,
warranties or protection, maintenance or indemnification obligations of Licensor
hereunder and that if Licensor elects to register any such Additional Marks in
the Territory, Licensor will pay for the costs of such registration and the
maintenance thereof during the term of this Agreement, unless such registration
is made at the request of Licensee, in which case Licensee shall reimburse
Licensor for such costs
Pursuant to the foregoing, Licensor agrees that the following secondary or
combination marks shall constitute Additional Marks hereunder: "The Playboy
Channel" and "Playboy Television".
3. TRADEMARK ROYALTIES.
-------------------
3.1 Base Trademark Royalties. Licensee will pay to Licensor base trademark
royalties (the "Base Trademark
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Royalties") in an amount equal to 2.5% of Adjusted Gross Revenues (as defined
below). For purposes hereof, "Adjusted Gross Revenues" means the aggregate
amount of gross revenues actually received by Licensee in connection with the
Service from subscribers (including pay per view revenues) and all other
revenues from operation of the Service (excluding only advertising and home
shopping revenues) less the sum of (a) consumption and other taxes (excluding
any taxes based on or measured by income or revenues), (b) the costs of
collection of the Adjusted Gross Revenues (excluding any items allocable to
overhead or otherwise associated with the usual conduct of Licensee's business),
and (c) the costs paid by Licensee of protecting the Trademarks in Japan as
provided in this Agreement.
3.2 Bonus Trademark Royalties. (a) In addition to Base Trademark
Royalties, Licensee will pay to Licensor certain bonus trademark royalties (the
"Bonus Trademark Royalties") calculated as of the end of each License Quarter in
accordance with the following formula; provided, that the following formula
shall never be deemed to yield a result of less than zero:
Bonus Trademark Royalty = (X - Y) x W x Z
WHERE: X = The average number of subscribers to the Service during
such License Quarter;
Y = The number of subscribers indicated in the relevant
Business Plan (as defined in the Shareholders' Agreement), as the same may be
amended prior to the date with respect to which such calculation is made, as the
"Break-even Number of Subscribers";
W = a dollar amount calculated by dividing (i) the total gross
revenues of Licensee from all sources during such License Quarter less the sum
of any indebtedness for borrowed money owing by the Licensee to any of its
shareholders, by (ii) the number identified for X above; and
Z = 8%.
(b) Licensee shall also calculate the Bonus Trademark Royalty on an
annual basis (i.e. by adjusting the items of the formula to reflect a License
Year period).
(c) A statement of the Bonus Trademark Royalties earned during each
License Quarter and each License Year shall be prepared by Licensee and
delivered to Licensor within sixty (60) days after the end of such License
Quarter and License Year, respectively.
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3.3 Payment Terms.
-------------
(a) Licensee will pay Licensor the Base Trademark Royalties and Bonus
Trademark Royalties as follows:
(i) The Base Trademark Royalties earned during each License Quarter
will be computed as of the last day of such License Quarter and paid within
60 days after the last day of such License Quarter; and
(ii) The Bonus Trademark Royalties earned during each License Quarter
will be computed as of the last day of such License Quarter. If the
aggregate of the Bonus Trademark Royalties so computed varies from the
Bonus Trademark Royalties computed for the related License Year, the amount
of Bonus Trademark Royalties will be increased or decreased, as applicable,
to reflect the License Year computation (which the parties agree is
intended to take into account applicable year-end adjustments to such
quarterly calculations). The aggregate amount of the Bonus Trademark
Royalties earned during each License Year will be paid within 60 days after
the last day of such License Year.
(b) All the above payments will be made by wire transfer of immediately
available funds, net of any withholding required by applicable law. Licensor
will from time to time designate one or more accounts into which such payments
will be made and may designate one or more affiliates to receive such payments.
(c) Although all the above calculations will be made on the basis of
Japanese Yen, the above payments will be made in United States Dollars using the
Japanese Yen to United States Dollar conversion rate at the Telegraph Transfer
Sell price published daily by The Industrial Bank of Japan then in effect upon
the due date of such payment.
(d) Any payment not made when due will bear interest from the date due to
and including the date payment in full is made at a rate equal to the average of
the reference rate charged by the Bank of America, N.A., and the Japanese prime
rate charged by The Industrial Bank of Japan to domestic customers in effect
during such period.
4. QUALITY CONTROL. All Programs and other material transmitted by Licensee
shall comply with the specifications set forth in this Section 4.
4.1 Program Restrictions. Although the Programs transmitted by the Service
will depict nudity and will allow strong or explicit language, Licensee is
prohibited from transmitting and covenants that it will not permit the
transmission of scenes or other material depicting any of the following: (i) the
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glorification of violence or gratuitous violence; (ii) rape, non-consensual
intercourse or other non-consensual sexual activity; (iii) bondage, incest,
sadism or masochism, bestiality, extreme sexual explicitness or the graphic
close-up of genitals; or (iv) child pornography, including, without limitation,
instances where an actor is the legal age for consent to appear nude and for
consent to marriage, but is portrayed as under the legal age for consent to
appear nude. In that regard, no actor will appear in any Program who is not at
least 18 years of age and no actor will be depicted as under the age of 16 or
such more senior age as may be required by Japanese law. Notwithstanding the
foregoing, immaterial exceptions to the restrictions set forth in clauses (ii)
and (iii) above (i.e., immaterial in frequency or duration) shall not constitute
a breach of this Section 4.1.
4.2 Advertising and Home Shopping Restrictions. All advertising
transmitted on the Service and all direct marketing activities conducted on the
Service shall comply with the specifications set forth in this Section 4.2.
Licensee shall not transmit advertising or direct marketing programs which
advertise or promote any of the following: (i) firearms (or advertisements from
any gun lobby organization) and other weapons, explosives or illegal fireworks;
(ii) massage parlors, telephone sex lines, sex clubs, sexually explicit (e.g.,
adult bookstore, X or NC-17 or similarly rated hard-core) audio-visual products,
sex toys, materials depicting graphic sexual conduct or depicting any matter
subject to the restrictions set forth in Section 4.1 above; (iii) classified
advertising, including, but not limited to, psychics or similar persons or
services; and (iv) religious organizations and cults. Further, Licensee shall
not advertise or promote the Service or otherwise use the Trademarks in any
media in connection with any of the foregoing.
4.3 Compliance with Program Supply Agreement. In addition to and not by
way of limitation of Sections 4.1 or 4.2 above, all Programs and other material
transmitted by Licensee shall comply with the terms and conditions of the
Program Supply Agreement.
4.4 Inspection Rights. At Licensor's expense, Licensee shall submit to
Licensor for its inspection, representative samples of all items and materials
in connection with which a Trademark is utilized pursuant hereto, as may
reasonably be requested by Licensor for purposes of determining compliance with
the terms of this Agreement.
5. TITLE AND PROTECTION OF THE TRADEMARKS; USE OF THE TRADEMARKS.
5.1 Title.
(a) Licensee hereby acknowledges that except for the license expressly
granted in this Agreement, Licensee has not acquired and will not acquire any
rights, title or interest in
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the Trademarks by reason of this Agreement and further acknowledges each of the
following: the great value of the goodwill associated with the Trademarks; the
worldwide recognition thereof; that the proprietary rights therein and the
goodwill associated therewith are solely owned by and belong to Licensor; that
the Trademarks and other related words, devices, designs and symbols are
inherently distinctive or have secondary meaning firmly associated in the mind
of the general public with Licensor, its subsidiaries and affiliates and its or
their activities; and that all additional goodwill associated with the
Trademarks created through the use of such Trademarks by Licensee shall inure to
the sole benefit of Licensor. Licensee agrees not to use the Trademarks in any
manner which, directly or indirectly, would dilute, demean, ridicule or
otherwise tarnish the image of the Trademarks or Licensor or any of its
affiliates; provided, however, that Licensee's use of the Trademarks for the
purposes set forth in, and in accordance with the terms of, this Agreement and
the Shareholders' Agreement shall not be deemed a breach of this restriction.
During and after the term hereof, Licensee shall not:
(i) attack or question the validity of, or assist any individual or
entity in attacking or questioning, the title or any rights of or claims by
any or all of Licensor, its subsidiaries and affiliates and their
respective licensees and sublicensees in and to the Trademarks or any other
trademark, copyright or such other intellectual or intangible property
associated or connected with Licensor, its affiliates, their publications,
published material and activities;
(ii) directly or indirectly seek for itself or assist any third party
to use or acquire, any rights, proprietary or otherwise, in any patent,
trademark, copyright or such other intellectual or intangible property so
associated or connected, without, in each case, the prior express written
consent of Licensor;
(iii) subject to subparagraph (b) below, in any way seek to avoid
Licensee's duties or obligations under this Agreement because of the
assertion or allegation by any individual or entity that any or all of the
Trademarks are invalid or by reason of any contest concerning the rights of
or claimed by Licensor; or
(iv) file or prosecute one or more trademark applications regarding
Licensee's use of the Trademarks, unless expressly requested to do so in
writing by Licensor.
(b) Notwithstanding the provisions of subparagraph (a) above to the
contrary, if it is finally determined pursuant to an action brought by a third
party that Licensor did not have the right to grant the license to Licensee
hereunder with respect to
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any of the Trademarks, Licensee shall be entitled, with respect to such
Trademark only, to cease its compliance with the restrictions and other terms
hereof. Upon such an event, the parties will negotiate in good faith to
determine whether and, if so, in what amount the Base Trademark Royalties should
be reduced. Any further use of such Trademark by Licensee shall be at Licensee's
sole risk and liability and Licensee shall cease any use thereof which indicates
or suggests that such use is made under authority of this Agreement or with the
consent of Licensor.
5.2 Form. Licensee shall use the Trademarks in the form stipulated by
Licensor and shall include such trademark and copyright notices as Licensor may
request in connection with the protection of Licensor's ownership of the
Trademarks. Licensee shall also observe all directions given by Licensor as to
colors and size of the representations of the Trademarks and their manner and
disposition in connection with the Programs and the Service.
5.3 Maintenance of Distinctive Quality of Trademarks. The use of the
Trademarks by Licensee shall at all times be in keeping with and seek to
maintain their distinctiveness and reputation as determined by Licensor.
5.4 Advertising and Publicity. Licensee hereby acknowledges that, as
between Licensee and Licensor, the Trademarks are the sole and exclusive
property of Licensor. Licensee shall have the right to develop and distribute
advertising, publicity and promotional materials relating to the Service and the
Programs as part of the Service; provided, however, that any such materials
(other than material obtained directly from Licensor) shall:
(a) comply with the restrictions set forth in Section 4.2;
(b) clearly identify the Trademarks with a legible credit line with
the wording "'Playboy' (or the 'Rabbit Head Design', etc.) is used under license
from Playboy Enterprises Inc." or such other words as Licensor may designate
from time to time; and
(c) in no event may any advertising, publicity or promotional material
using the names of Licensor or any person appearing in a Playboy Program (as
defined in the Program Supply Agreement) be used to constitute an endorsement,
express or implied of any party, sponsor, product or service (other than the
Service).
Other than as expressly set forth in this Agreement, Licensee shall make no use
of the Trademarks or any confusingly similar designation without the prior
express written consent of Licensor
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in each instance. Licensee shall also make no use whatsoever of any other
trademark, trade name or service mark that is the property of Licensor without
the prior express written consent of Licensor in each instance. Licensee
similarly agrees that it will not authorize or purport to authorize any third
party to make any such use and, if Licensor's consent thereto is obtained in
accordance with Section 2.3, it will expressly provide in any applicable third
party agreements that such third parties will only be entitled to use such names
and marks on material supplied to them by Licensee in accordance with Licensee's
rights hereunder.
6. OWNERSHIP OF THE TRADEMARKS
---------------------------
6.1 Licensor Warranty. Licensor warrants that it is the proprietor of the
Trademarks set forth in Schedule I, that it has the right to grant the rights to
Licensee hereunder and that Licensee's use of such Trademarks for the purposes
set forth in, and in accordance with the terms of, this Agreement does not and
will not infringe the rights of any third party.
6.2 Prosecution and Maintenance of Trademarks. Licensor shall pay all
renewal fees and take such other actions as are necessary to prosecute the
applications for and maintain the registrations of the Trademarks set forth in
Schedule I in the Territory during the term of this Agreement.
6.3 Cooperation of Licensee. Licensee will on request give to Licensor or
its authorized representative any information as to its use of the Trademarks
which Licensor may require and will during the term of this Agreement render any
assistance reasonably required by Licensor in registering and maintaining the
registrations of the Trademarks.
6.4 Covenant of Licensee. Licensee will not make any representation or do
any act to the effect that it has any right title or interest in or to the
ownership or use of any of the Trademarks except under the terms of this
Agreement.
6.5 Cooperation of Parties to Register Trademarks. Each party shall at its
own expense, if required by the other, do all such acts and execute all such
documents as may be necessary to confirm the license granted hereunder in
respect of any of the Trademarks and to record Licensee as a registered user of
the registered Trademarks on the trademarks register in the Territory. Licensee
hereby agrees that any such entry on any trade mark register may be cancelled by
Licensor on termination of this Agreement, for whatever reason, and that it will
assist Licensor so far as may be necessary to achieve such cancellation
including by executing any necessary documents.
7. INFRINGEMENTS.
-------------
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7.1 Infringements By Third Parties.
(a) Notice. Each party shall as soon as it becomes aware thereof give
the other written notice of any use or proposed use by any other person, firm or
company of a trade name, trade mark or trade dress or mode of promotion or
advertising which amounts or might amount either to infringement in the
Territory of Licensor's rights in relation to the Trademarks or to passing-off
in the Territory.
(b) Control of Proceedings. Licensor shall have the first right to
control and conduct all proceedings relating to any claim or suit described in
sub-paragraph (a) above and to decide what action (if any) to take in respect
thereof. If Licensor elects not to control or conduct any such proceedings,
Licensee may control and conduct such proceedings, provided that (i) such
proceeding relates directly to Licensee's use of the Trademarks hereunder, (ii)
Licensor determines in good faith that such action by Licensee would not
reasonably be expected to have a material adverse effect on the Trademarks and
(iii) Licensee has been advised by competent trademark counsel that the action
Licensee proposes to take has a reasonable likelihood of success on the merits.
7.2 Allegations that the Trademarks are Invalid or Infringe on Third
Party's Rights.
(a) Notice. Each party shall, as soon as it becomes aware that any
other person, firm or company alleges that any of the Trademarks are invalid
within the Territory or that use of any of the Trademarks infringes any rights
of another party or that any of the Trademarks are otherwise attacked or open to
attack within the Territory, give the other written notice thereof.
(b) Control of Proceedings. Licensor shall undertake and conduct the
defense of any claim or suit described in sub-paragraph (a) above at Licensor's
expense and shall have the sole and exclusive control over such defense.
Licensee expressly covenants no discussions by Licensee whatsoever with any and
all claimants and litigants, no compromise or settlement by Licensee of any
claim or suit and no negotiations by Licensee with respect to any compromise or
settlement shall be had, made or entered into without the prior written approval
of Licensor.
7.3 Procedures and Costs. The party controlling and conducting any
proceeding shall bear the cost thereof and shall be entitled to retain any
damages recovered pursuant to such proceeding. Each party shall also provide any
assistance reasonably requested by the controlling party at the controlling
party's expense. The parties may mutually agree to jointly conduct and control
any such proceeding, in which case the costs and proceeds thereof shall be borne
equally by the parties. In
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any proceeding controlled and conducted by Licensor, Licensee may through
counsel of its choice and at its expense, participate in such proceeding but,
notwithstanding such participation, Licensor's sole control shall continue and
Licensor's decisions with respect thereto shall continue to govern.
8. INDEMNIFICATION.
---------------
8.1 By the Licensor. Licensor shall indemnify Licensee and its permitted
sublicensees, and its and their respective directors, officers, shareholders,
employees, agents and affiliates from and against all claims, losses, damages,
expenses, judgments, costs and liabilities (including reasonable attorneys'
fees) ("Losses") incurred by Licensee, arising out of or resulting from (i) any
claim of trademark infringement relating to the authorized use by Licensee of
the Trademarks hereunder, or (ii) any breach of a representation, warranty or
agreement made by Licensor herein.
8.2 By the Licensee. Licensee shall indemnify Licensor and its directors,
officers, shareholders, employees, agents and affiliates from and against all
Losses incurred by Licensor, arising out of or resulting from (i) any use by
Licensee or any permitted sub-licensee of the Trademarks, including, but not
limited to any unauthorized use of the Trademarks, but excluding any Losses for
which Licensor must indemnify Licensee pursuant to Section 8.1 above, or (ii)
any breach of a representation, warranty or agreement made by Licensor herein;
provided, however, that Licensee shall not be obligated to indemnify Licensor
from and against any Losses that arise out of or result from any actions taken
or omitted to be taken by Licensee that are required by the terms of this
Agreement or pursuant to, and in compliance with, an instruction from Licensor.
8.3 Procedure. If a claim by a third party is made against an indemnified
party, the indemnified party shall promptly notify the indemnifying party of
such claim. Failure to so notify the indemnifying party shall not relieve the
indemnifying party of any liability which the indemnifying party might have,
except to the extent that such failure materially prejudices the indemnifying
party's legal rights. The indemnifying party shall have thirty (30) days after
receipt of such notice to undertake, conduct and control through counsel of its
own choosing (subject to the approval of the indemnified party, such approval
not to be unreasonably withheld) and at its expense, the settlement or defense
of such claim, and the indemnified party shall cooperate with the indemnifying
party in connection therewith; provided, however, that (i) the indemnifying
party shall permit the indemnified party to participate in such settlement or
defense through counsel chosen by the indemnified party, provided that the fees
and expenses of such counsel shall be borne by-the indemnified party and (ii)
the indemnifying party shall reimburse the indemnified party for the full amount
of any Loss resulting
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from such claim and all related expenses incurred by the indemnified party
within the limits of this Section 8 as such are incurred. Notwithstanding
anything contained herein, the indemnifying party shall not enter into any
settlement without the consent of the indemnified party, which consent shall not
be unreasonably withheld. If the indemnifying party does not notify the
indemnified party within thirty (30) days after receipt of the indemnified
party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof or so notifies the indemnified party but fails to undertake or
maintain such defense promptly and in good faith, the indemnified party shall
have the right to contest, settle or compromise the claim in the exercise of its
reasonable judgement and without prejudice to the rights of the indemnified
party to indemnification hereunder.
8.4 Survival. The provisions of this Section 8 shall survive the
termination or expiration of this Agreement.
9. TERMINATION.
-----------
9.1 Termination on Breach or Insolvency. Either party may without
prejudice to its other remedies terminate this Agreement immediately by notice
in writing to the other on or after the occurrence of any of the following:
(a) the commission of one or more material breaches of this Agreement
by the other party which are not capable of remedy; or
(b) the commission of a material breach of this Agreement by the
other party which is capable of remedy (a "remediable breach") which shall not
have been remedied within a period of one month after the party in breach has
been given notice in writing specifying that remediable breach and requiring it
to be remedied; provided, however, that such one month period shall be extended
for such additional period as shall be reasonably necessary if that remediable
breach is incapable of remedy within that one month period and during that one
month period the party in breach shall diligently endeavor to remedy that
remediable breach, but only if such extension would not reasonably be expected
to have a material adverse effect on the Trademarks or in Licensor's rights
therein; or
(c) the bankruptcy, insolvency, general assignment for the benefit of
creditors or similar event of or the appointment of a trustee, receiver or
similar person for the other party; provided, that the insolvency of Licensee
shall not be a basis for termination so long as it receives funds from its
controlling shareholder sufficient to enable Licensee to meet all its
obligations as they become due.
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9.2 Termination on Termination of Program Supply Agreement or
Shareholders' Agreement. This Agreement shall automatically terminate on the
date on which any termination of the Program Supply Agreement or Shareholders'
Agreement takes effect.
9.3 Cross Default. Any breach or default by Licensee under the
Program Supply Agreement or the Shareholder's Agreement shall be deemed to
constitute a breach or default hereunder.
10. EFFECTS OF TERMINATION.
----------------------
10.1 The termination of this Agreement for whatever reason shall not affect
any provision of this Agreement which is expressed to survive or operate in the
event of its termination and shall not prejudice or affect the rights of either
party against the other in respect of any breach of this Agreement or in respect
of any moneys payable by one party to the other in relation to any period prior
to termination.
10.2 Upon the date on which any termination of this Agreement for whatever
reason takes effect ("the Termination Date") all rights of Licensee hereunder
shall immediately terminate and automatically revert to Licensor and Licensee
shall cease to make any use of the Trademarks except that, in relation to
Programs whose Transmission Period has not ended prior to the Termination Date,
Licensee shall continue to be entitled to make use of the Trademarks solely in
customary presentation and logo credits in the title and end credit sequences of
such Playboy Programs for so long as Licensee continues to be entitled to
transmit those Playboy Programs under the Program Supply Agreement; provided,
that such right shall be deemed a royalty-free license. Further, Licensee shall
immediately amend its charter documents so that its name no longer includes any
reference to any trademark of Licensor.
10.3 Upon termination of this Agreement, the parties shall perform all
other acts which may be necessary or useful to render effective the termination
of Licensee's interests in the Trademarks and Licensee shall execute any
assignment, conveyance, acknowledgement or other document that Licensor may
reasonably request relinquishing such interests and the goodwill associated
therewith. Without limiting the foregoing, Licensee hereby consents to any
application which Licensor may make to limit or terminate Licensee's status as a
registered use and irrevocably agrees not to contest, oppose or dispute such
application.
11. EQUITABLE RELIEF. Licensor and Licensee acknowledge that any material
breach of this Agreement by such party, including, by way of example, Licensee's
failure to cease using the Trademarks upon the expiration or termination of this
Agreement (except as provided in Section 10.2 above), will result in irreparable
harm to the other party for which there is no
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adequate remedy at law. Accordingly, in such event, Licensor or Licensee, as the
case may be, shall be entitled to seek preliminary or temporary equitable relief
pending a final determination in accordance with Section 12.6 without the
necessity of posting bond by way of any or all of the temporary and permanent
injunctions and such other relief as any court of competent jurisdiction may
deem just and proper.
12. MISCELLANEOUS
-------------
12.1 Binding Effect; No Assignment. The provisions of this Agreement shall
be binding on and enure to the benefit of the successors of each party hereto;
provided, that no party may agree to assign, transfer, charge or otherwise
dispose of or subcontract any of its rights or obligations hereunder without the
prior written consent of the other party; provided, however, that either party
may so assign, etc. to an entity controlled by, which controls or which is under
common control with such party but the original party shall remain responsible
and liable for such transferee's compliance with all of such original party's
obligations hereunder. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective permitted successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
12.2 Invalidity etc. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdictions.
12.3 Waivers, Remedies Cumulative, Amendments, etc.
---------------------------------------------
(a) No failure or delay by any of the parties hereto in exercising any
right, power or privilege under this Agreement shall operate as a waiver thereof
nor shall any single or partial exercise by any of the parties hereto of any
right, power or privilege preclude any further exercise thereof or the exercise
of any other right, power or privilege.
(b) The rights and remedies herein provided are cumulative and not
exclusive of any rights and remedies provided by law.
(c) No provision of this Agreement may be amended, modified, waived,
discharged or terminated, other than by the express written agreement of the
parties hereto nor may any breach of any provision of this Agreement be waived
or discharged except with the express written consent of the party not in
breach.
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12.4 Notices.
-------
(a) Any notice or other communication given or made under this
Agreement shall be in writing and shall be delivered by registered or certified
mail, delivered personally or by courier or sent by facsimile transmission (with
appropriate answerback) addressed as follows:
if to Licensor to:
-----------------
Playboy Enterprises, Inc.
Attention: General Counsel
680 North Lake Shore Drive
Chicago, IL 60611
United States of America
Fax number: (312) 266-2042
with a copy to:
Playboy Entertainment Group, Inc.
Attention: President
9242 Beverly Boulevard
Beverly Hills, CA 90210
United States of America
Fax number: (310) 246-4065
if to Licensee to:
Tohokushinsha Film Corporation
Attention: Managing Director
17-7 Akasaka 4-chome
Minato-Ku
Tokyo, Japan
Fax number: 03-3584-2824
with a copy to:
M. Kenneth Suddleson, Esq.
c/o Kaye, Scholer, Fierman, Hays & Handler
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
United States of America
Fax number: (310) 788-1200
or to such other address, or facsimile transmission number as the relevant
addressee may hereafter by notice hereunder substitute.
(b) All notices will be deemed given when received at the address(es)
as provided in paragraph (a) above.
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12.5 Governing Law.
-------------
THIS AGREEMENT HAS BEEN NEGOTIATED AND ENTERED INTO IN THE STATE OF
CALIFORNIA, UNITED STATES OF AMERICA, AND ALL QUESTIONS WITH RESPECT TO THE
AGREEMENT AND THE RIGHTS AND LIABILITIES OF THE PARTIES WILL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA, UNITED STATES OF AMERICA, IRRESPECTIVE OF THE
CHOICE OF LAWS PROVISIONS OF CALIFORNIA, UNITED STATES OF AMERICA, OR OF ANY
OTHER JURISDICTION.
12.6 Dispute Resolution.
------------------
(a) Any dispute arising out of or relating to this Agreement shall be
resolved in accordance with the procedures specified in this Section 12.6, which
shall be the sole and exclusive procedures for the resolution of any such
disputes. The parties intend that this Section 12.6 shall be valid, binding,
enforceable and irrevocable and shall survive any termination of this Agreement.
(b) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
executives who have authority to settle the controversy. All reasonable requests
for information made by one party to the other will be honored.
(c) If the dispute has not been resolved by negotiation within 15
business days, the parties shall endeavor to resolve such dispute by mediation
under the Center for Public Resources Mediation Procedure for Business Disputes.
Unless the parties agree otherwise, the mediator will be selected from the
Center for Public Resources Panel of Neutrals with notification to Center for
Public Resources.
(d) (i) Any controversy or claim arising out of or relating to this
contract or the breach, termination or validity thereof, which remains
unresolved 30 business days after appointment of a mediator, shall be settled by
final and binding arbitration in accordance with the Center for Public Resources
Non-Administered Arbitration Rules, by a sole arbitrator; provided, however,
that if either party will not participate in a non-binding procedure, the other
may initiate binding arbitration before expiration of the above period. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
(S) 1-16, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of arbitration shall
be Los Angeles, California. The arbitrator shall not be empowered to award
punitive, consequential or incidental damages and each party hereby irrevocably
waives any right to recover and agrees not to seek such damages with respect to
any dispute arising hereunder.
18
<PAGE>
(ii) The arbitrator shall have the authority to include, as an
item of damages, the costs of arbitration, including legal fees and
expenses, incurred by the prevailing party and to apportion such costs
among the parties on a claim by claim basis as such party prevails thereon.
For purposes of the foregoing, the "prevailing party" shall mean the party
whose final settlement offer (or other position or monetary claim) prior to
the start of arbitration is closest to the judgement awarded by the
arbitrator, regardless of whether such judgement is entered into in favor
of or against such party.
(iii) The statute of limitations of the State of California
applicable to the commencement of a lawsuit shall apply to the commencement
of an arbitration hereunder, except that no defenses shall be available
based upon the passage of time during any negotiation or mediation called
for by the preceding paragraphs of this Section 12.6.
(e) All negotiations pursuant to paragraphs (b) and (c) of this
Section 12.6 are confidential and shall be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.
(f) Each party agrees that service by registered or certified mail,
return receipt requested, delivered to such party at the address provided in
Section 12.4 hereof shall be deemed in every respect effective service of
process upon such person for all purposes of this Section 12.6. Each party
submits to the jurisdiction of the courts of the State of California, United
States of America, and any federal court located within said state for the
purpose of any suit, action, proceeding or judgment with respect to this
Agreement, regardless of where any alleged, breach or other action, omission,
fact or occurrence giving rise thereto occurred. Each party hereby waives any
claim that any suit, action or proceeding brought in California has been brought
in any inconvenient forum.
12.7 Entire Agreement. This Agreement, together with its attachments
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, between the parties hereto with respect to the subject matter
hereof.
12.8 Rules of Construction.
---------------------
(a) Headings. The section headings in this Agreement are inserted
only as a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Agreement or of any particular section.
19
<PAGE>
(b) Tense and Case. Throughout this Agreement, as the context may
require, references to any word used in one tense or case shall include all
other appropriate tenses or cases.
(c) Agreement Negotiated. The parties hereto are sophisticated and
have been represented by lawyers throughout the negotiation and execution of
this Agreement who have carefully negotiated the provisions hereof. As a
consequence, the parties do not believe the presumption of California Civil Code
Section 1654 and similar laws or rules relating to the interpretation of
contracts against the drafter of any particular clause should be applied in this
case and therefore waive its effects.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Relationship Between the Parties. This Agreement shall not be
construed to place the parties in the relationship of partners or joint
venturers; any such relationship shall be determined and evidenced solely by the
express terms of the Shareholder's Agreement. Licensee shall have no power to
obligate or bind any or all of Licensor and its subsidiaries or affiliates in
any manner whatsoever.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
above written.
LICENSOR:
PLAYBOY ENTERPRISES, INC.
By:_______________________
Name:
Title:
LICENSEE:
THE PLAYBOY CHANNEL JAPAN,
INC.
By:_______________________
Name:
Title:
21
<PAGE>
SCHEDULE I
----------
REGISTERED AND PENDING TRADEMARKS IN JAPAN
<TABLE>
<CAPTION>
================================================================================
INTERNATIONAL APPLICATION OR
MARK CLASS REGISTRATION NUMBER
================================================================================
<S> <C> <C>
PLAYBOY 38 Reg. No. 3025707
- -------------------------------------------------------------------------------
PLAYBOY 41 Appl. No. 4-281372
- -------------------------------------------------------------------------------
RABBIT HEAD DESIGN 38 Appl. No. 4-281374
- -------------------------------------------------------------------------------
RABBIT HEAD DESIGN 41 Appl. No. 4-281375
- -------------------------------------------------------------------------------
PLAYBOY AT NIGHT 41 Appl. No. 4-281378
- -------------------------------------------------------------------------------
</TABLE>
Schedule I
Page 1
<PAGE>
EXHIBIT B
Bonus Trademark Royalty Formula
Bonus Trademark Royalty Formula:
To Be Calculated on a Quarterly Basis
- -------------------------------------
Royalty = (X-Y) . W . Z
X = Average Number of subscribers to the Channel during period
Y = break even number of subscribers as indicated in the applicable Business
Plan
W = a dollar amount equal to the fraction:
Total Gross Revenues During Period less the sum of any indebtedness for
borrowed money owing by the Venture to any of its shareholders
-----------------------------------------------------------------------
X
Z = 8%
<PAGE>
EXHIBIT C
---------
Listing of Licensees with Existing Rights
<PAGE>
PLAYBOY TELEVISION
CURRENT LICENSES OUTSTANDING IN JAPAN FOR TELEVISION AND HOTEL/MOTEL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Program Production
Licensee Grant of Rights Program Hours Year Term of License
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mitsubishi/USB Pay TV and Inside Out (26 episodes @ 30 minutes each) 13 1991 6/15/93 - 4/30/96
Hotel/Motel ------------------------------------------------------------------------------------------------
Sexy Lingerie II 1 1990 10/15/83 - 12/31/96
Sexy Lingerie III 1 1991
Wet & Wild IV 1 1992
Playmate review '92 1 1992
------------------------------------------------------------------------------------------------
Wet & Wild V 1 1993 6/15/94 - 8/31/96
Wet & Wild II 1 1990
Sexy Lingerie V 1 1992
Playmate Review '93 1 1993
------------------------------------------------------------------------------------------------
Playmate of the Year 1990: Renee Tenison 1 1990 11/1/94 - 12/31/96
Playmate of the Year 1991: Lisa Matthews 1 1991
Playmate of the Year 1992: Corina Harney 1 1992
Playmate of the Year 1993: Anna Nicole Smith 1 1993
------------------------------------------------------------------------------------------------
Late Night IV (26 episodes @ 30-minutes each) 13 1995 2/1/95 - 3/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Sumitomo Basic Pay Eden (6 volumes @ 1.5 hours each) 9 1993 10/1/94 - 9/30/96
- ------------------------------------------------------------------------------------------------------------------------------------
Pony Canyon Hotel/Motel* Erotic Fantasies I 1 1994 2/1/94 - 12/31/98
Intimate Workout for Lovers 1 1991
101 Ways to Excite Your Lover 1 1991
Wet & Wild IV 1 1992
Playmate of the Year 1993: Anna Nicole Smith 1 1993
Erotic Weekend Getaways 1 1992
Playmates in Paradise 1 1990
Ultimate Sensual Massage 1 1991
Playmate Video Calendar 1994 1 1994
Playmate of the Year 1994: Jenny McCarthy 1 1994
International Playmate 1 1992
Erotic Fantasies II 1 1994
Inside Out I 1.5 1991
Inside Out III 1.5 1991
Eden I 1.5 1993
Eden II 1.5 1993
Eden III 1.5 1993
- ------------------------------------------------------------------------------------------------------------------------------------
STP Multiple Rights Temptress 1.5 1994 15 years from delivery of
International Cover Me 1.5 1995 each item
(on behalf of Playback 1.5 1995
TOEI Corp.) 7 additional movies TBA @ 1.5 hours each) 10.5
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 81.5
</TABLE>
* No satellite business; our product is available on a pay channel in
approximately 25 hotels. Guests generally select movies from 3 channels: a) U.S.
movies; b) Japanese X-rated product; c) U.S. X-rated product. Agents sell hotel
packages of product including a Playboy title (different titles are offered each
month). Also, the same cassettes are "rented" from a shop inside the hotel.
<PAGE>
As of July 31, 1995
-------------
Playboy Entertainment Group, Inc.
and Playboy Enterprises, Inc.
9242 Beverly Boulevard
Beverly Hills, California 90210
Attention: Mr. Tony Lynn
Please refer to the Memorandum of Agreement between you ("Playboy")
and the undersigned, Tohokushinsha Film Corporation ("Tohokushinsha"), of even
date herewith (the "Agreement"). Please also refer to the Trademark License
Agreement of even date herewith (the "Trademark License Agreement") between
Playboy Enterprises, Inc. ("Enterprises") and Tohokushinsha. This letter
agreement sets forth certain modifications or additions to the Trademark License
Agreement and, pursuant to the last paragraph of the Agreement, also sets forth
certain modifications or additions to the Agreement as agreed by the parties in
writing, and constitutes an inducement and material part of the consideration to
each party to enter into the Agreement and the Trademark License Agreement.
Except as expressly set forth herein, the Agreement and the Trademark License
Agreement remain in full force and effect without change. All capitalized terms
used in this letter agreement without definition shall have the respective
meanings set forth in the Agreement or the Trademark License Agreement, as
applicable.
1. Options.
a. In order to effect and secure Playboy's rights under the Agreement to
participate in the proceeds of Liquidity Events and the rights described under
the heading "Additional Rights re Shares" in the Agreement (each of the events
triggering such rights being referred to herein as an "Additional Rights
Event"), Tohokushinsha hereby grants to Playboy options to purchase from
Tohokushinsha that number of shares in the Venture equal to 10.125% of the
Venture on a fully diluted basis without giving effect to the Liquidity Event or
Additional Rights Event, as the case may be, at the time of exercise (the
"Options").
b. The Options may be exercised, in whole or in part, in the event of any
failure by the Venture or Tohokushinsha to discharge its obligations under the
Agreement to Playboy with
<PAGE>
respect to any Liquidity Event or Additional Rights Event within the 30 days
following the consummation of such event. In the case of a Liquidity Event or
an Additional Rights Event, Playboy shall have the option to participate in
such event first out of its interest represented by the Options so that Playboy
retains the maximum number of shares in the Venture after its participation in
such Liquidity Event or Additional Rights Event, as the case may be, and any
such exercise must be of no less than the number of Options which represent the
difference between (i) the full value Playboy would have been entitled to
receive as of the date of such event had it exercised the Options immediately
prior to such event and participated directly therein and (ii) any portion of
such value it otherwise received.
c. Notwithstanding the fact that Tohokushinsha and the Venture shall
have said period of 30 days following any Liquidity Event or Additional Rights
Event to discharge its obligations to Playboy with respect thereto, in
discharging such obligations, Tohokushinsha and the Venture shall be required to
make Playboy whole for the full value it wou1d have been entitled to receive as
of the date of such event had it exercised the Options immediately prior to such
event and participated directly therein (and Playboy shall be entitled to
payment of interest for the period from the consummation of the Liquidity Event
or Additional Rights Event in question to the date of discharge of all
obligations of Tohokushinsha and the Venture with respect thereto at a rate
equal to the average of the reference rate charged by the Bank of America, N.A.,
and the Japanese prime rate charged by the Industrial Bank of Japan to domestic
customers in effect during such period); it being understood and agreed that if
the value in question would have been paid in shares of stock or other non-cash
property had Playboy participated directly in such event, Playboy will be
entitled to receive a number of such shares or an amount of such property (or if
such shares or property are not severable into the interests contemplated
hereby, the cash equivalent thereof) equal to the full value of the shares or
property it would have received on the day the event in question occurred had
Playboy then held shares equal to the applicable portion of the 10.125% of the
Venture with respect to which Playboy would have been entitled to participate in
such event.
d. If Playboy is prevented from exercising the Options, in whole or
in part, due to applicable legal restrictions, Playboy shall be entitled to put
to Tohokushinsha (the "Put") all or part of the Options Playboy would otherwise
have been entitled to exercise for the full value, as set forth in c. above, it
would have been entitled to receive as of the date of the applicable Liquidity
Event or Additional Rights Event had it exercised such Options immediately prior
to such event and participated directly therein.
<PAGE>
Page 3
e. In either an exercise of Options or the Put, Playboy will be
entitled to receive the proceeds indicated, less an amount that is the greater
of (i) the number of shares that constitutes 10.125% of the stock of the Venture
on a fully diluted basis without giving effect to the Liquidity Event or
Additional Rights Event (i.e., as if additional authorized, but unissued, shares
had been issued in an amount equal to 10.125% of the outstanding shares) times
the per share Initial Value (as defined in Issued Shares in the Agreement), plus
accrued interest thereon at the Japanese Prime Lending as announced by The
Industrial Bank of Japan for domestic lending from the date of initial
capitalization, or (ii) the Book Value of 10.125% of the Venture on a fully
diluted basis without giving effect to such Liquidity Event or Additional Rights
Event, as the case may be; provided, however, that for the purpose of
calculating the foregoing reduction in no event shall such Book Value of 10.125%
of the Venture be greater than the net proceeds of such Liquidity Event or
Additional Rights Event that would be received or distributable to the holder of
10.125% of the then currently issued and outstanding shares of the Venture.
f. Following any exercise of the Options or the Put, the Options
will be reduced by the percentage interest in the Venture that the exercise
represented (e.g., if Playboy exercises the Options with respect to a number of
shares that represent 2% of the Venture at the time of exercise, the Options
remaining shall be 8.125% of the Venture as measured on the next exercise date).
g. Notwithstanding anything to the contrary set forth herein, at no
time shall Playboy beneficially own more than 19.9% of the Venture.
h. Playboy may exercise the Options or the Put by written notice to
Tohokushinsha specifying the percentage interest in the Venture represented by
such exercise.
i. If Playboy is prevented from exercising the Options in whole or
in part due to applicable legal restrictions and Playboy exercises the Put, and
Tohokushinsha breaches its obligations to make payment, after written notice
thereof and reasonable opportunity to cure, Playboy shall be entitled, without
prejudice to the application of subparagraph c. above, to transfer the number of
Options that the Put represents, as the case may be, without restriction
(including any restrictions on transfer generally as set forth in the Agreement
or the Definitive Agreements) to any person or entity that is not legally
prohibited from acquiring the respective interest in the Venture; provided that
if the issue of breach is in dispute and
<PAGE>
Page 4
Tohokushinsha timely submits such issue to mediation and arbitration pursuant to
Section 5 below, Playboy shall not transfer the Options in question during the
pendency of such mediation and arbitration. Except as provided above and as
provided in the Agreement generally regarding assignment, the Options and Put
rights shall not be assigned or transferred by Playboy.
2. Effect on Bonus Trademark Royalties. Upon each exercise by Playboy of
the Options or the Put, in whole or in part, and provided that Tohokushinsha has
satisfied its obligations with respect thereto, the Bonus Trademark Royalties
formula will be amended by multiplying the result thereof by a fraction, the
numerator of which is the percentage interest in the Venture that remains
subject to the Options and Put (as of the time they may be exercised), and the
denominator of which is 10.125%.
3. Termination of Agreement. This letter agreement shall terminate and
the Options shall expire upon the termination of the Venture as set forth in the
Agreement or the Definitive Agreements, as the case may be.
4. Bonus Trademark Royalty Formula Adjustment. The Bonus Trademark
Royalty formula referred to in Section 3.2(a) of the Trademark License Agreement
will be adjusted prospectively by mutual agreement of the parties if the Bonus
Trademark Royalty actually paid to Licensor in any year is less than 90% or more
than 110% of 10.125% of the net profits of the Venture for such year then ended
without giving effect to the Bonus Trademark Royalty paid for such year. In
addition, in the event that Licensee decides to commence DTH transmission, the
parties shall mutually agree upon a revised formula for the Bonus Trademark
Royalty based upon revised projections for Licensee giving effect to such
transmission. If the parties are unable, after good faith negotiations, to agree
on any such adjustment required by either of the two preceding sentences, they
will submit to mediation and, if necessary, binding arbitration in accordance
with the terms below.
5. Incorporation of Certain Terms. The terms of the Agreement under the
heading "MEDIATION AND ARBITRATION" are hereby incorporated herein by reference
as if fully set forth herein, with such changes as the context shall require.
6. Remedies Cumulative. Playboy's and Enterprises' respective rights
hereunder are in addition to, and not by way of limitation of, any rights or
remedies it may have under the Agreement.
<PAGE>
Page 5
7. Counterparts. This letter agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing accurately sets forth your understanding of our
agreement, please so indicate by executing this letter agreement in the space
provided for below.
Very truly yours,
TOHOKUSHINSHA FILM CORPORATION
By: /s/ Tetsu Uemura
---------------------------
Its: Managing Director
--------------------------
ACCEPTED AND AGREED TO:
PLAYBOY ENTERTAINMENT GROUP, INC.
By: /s/ Anthony J. Lynn
---------------------------
Its: President
--------------------------
PLAYBOY ENTERPRISES, INC.
By: /s/ Anthony J. Lynn
---------------------------
Its: Executive Vice President
--------------------------
<PAGE>
Exhibit 10.10(b)
[LOGO] [LETTERHEAD OF TOHOKUSHINSHA FILM CORPORATION]
March 26, 1996
PLAYBOY ENTERTAINMENT GROUP, INC.
9242 Beverly Blvd.
Beverly Hills, CA 90210 U.S.A.
Ladies and Gentlemen:
Reference is made to that certain Memorandum of Understanding
between us dated as of July 31, 1995 (the "MOU"; all capitalized terms used in
this letter agreement without definition have the respective meanings set forth
in the MOU). We have discussed an amendment to the terms of the MOU and the
purpose of this letter is to set forth our mutual agreement with respect to such
amendment.
The MOU provides under the heading "SUPPLYING OF PROGRAMS" that,
in the first year of the Venture, Playboy will make available to the Venture and
the Venture will license from Playboy not less that than 120 program hours. The
first year of the Venture is not a calendar year, but commenced at the inception
of the Venture and ends on December 31, 1996. We hereby agree to increase such
minimum number of program hours for such period from 120 to 150 program hours.
Such additional program hours will be subject to the minimum Guaranteed Program
License Fee for year 1 as set forth in the MOU under the heading "PROGRAM
LICENSE FEES" and to all other applicable terms of the MOU. All other terms of
the MOU remain in full force and effect and are hereby ratified and confirmed.
To indicate your agreement with the foregoing, please execute
two copies of this letter and, retaining one copy for your files, return a fully
executed copy to us.
TOHOKUSHINSHA FILM CORPORATION
BY: /s/ Tetsu Uemura
---------------------------
Tetsu Uemura
Managing Director
ACCEPTED AND AGREED:
PLAYBOY ENTERTAINMENT GROUP, INC.
BY: /s/ Myron DuBow
------------------------------
Myron DuBow
Senior Vice President
<PAGE>
Exhibit 10.11
[LOGO OF TVN] 2901 WEST ALAMEDA AVENUE, 7TH FLOOR
BURBANK, CALIFORNIA 91505
(818) 846-4TVN FAX (818) 846-4626
- --------------------------------------------------------------------------------
ARTHUR FIELDS
Senior Executive Vice President
June 22, 1995
PERSONAL AND CONFIDENTIAL
--------------------------
James L. English
President
Playboy Networks Worldwide
9242 Beverly Boulevard
Beverly Hills, CA 90210
TVN - PLAYBOY DEAL MEMORANDUM
Dear Jim:
This Deal Memo summarizes the key deal points whereby TVN will provide certain
services for and also serve as a distributor of Playboy's newly announced 24
hour a day adult movie based entertainment channel, named "AdulTVision". Our
mutual goal is to have TVN provide a complete turn-key service for Playboy's
AdulTVision Channel when TVN's own pay-per-view programming services move to
G-IIIR, including transponder, uplink, playback, encryption, and tier-bit
control/authorization services. The deal points are as follows:
1. Commencing July 1, 1995, TVN will provide VideoCipher II Plus ("VCII
Plus") encryption and tier bit control services for the AdulTVision
Channel, as well as playback service using the programming elements
provided by Playboy as described in Paragraph 6 below, and uplink
service to a Playboy leased transponder on the Anik-2 ("E-2")
satellite for transmission to the cable and C-Band home satellite dish
(HSD) markets, for which Playboy will pay TVN the sum of $25,000 per
month. Tier bit control service will cover authorizations for pay-per-
view, subscription and cable head-ends. At that time or subsequently,
TVN may also "turn-around" this AdulTVision transmission from E-2, and
re-encrypt and uplink it to one of TVN's transponders on the Telstar
303 satellite ("T-303"), also for transmission and distribution by TVN
to the cable and C-Band HSD markets. As a result, there may be a
period of dual illumination on T-303 and E-2, prior to the planned
transition of the AdulTVision service to a TVN leased transponder on
the Galaxy III-R satellite ("G-IIIR"). During the Term hereof, TVN
will market, promote, distribute and sell the AdulTVision service as
described below.
1
- --------------------------------------------------------------------------------
TVN ENTERTAINMENT CORPORATION
<PAGE>
2. At such time as TVN transitions its multi-channel pay-per-view
services from T-303 to G-IIIR, but not before January 1, 1996, TVN
will provide the use of one of its G-IIIR transponders, which shall
provide analog VCII Plus encrypted transmission solely for the
AdulTVision channel and meet Hughes' specifications for such G-IIIR
transponders. It will serve as the sole source for transmission of
AdulTVision to C-Band HSD markets, and as a source of transmission to
the cable market, to which Playboy may transmit its AdulTVision
service by other means as well. In the event that the G-IIIR
transponder fails to meet its specifications, TVN will provide the use
of the T-402R transponder for AdulTVision referenced in (P)7 below.
TVN will also provide the necessary playback, uplink, encryption (VC
II Plus) and tier bit control/authorization services for AdulTVision
Playboy will pay TVN the sum of $200,000 per month from such time as
TVN transitions its multi-channel PPV services from T-303 to G-IIIR,
and throughout the remaining Term of this Agreement (subject to
Paragraph 4 below), payable by Playboy on the first day of each
month for the services to be provided by TVN in that month.
3. This deal will remain in effect for a period of three (3) years (a
"Term") commencing as of the date of execution of this Deal Memo, and
shall automatically be renewed for a consecutive three (3) year Term
unless either party gives written notice to the other of non-renewal
no later than ninety (90) days before the expiration of any Term. In
the event that it becomes illegal to operate, transmit, distribute or
sell the AdulTVision service in all or substantially all of the United
States, either party may forthwith and in writing terminate this
Agreement and its obligations thereunder, except for those which have
accrued prior to such termination. If Playboy determines in good faith
that it has become economically unfeasible for it to continue
operating the AdulTVision programming service, then it may terminate
this Agreement by providing no less than ninety (90) days written
notice to TVN that it will discontinue such service, in which event
this Agreement will terminate without further liability by either
party to the other on the later of 90 days from the date of such
written notice, or the date on which Playboy ceases operations of the
AdulTVision programming service. Any such discontinuance of the
service will be handled in a reasonable manner, so as to foster a
positive relationship with AdulTVision customers.
4. As additional consideration for the services provided by TVN pursuant
to paragraphs l and 2 above, TVN shall be the exclusive distributor of
the AdulTVision programming service to the C-Band HSD market in all
transactional modes, including but not limited to pay-per-view
("PPV"), pay-per-block ("PPB"), pay-per-night ("PPN"), pay-per-day
("PPD") sales, subscription sales (monthly, quarterly or yearly and/or
impulse sales ("IPPV") by means of store and forward technology, i.e.
through VIDEOpal. TVN will provide encryption with its own TVN
provided VCII Plus encoder, set up with encoder redundancy, i.e., in
the event that the VCII Plus encoder used by TVN for encryption of
AdulTVision malfunctions or fails, TVN represents that it will utilize
one of its other VCII Plus encoders so that encryption of AdulTVision
is maintained. TVS will also provide
2
<PAGE>
tier bit control from whatever transponder(s) AdulTVision may be
transmitted, including from both T-303 and E-2 during any period of
dual illumination, and TVN represents that it will at all times during
each Term hereof make available tier bits necessary to provide pay-
per-view and subscription authorizations for AdulTVision. TVN will a)
pay Playboy a license fee equal to thirty percent (30%) of all such
HSD sales, with a minimum license fee of $1.785 per pay-per-view buy
(based on a suggested retail price of $5.95), b) provide complete end-
to-end customer service, including order processing, CSR, billing and
authorization functions for all such sales of the AdulTVision service,
and c) actively market, promote and sell AdulTVision to its existing
HSD subscriber base (approximately 750,000), and to the rest of the
C-Band HSD market. The 30% license fee payable by TVN to Playboy shall
be offset each month against the $200,000 monthly fee payable by
Playboy to TVN per paragraph 2 above and Playboy will send TVN a check
each month for the net amount owed to TVN, after offsetting the TVN
license fee owed to Playboy; if the 30% license fee exceeds the
$200,000 fee payable by Playboy, TVN will remit such excess amount to
Playboy by check monthly. TVN will not accept orders for the
AdulTVision service from such states as Playboy determines that its
service will not be made available for viewing by HSD and/or cable
subscribers.
5. At such time as TVN and Playboy mutually agree upon the license fee
payable by TVN for its AdulTVision sales to cable subscribers, TVN
will also be a non-exclusive distributor of the AdulTVision service to
the cable market, which it may offer via PPV, PPB, PPN, PPD and/or on
a subscription basis, only marketed together with TVN's own multi-
channel pay-per-view movie, event and transactional processing
services under the name TheatreVisioN Plus. TVN will coordinate its
AdulTVision marketing activity with Playboy, TVN will market and
promote the AdulTVision service, and TVN's marketing and promotional
materials utilizing the AdulTVision name will be subject to Playboy's
review and approval, in all instances and at all times, and will bear
Playboy's approved trademark designations.
6. With respect to the playback services TVN provides for Playboy,
[deletion] Playboy will create and provide TVN with fully edited,
ready-for-air videotapes of all AdulTVision programming elements, in
Beta SP format. Such videotapes will include all films, shows,
interstitial materials, music, graphics, programming and all other
elements necessary for TVN to assemble and playback the AdulTVision
service as a complete 24 hour a day, 7 days a week high quality
television channel, which meets the industry accepted RS250(b)
standard. Playboy will1 deliver such videotaped materials to TVN in a
form capable of being assembled and aired by TVN without editing or
additional post-production, and in a reasonable time prior to any
scheduled air-date. However, TVN will provide an electronic count-down
clock and titling capability which can be keyed in during interstitial
programming. Playboy will be solely responsible for all AdulTVision
programming content, and will indemnify, defend and hold harmless TVN
and its transponder provider from any and all third party claims
and/or governmental or agency actions based on or
3
<PAGE>
related to such programming content. TVN will indemnify, defend and hold
harmless Playboy from any and all third party claims arising from TVN's
willful acts or omissions while performing its services for Playboy hereunder.
C-Band HSD customers who want to order the AdulTVision service from TVN,
whether via PPV, PPB, PPN, PPD or subscription, need not pay any initial fees
for, order or subscribe to any other programming service owned, provided or
distributed by TVN.
7. TVN represents to Playboy that a) AT&T has leased a transponder on the
Telstar 402R satellite to a wholly owned subsidiary of Viacom, Inc.,
which begins on the in-service date of that satellite, b) it is a
"bronze" level transponder, leased for a three (3) year term with
options to renew, c) Viacom has assigned to TVN its rights to such
T-402R transponder, d) TVN has the right to provide the use of such
T-402R transponder to Playboy for AdulTVision, and will do so in the
event that (i) Hughes fails to approve, or approves but subsequently
terminates, Playboy's use of TVN's G-IIIR transponder for AdulTVision,
or (ii) there is a G-IIIR launch failure. TVN will obtain from Viacom
and provide to Playboy, within five (5) business days, written
confirmation of the foregoing and that Viacom will make this T-402R
transponder available to Playboy for the AdulTVision service without
interruption if that is within Viacom's control, in the event that
TVN's right to do so is terminated.
8. After this Deal Memo is signed by the parties, they shall begin work
and planning for the start of on-air operations, during which time a
Definitive Agreement consistent with the provisions of this Deal Memo
and containing a more detailed description of each party's respective
rights duties and obligations shall be prepared by the parties'
counsel. TVN will obtain written approval from Hughes, and provide
same to Playboy, for Playboy's use of TVN's G-IIIR transponder for
AdulTVision and to permit Playboy to directly assume TVN's rights,
duties and obligations under TVN's Transponder Lease Agreement with
Hughes with respect to the G-IIIR transponder used for AdulTVision
without interruption if that is within Hughes' control, including
Playboy's right and obligation to pay directly to Hughes the monthly
transponder fee payable by TVN for such transponder, only in the event
that TVN's rights to such transponder are terminated by Hughes. If TVN
is unable to obtain such approval from Hughes within a mutually
approved reasonable period of time, TVN agrees that it will provide
the use of its above described T-402R transponder for AdulTVision,
instead of its G-IIIR transponder, except that Playboy's fee therefor
shall be $175,000 per month, instead of $200,00 per month, payable as
provided in (Paragraph) 2 above. For the months of July-December 1995,
TVN shall retain the 30% license fee which would have been payable to
Playboy, up to $400,000, the first $200,000 of which will be a credit
against the first month's fee payable by Playboy, and the next
$200,000 (or a portion thereof) of which will be a credit against the
last month's fee payable by Playboy. If the 30% license fee falls
short of $400,000 during such six (6) month period, this shortfall
will be made up, subject to (Paragraph) 4, in the last month's fee
payable by Playboy. Any 30% license fee amount in excess of $400,000
shall be paid by TVN to
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$400,000 shall be paid by TVN to Playboy. If the T-402R transponder is
used instead of the G-IIIR transponder as above described, the "up
to" amount will be $350,000, half of which will be credited against
the first, and the other half against the last, month's fee payable by
Playboy. TVN shall obtain an acknowledgment from Hughes of the prepaid
transponder concept. The provisions of this Deal Memorandum, and all
discussions and negotiations regarding same, shall be kept strictly
confidential by each company and may not be disclosed to third parties
without each parties' prior mutual written approval.
9. The parties agree that after the execution hereof they will issue a
joint or separate press releases regarding TVN's role in the
AdulTVision service. Such press releases and other publicity
concerning TVN's role in AdulTVision shall be jointly planned and
coordinated by the parties, and shall refer to AdulTVision being the
new adult programming service which may be marketed together with
TVN's TheatreVisioN Plus movie programming. Neither party shall issue
any press release or make any press announcement regarding TVN's role
in AdulTVision, without the prior written approval of each other
party, which shall not be unreasonably withheld. Nothing contained
herein shall restrict Playboy's promotion of AdulTVision.
10. This Deal Memorandum contains the essential deal points agreed upon by
the parties with respect to the subject matter hereof. It supersedes
all prior and other contemporaneous agreements or negotiations,
whether oral or written, by the parties or their agents with respect
hereto; it may be amended only in writing signed by each party and it
may be executed in one or more counterpart copies via fax delivery to
the other party of a copy containing that party's signature, which
together with the other party's executed counterpart fax copy shall
constitute a single document having the same force and effect as a
fully executed original.
11. This Deal Memorandum and the rights, duties and obligations of the
parties hereunder shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts made
and to be wholly performed in that state. It describes a contractual,
independent contractor/distributor relationship, and nothing contained
herein shall be deemed to create any partnership, joint venture,
employment or similar relationship between the parties.
12. The above referenced Definitive Agreement shall contain terms and
conditions consistent with this Deal Memorandum, as well as other
mutually agreed terms and conditions including, but not limited to,
those providing for audit rights, license fee reports, payment and
report due dates, marketing plans, sales of AdulTVision by third party
packagers through TVN, and performance criteria for TVN's sales and
customer service operations for AdulTVision. Before such Definitive
Agreement is signed by the parties, this Deal Memorandum shall remain
in effect as the binding agreement between the parties.
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Kindly signify your agreement to the foregoing Deal Memorandum by signing below
where indicated.
Sincerely,
/s/ Arthur Fields
-----------------------------------------
Arthur Fields
Senior Executive Vice President
AGREED:
Playboy Networks Worldwide, a division
of Playboy Entertainment Group, Inc.
/s/ James L. English
By: ----------------------------------
James L. English
President
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Exhibit 10.12
[LOGO - ORION]
HOME VIDEO
Mr. Bill Asher
Director of Planning - New Business
PLAYBOY ENTERTAINMENT GROUP, INC.
9242 Beverly Blvd.
Beverly Hills, CA 90210
As of June 27, 1996
Re: Playboy Distribution Agreement
------------------------------
Dear Mr. Asher:
This deal letter, when signed by both parties, shall confirm the agreement
("Agreement") between Orion Home Entertainment Corporation d/b/a Orion Home
Video ("Orion") and Playboy Entertainment Group, Inc. ("Playboy"), that Orion
shall be the exclusive distributor of certain home video programs and product
produced by and/or on behalf of Playboy as set forth below, throughout the
Territory (as defined below).
1. Output Term: The term of the Agreement shall be for three years commencing
March 1, 1996 ("Output Term"). After two years, if Playboy is no longer in
the business of producing or having produced on its behalf motion pictures
of like type and kind as described herein, Playboy may terminate the
Agreement, upon written notice to Orion, as to the third year of the Output
Term.
2. Distribution Term: For each individual Product (as defined below),
distributed under this Agreement, Orion shall have a Distribution Term of
seven and one-half (7 1/2) years from the earlier of the complete delivery
of materials for that motion picture or street date of such Product
("Distribution Term"), Orion shall have a right of "Sell-Off" (as that term
is commonly used in the industry) of six (6) months for each individual
Product. Notwithstanding the expiration of the Distribution Term for a
particular motion picture, Orion retains a right of last refusal as to the
renewal/extension of the distribution rights for each individual motion
picture.
3. Territory: The territory ("Territory") is the United States of America and
Canada, their respective territories, possessions and commonwealths,
including, without limitation, Puerto Rico, Guam and the US Virgin Islands.
The Territory shall also include United States and Canadian armed forces
installations anywhere in the world, airlines and ships serviced out of the
United States and/or Canada and other similar areas customarily included in
such territories. Orion specifically retains the right to distribute the
Product in sub-titled and/or dubbed format(s). If Playboy requests Orion to
distribute the Product in a specified language (whether sub-titled or
dubbed) and Orion declines to so distribute the
1888 Century Park East, Los Angeles, California 90067-1728
(310) 282-0550 Fax: (310) 201-0798
<PAGE>
Product in such format, then Playboy is free to license those specific,
limited distribution rights as to that individual Product in the specified
language and/or format to another company.
4. Product:
-------
A. Playboy shall produce or have produced on Playboy's behalf and
deliver a minimum of six Playboy branded motion pictures per year of
the Output Term as follows: Each of the said six motion pictures
("Branded Product") shall have a production budget of between
$1,200,000 and $2,000,000 per motion picture and shall be at least
equal in production value and content to the Impulse films previously
produced by or on behalf of Playboy which said films have been
previously shown to Orion.
B. Playboy shall also produce or have produced on Playboy's behalf
and deliver a minimum of eight unbranded motion pictures per year of
the Output Term as follows: Playboy guarantees that each of the said
motion pictures ("Unbranded Product") shall have a production budget
within ten percent (10%) of the average production budget of the eight
Unbranded Product motion pictures selected by Orion for release during
the first year of the Output Term which are as follows: Gentleman's
Bet, Hard Time, Who Killed Buddy Blue?, Romancing Sara, Killing For
Love, The Affair, Access Denied, Hungry for You. Playboy shall make
available to Orion for inspection, audit and/or review the budgets of
these Unbranded Product motion pictures upon Orion's request for same.
C. Branded Product and Unbranded Product shall be collectively
referred to as "Product", although distribution rights are individual
to each motion picture.
D. Orion requires both an Unrated and MPAA-Rated version of Unbranded
Product. Only a Rated version of Branded Product is required for
Orion. Product shall be delivered pursuant to Orion's standard
delivery schedule (attached hereto as schedule A). Orion will identify
its post-production house for purposes of delivery by Playboy but
Orion reserves its right to quality check all materials, the cost of
such checks being recoupable distribution expense.
5. Rights Granted:
--------------
A. Playboy hereby grants Orion the sole and exclusive right to
manufacture, distribute, advertise, publicize, promote, rent and sell
all Product on video cassette (analog and/or digital) and all linear
translations and forms (non-interactive) of video and optical disc
(including but not limited to laser disc, CD-ROM and Digital Versatile
Disc ("DVD")) in the Territory during the Distribution Term.
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B. Playboy shall, whenever possible, pre-approve acceptable uses of
the Playboy name, credit block(s), artwork and logo(s). Subject to the
following, Orion may so use the Playboy name, credit block(s), artwork
and/or logo(s) for each Product. Orion shall have the right to use the
Playboy logo and name on the video/disc packaging of Branded Product,
but may not use the Playboy logo or name on the video/disc packaging
of Unbranded Product. If Orion contemplates using the Playboy name,
credit block(s), artwork and/or logo(s) in a manner inconsistent with
the Playboy's previous approval, then Orion shall seek Playboy's
approval for this inconsistent use. If Orion does not receive approval
or disapproval from Playboy within 5 days after the request for such,
then the material submitted is then deemed approved.
C. In trade advertising, Orion shall have the right to the full and
reasonable use of the Playboy name, logo and other brand equity for
both Unbranded and Branded Product. In consumer advertising, only
Branded Product may be afforded the use of the Playboy name logo
and/or other brand equity, all subject to Paragraph 9 herein.
D. Playboy shall have meaningful consultation rights as to marketing
plans for each Product. Playboy shall have approval of all premium
offers, unless preapproved by Playboy. Orion shall have the right to
offer Playboy branded premiums (logo/name cups, shirts, mugs, pens,
etc.) for Branded Product. Such promotional items shall be available
to Orion at Playboy's acquisition cost.
E. Orion shall release and distribute Product in a like manner and
kind as other similar Orion Home Video direct-to-video releases.
6. Distribution Fees and Guarantees:
---------------------------------
A. Branded Product: Orion's distribution fees shall be 20% of the
gross receipts received by Orion. After the payment of Orion's
distribution fees on Branded Product, the remainder of gross receipts
for each Branded Product motion picture shall be payable as follows:
(1) Recoupment: Orion shall recoup all customary
manufacturing, distribution, marketing, advertising and
promotional costs and expenses directly paid or incurred from
gross receipts, including but not limited to printing, packaging,
duplication, shipping and delivery costs, residuals (which Orion
shall pay after Playboy supplies the pertinent information), and
such marketing costs and expenses as for publicity and talent
tours, multi-pack premiums, and the VSDA screener program. The
maximum allowable fixed marketing expense per Branded Product
motion picture shall be $105,700 (see attached Schedule A). The
maximum
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allowable mailer advertisement expense per Branded Product for the
first year of the Output Term shall be $90,000. Thereafter, the
maximum allowable mailer expense will be adjusted upward to account
for distributor rate changes. Orion specifically reserves the right to
consult with Playboy and seek approval for additional marketing
expenditures.
(2) Allocations of marketing expenses shall be done on a pro
rata basis as between like Product (multiple Branded Product, multiple
Unbranded Product) or Product with non-Playboy motion picture(s)
(Branded Product with non-Playboy motion picture(s), Unbranded Product
with non-Playboy motion picture(s)). If an allocation on a non-pro
rata basis is contemplated by Orion, then Orion shall seek the
approval of Playboy for such allocation.
(3) Advance Guarantee: There shall be a guaranteed advance for
each Branded Product paid as follows to Playboy in the total amount of
$350,000:
(a) Fifty percent (50%) of the total Advance Guarantee
($175,000.00) shall be paid to Playboy upon complete delivery of all
materials for each Branded Product.
(b) Twenty-five percent (25%) of the total Advance
Guarantee ($87,500.00) shall be paid to Playboy 120 days after the
complete delivery of all materials for each Branded Product.
(c) The remaining twenty-five percent (25%) of the
total Advance Guarantee ($87,500) shall be paid to Playboy 210 days
after the complete delivery of all materials for each Branded Product.
(3) Remainder: The remainder of gross receipts, after recoupment
by Orion of (A) (1), (2) and (3) above, shall be paid 25% to Orion and
75% to Playboy.
B. Unbranded Product: On a motion picture-by-motion picture basis, gross
receipts from the sale and exploitation of Unbranded Product shall be
payable as follows:
(1) Advance Acquisition Payment: A total of $50,000 per
Unbranded Product shall be paid as follows by Orion to Playboy as
complete and total payment for the acquisition of Distribution and
related rights for each Unbranded Product motion picture:
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(a) Fifty percent (50%) of the total Advance Acquisition
Payment ($25,000) shall be paid by Orion to Playboy upon the complete
delivery of materials for each Unbranded Product motion picture.
(b) Twenty-five percent (25%) of the total Advance
Acquisition Payment ($12,500) shall be paid by Orion to Playboy 120
days after the complete delivery of materials for each Unbranded
Product motion picture.
(c) The remaining twenty-five percent ($12,500) of the
total Advance Acquisition Payment ($12,500) shall be paid by Orion to
Playboy 210 days after the complete delivery of materials for each
Unbranded Product motion picture.
4. Remainder: All gross receipts after the payments as noted
above shall be paid to Orion.
7. Design, Duplication and Packaging: Orion shall perform all customary
design, marketing, printing, packaging, duplication, shipping and delivery
services in the regular course of business and shall recoup the same as set
forth in Paragraph 6 above. Playboy shall supply to Orion, upon reasonable
request (if available), and at no cost or expense to Orion, design
materials, artwork, films, slides and the like for the purposes of box
(sleeve) design and advertising.
8. Representations and Warranties: The parties to this Agreement represent and
warrant that they each have the power and authority to enter into this
Agreement, to grant all of the rights herein granted, that there are not
now known to either party any outstanding claim, lien, encumbrance or right
of any nature which can or will impair or interfere with any of the rights
herein granted to Orion, that the exercise of any of the rights granted
Orion will not violate the rights of any third party nor require Orion to
make any payment of any kind to a third party. Playboy shall indemnify
Orion, its officers, shareholders and employees from any claim inconsistent
with this Paragraph.
9. Trademarks, Service Marks, Copyrights and Credits: The parties agree that
the trademarks and copyrights of each party shall be protected and that
credits and logos shall be appropriately utilized upon reasonable and
appropriate notice thereof.
A. Except as otherwise provided herein, Orion shall submit all
advertising, or marketing and packaging materials concerning any element of
any Product in representative form to Playboy for Playboy's prior written
approval at least fifteen (15) days prior to their intended distribution.
Orion also must secure Playboy's prior written approval of all media for
advertising and distribution and the specific publications, broadcasters
and exhibitors which will be running the advertisements. Orion will not
disseminate any advertising material or packaging that has not been so
approved by
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Playboy in each instance. If Orion submits advertising, packaging,
marketing or other material to Playboy for approval and does not receive
either approval or disapproval from Playboy within five (5) business days
from such submission, then the material shall be deemed approved by
Playboy; and
B. Orion hereby acknowledges that the trade names "Playboy" and
"Playmate" and the registered trademark and service mark "Playboy," the
Playboy "Rabbit Head Design" and trade names "The Playboy Channel" and
"Playboy at Night" (collectively, the "Playboy Marks") are the sole and
exclusive property of Playboy. Orion shall have the right to develop and
distribute advertising, publicity, and promotional materials relating to
any Product and packing therefor incorporating both Orion's trademarks,
trade names or service marks and/or the Playboy Marks in connection with
Orion's rights hereunder; provided, however, that any such materials and
packaging (other than material obtained directly from Playboy) shall,
C. Clearly identify the Playboy Marks with a legible credit line with
the wording "Playboy" (or the "Rabbit Head Design" or "The Playboy Channel"
or "Playboy At Night" or "Playmate," as the case may be) is the mark of and
used with the permission of Playboy Enterprises, Inc." or such other words
as Playboy may designate:
D. Be submitted in representative form to Playboy for Playboy's prior
written approval in each case at least fifteen (15) days prior to their
intended distribution. Playboy may disapprove any use if such use (i)
jeopardizes the validity of any of the Playboy Marks, (ii) does not conform
to previously approved uses of the Playboy Marks, or (iii) does not conform
to Playboy's standards, which may vary from time to time. Except as
otherwise provided herein, Orion will not disseminate any material or
packaging that has not been so approved by Playboy. If Orion submits
advertising, packaging, marketing or other material to Playboy for approval
and does not receive either approval or disapproval from Playboy within
five (5) business days from such submission, then the material shall be
deemed approved by Playboy; and,
E. Other than as otherwise expressly set forth herein, Orion shall
make no use of the Playboy Marks or any confusingly similar designation
without the prior express written consent of Playboy in each instance.
Orion shall also make no use whatsoever of any other trademark, trade name
or service mark that is the property of Playboy or any of its programs, or
suppliers of Playboy without the prior express written consent of Playboy
in each Instance. Orion similarly agrees that it will not authorize or
purport to authorize any third party to make any such use, and it will
expressly provide in any applicable third party agreements that such third
parties will only be entitled to use such names and marks on materials
supplied to them by Orion in accordance with Orion's rights hereunder.
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10. Notices: All notices and other communications shall be in writing and shall
be delivered as follows:
A. If to Playboy, to: Playboy Entertainment Group, Inc..
9242 Beverly Boulevard
Beverly Hills, CA 90210
Fax: (310) 246-4050
Attention: Mr. Barry Leshtz
Sr. V.P. & General Manager, Home Video
Copy to: Sr. V.P., Business & Legal Affairs
B. If to Orion, to: Orion Home Entertainment Corporation
1888 Century Park East
Los Angeles, CA 90067
Fax: (310) 282-9902
Attention: Mr. Herbert Dorfman
Copy to: Attention: Business & Legal Affairs
Fax (310) 282-9902
11. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws, of the State of California.
The parties intend to execute a more formal agreement in near future
incorporating certain additional terms and conditions, to be negotiated in good
faith. Until such more formal document is executed, this letter, when signed by
both parties, shall constitute the binding agreement between the parties.
AGREED AND ACCEPTED:
PLAYBOY ENTERTAINMENT GROUP, ORION HOME ENTERTAINMENT
INC. CORPORATION d/b/a ORION HOME
VIDEO
By: /s/ Myron DuBow By: /s/ Herb Dorfman
---------------------------- ----------------------------
Its SR. Vice-Pres. President - Orion Home Video
7
<PAGE>
SCHEDULE A
DELIVERY SCHEDULE
-----------------
This Schedule "A" is attached to and incorporated in the agreement
("Agreement") between Playboy Entertainment Group, Inc. ("Producer") and Orion
Home Entertainment Corporation ("Orion" or "Distributor") dated as of June 27,
1996 with respect to certain home video programs and product defined therein as
Product.
Producer agrees as a material obligation hereunder to make full and
complete delivery of each and every item listed below to Distributor in the Los
Angeles area to the persons and places designated by Distributor (except as
specifically noted below where only access to Distribution is required). Such
delivery by Producer will consist of making physical delivery to Distributor or
its designee at Producer's sole cost and expense (transportation costs prepaid).
1. Composite Answer Print: Delivery of our access to one complete,
final, first class composite 35mm positive print of the Picture, printed liquid
gate, fully corrected to release print standards in the color process in which
the Picture was photographed, fully cut, main and end titled, edited, scored and
assembled with the soundtrack printed thereon in perfect synchronization with
the photographic action and fit and ready for exhibition and distribution (the
"answer print"). The answer print shall be manufactured by the laboratory
approved by Distributor, and capable of manufacturing release prints of the
Picture.
2. Negatives: Delivery of or access to the complete original 35mm picture
negative and the optical composition sound negative in perfect synchronization
with the picture negative, both fully cut, main and end titled, scored, edited
and assembled and conformed in all respects to the answer print, which negatives
shall be of first class quality so that first class intermediates and positive
prints can be made therefrom, and shall be free of scratches or injury.
3. Interpositive: Delivery of or access to one first class 35mm
interpositive (IP) of the Picture (picture only). The IP shall be fully cut,
main and end titled, edited and assembled and conformed in all respects to the
above-mentioned composite positive print, and original negative. The IP must be
manufactured using the liquid gate process, in first generation from the
original negative after the answer print has been manufactured in accordance
with Paragraph 1 above.
4. Magnetic Music Master: One magnetic 1/4" track or DAT of the original
music score for the Picture, suitable for reproducing first class stereophonic
tapes or other recordings therefrom.
5. Textless Background: Delivery of or access to a clear background
(textless, i.e., without any superimposed lettering) negative of the main and
end titles and all descriptive titles, including the backgrounds for inserts,
if any, in the Picture and of any other parts of the Picture which contain any
lettering together with an interpositive of the foregoing items.
6. Work Print: If editing on film, access to the work print of the
Picture, consisting of the editing and/or cutting prints that were used in the
final editing of the Picture, assembled and conformed in all respects to the
answer print, together with the separate 35mm magnetic dialogue, music and sound
effects working tracks which shall also be assembled and conformed in all
respects to the answer print. If posted electronically, access to the work
cassettes. Access to all applicable paperwork.
7. (a) Magnetic Print Master (Domestic): Delivery of or access to a
complete first class clean dubbed and rerecorded master of the soundtrack of the
Picture on 35mm magnetic, 24 track, or other mutually agreed upon professional
audio format fully cut, edited and assembled and conformed in all respects to
the answer print. Track configuration should be standard LT-RT printmaster with
matrix encoding (Dolby or Ultra) and Dolby A or SR noise reduction.
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(b) Magnetic Master (Foreign): If available, for purposes of looping
dialogue into foreign language versions of the Picture, access to or delivery
of:
(i) A full and complete 35mm magnetic, 24 track or other
mutually agreed upon professional audio format composed of music and fully
filled effects tracks recorded in a standard L-C-R-S track configuration without
matrix encoding, but with Dolby A or SR noise reduction, fully cut, edited and
assembled and conformed in all respects to the answer print.
(c) Three-Stripe Magnetic Print Master (Domestic): Delivery of or
access to a complete first class clean dubbed and rerecorded master of the
soundtrack of the Picture on 35mm magnetic, 24 track, or other mutually agreed
upon professional audio format composed of separate dialogue, music and sound
effects tracks (3-stripe) fully cut, edited and assembled and conformed in all
respects to the answer print. Track configuration should be standard D,M,E, with
Dolby A or SR noise reduction.
(d) Stems: Delivery of or access to the final dialogue, music and
effects stems used for the final mix.
8. Video Material: D-1 525/60 is required of all delivered versions with
audio channels 1&2 being LTRT and 3&4 M&E. Textless backgrounds should be
recorded at least 2 minutes after end of program with additional color bars.
9. Trailer Material: All positive and negative picture and sound material
required for publicity and advertising purposes, including selected "takes" and
"out-takes" of the Picture requested by Distributor.
10. Television Version: Delivery of or access to the negative and positive
print of all alternative takes, cover shots, looped dialogue lines and other
material (hereinafter collectively referred to as "cover material") which
Distributor requires in connection with rating, censorship and television
exhibition requirements. Producer shall create a complete television version of
the Picture, at least 8,460 feet in length of 35mm film, suitable for exhibition
by television in the licensed territory and conforming to the continuity
standards of United States television networks and United States television
stations generally. In this connection, Producer shall provide access to the
following:
(a) One (1) first class 35mm IP, printed liquid gate, of the entire
reel of each reel of the TV Version of the Picture fully cut, edited and
assembled, in which there is contained all or any part of the cover material.
(b) Magnetic Print Master (Television): Delivery of or access to a
complete first class clean dubbed and rerecorded master of the television
version soundtrack of the Picture on 35mm magnetic, 24 track, or other mutually
agreed upon professional audio format fully cut, edited and assembled and
conformed in all respects to the television version. Track configuration should
be standard LT-RT printmaster with matrix encoding (Dolby or Ultra) and Dolby A
or SR noise reduction.
11. Alternate Music Versions: If Orion approves an alternate music
version, the following items, to the extent required, if any portion of the
musical compositions or sound recordings (collectively "music") contained on
the soundtrack of the Picture is not available for use in any and all media:
(a) One (1) original soundtrack negative for the entire reel of each
reel of the Picture in which there is contained all or any part of any
eliminations of and/or substitute music for any music contained in the original
soundtrack negative of the Picture, fully cut, edited and assembled in perfect
synchronization with the photographic action in all respects and conformed in
all respects to the entire reel of each reel of the sample composite
positive print, including therein any dubbed sound, sound effects or music
dubbed into said original soundtrack negative.
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(b) The complete 3-stripe magnetic soundtrack master from which the
soundtrack negative referred to in (a) above was made.
(c) If the main and/or end titles of the original 35mm picture negative
of the Picture contained any credits relating to music contained in the original
soundtrack negative, but not contained in the alternate soundtrack negative
referred to in (a) above, then a newly photographed set of 35mm negative main
and/or end titles, as the case may be, of the Picture, fully cut, edited and
assembled and conformed in all respects (including, without limitation, length)
to the main and/or end titles, as the case may be, of the original 35mm picture
negative of the Picture referred to above, excluding only from such newly
photographed main and/or end titles, as the case may be, any credits relating to
music which are contained in the original soundtrack negative referred to above,
but not contained in the alternate soundtrack negative referred to in (a) above,
but, including in such newly photographed main and/or end titles, as the case
may be, such credits as may be required for any music contained in the original
soundtrack negative which are not contained in the original soundtrack negative
referred to above.
(d) One (1) interpositive printed from the original negative of the
main and/or end titles, as the case may be, referred to in (c) above, fully cut,
edited and assembled and conformed in all respects to the original negative of
the main and/or end titles, as the case may be, referred to in (c) above.
12. Miscellaneous Material: Delivery of or access to all such film,
soundtrack facilities and material as may be available, necessary and proper for
the purpose of enabling Distributor to obtain and manufacture positive release
prints of the Picture and all trailers thereof as may be reasonably required by
Distributor for the purpose of distributing, exhibiting, and exploiting the
Picture and said trailers throughout the distribution territory in 35mm and 16mm
and in all systems, i.e., standard, wide screen, scope, etc.
13. Cuts, Trims: Delivery of or access to the negative and positive prints
of all cutouts, trims, second takes, tests, sound effects tracks, dialogue
tracks and music tracks made by Producer in connection with the production of
the Picture, together with all scrap film connected with the Picture, whether
or not included in the completed Picture.
14. Stills: The original black and white and color negatives, two (2) sets
of black and white contact proof sheets of all still photographs taken in
connection with said Picture, and all color transparencies. In no event shall
Producer deliver less than the black and white negatives and two (2)
corresponding positive prints of each of the following; 100 production stills of
said Picture, 85 of which shall depict production scenes of the Picture and 15
of which shall be gallery or portrait sittings of the principal members of the
case of said Picture, and no less than 75 color transparencies. All of said 100
black and white negatives shall be 8" x 10" in size (which may be enlarged to
said 8" x 10" size from any other smaller original negative), and each such
photograph shall be of reproduction quality suitable for use by Distributor for
advertising and lithograph material and so-called poster artwork. Each
photograph shall bear an appropriate caption identifying the subject and scene
depicted. Any and all approvals or other authorizations that may be required in
connection with Distributor's use of said photographs will be secured by
Producer and delivered to Distributor at the time Producer delivers the
respective photographs to Distributor.
15. Publicity Material: All publicity material which may have been prepared
by or for Producer by any person, firm or corporation in connection with the
Picture, but not less than one complete set of all advertising materials
available, including without limitation press books, posters and publicity
material.
16. Dialogue and Action Continuity: One (1) typewritten or photo-reproduced
copy of a detailed combined dialogue and action continuity of the completed
Picture, conformed in all respects to the dialogue and action contained in the
completed Picture.
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17. Screenplay: One (1) copy of the final screenplay or shooting script
used by Producer in connection with photography of the Picture, as well as the
film editor's papers, code books and similar materials if requested by Orion.
18. (a) Music Cue Sheets: One (1) copy of the music cue sheet(s) of the
Picture and any other materials delivered to Distributor which contain music,
including without limitation trailer and promotional reels, in the form attached
as Exhibit "B-1" hereto, setting forth: (1) the title of the musical
compositions and sound recordings, if applicable, (2) names of the composers and
their performing rights society affiliation; (3) names of recording artists; (4)
the nature, extent and exact timing of the uses made of each musical composition
in the Picture, (5) the name and address of the owner of the copyright of each
musical composition and sound recording, (6) the name and address of the
publisher and company which controls the sound recording, and (7) the other
information requested in Exhibit "B-1."
(b) Composer and Conductor's Score: If requested by Distributor, the
entire musical score used by the composer and/or conductor, together with all
original music (including all musical compositions), manuscripts, instrumental
and vocal parts and other music prepared by or under the supervision of Producer
in connection with the Picture.
19. Music Licenses: Copies of all synchronization, performance and master
use licenses in connection with the music contained in the Picture.
20. Contracts: Copies of all employment contracts with principal cast
members, directors, producers, writers and composers, and all chain-of-title
documentation regarding the literary property upon which the Picture is based.
To the extent requested by Distributor, any additional licenses, contracts,
releases, assignment and/or other written permissions from the proper parties in
interest permitting Producer to use any musical, literary, dramatic and other
materials of whatever nature used by it in the production of the Picture.
21. M.P.A.A.: A paid rating certificate from the Code and Rating
Administration of America, Inc., and production code number.
22. Copies of Synopses: One (1) copy of a brief synopsis in the English
language of the story of the Picture and one (1) copy of any synopsis prepared
in a foreign language.
23. Producer's Statement Re Credits: A complete statement in triplicate
setting forth the names of all persons to whom Producer is contractually
obligated to accord credit on the screen or in any paid advertising, publicity
or exploitation of the Picture, hereinafter referred to as "credit", and to
include in such statement excerpts from any such agreements defining or
describing the form and nature of such required paid advertising credits, in
accordance with the Agreement to which this exhibit is attached. Producer agrees
that such statement shall be delivered to Distributor as early as possible and
in no event shall such statement contain inconsistent requirements for credit.
Producer shall also deliver a list identifying all cast members of the Picture.
Time is of the essence with respect to these requirements, and failure to make
timely delivery shall constitute a material breach of this Agreement.
24. Statement of Costs: A certified statement of the actual direct costs
of production of the Picture.
25. Other Instruments: Upon Distributor's request, such instruments as
Distributor may deem necessary or proper to evidence, maintain or effectuate any
or all of the security or other rights granted to Distributor under any
provisions of this Agreement; and should Producer fail to execute, acknowledge
and deliver any such instrument upon Distributor's request therefor, Distributor
may do so, for and on behalf of Producer, as Producer's attorney-in-fact.
26. Name and Address of Custodian of Undelivered Material; With respect to
any material provided for herein which is not physically delivered to
Distributor, the name and address of the custodian as to each undelivered
element.
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27. Title to Foreign Language Elements: If any foreign language elements
of the Picture are in the possession or custody of a foreign laboratory,
Distributor shall have access to said foreign language elements, notwithstanding
that other distributors may have access thereto as well. If Distributor has
advanced monies for such foreign language elements, title to such elements shall
be held by the foreign laboratory in the name of Distributor.
28. Errors and Omissions Insurance: Certificate of Producer's Errors and
Omissions insurance policy covering the Picture and required endorsements
thereto adding Distributor as an additional named insured.
29. Laboratory Access Letter: If all preprint material is not owned and
held in the name of Orion, a letter from a first class laboratory in a form
similar to the attached Exhibit "B-2" certifying that all preprint materials are
in good condition and that first class, commercially acceptable release prints
can be processed from the negative materials.
30. Residuals: A statement in the form attached hereto as Exhibit "B-3"
containing the following information for purposes of determining residual
payments: (1) Date principal photography commenced; (2) Name and address of each
writer, director, actor, actress, unit production manager, first and key second
assistant directors and any other personnel entitled to residuals (and, if
writer, director, actor, actress, unit production manager, first and key second
assistant directors or other personnel is a loan-out, name of lender also),
together with the following information concerning each: (i) Social Security
number, (ii) W-4 classification (marital status and number of dependents
claimed) and a photocopy of individual's W-4 form if available, (iii) length of
employment of SAG personnel (actual time worked or guaranteed time, whichever is
higher, expressed in weeks and days) and (iv) a copy of Notice of Tentative
Writing Credits or if no WGA writer involved, a statement by Producer so
stating. If PGA or DGA personnel employed, Producer must list same or submit a
statement setting forth that no members of such unions or guilds were employed
in connection with the Picture. If AFM personnel employed, Producr must so
state.
31. Ownership, Exemption or Reduced Rate Certificate: A certified
statement containing the name and address of each participant in net profits to
whom Distributor must account and make payment (including the Producer) who is
not a resident of the United States, and with respect to each: (1) United States
Internal Revenue Form #1001 (Ownership, Exemption or Reduced Rate Certificate)
completed in full and signed by each such participant; (2) From the appropriate
taxing or other authority of the government of the foreign country of residence
of each participant in net profits: (i) A certificate described in Paragraph "A"
of said Form #1001 that such nonresident profit participant is either a
nonresident alien individual or fiduciary, a foreign partnership, a foreign
corporation or other foreign entity, a nonresident foreign partnership composed
in whole or in part of nonresident aliens, or a nonresident foreign corporation,
and (ii) Any other certificate issued to the Distributor as withholding agent to
be used to qualify the nonresident profit participant for exemption from
withholding tax under existing tax treaties.
32. Legal Opinions, etc: All legal opinions, searches and other documents
which Producer is required to deliver to Orion under the foregoing Agreement.
33. Picture Produced Outside U.S.: If the Picture was produced, in whole
or in part, outside the United States and if requested by Distributor, the
following additional items:
(a) A Certificate of Nationality and Certificate of Origin issued by
local authorities.
(b) Censorship clearance certificate issued by local authorities.
(c) An export license covering all negative and positive film relating
to the Picture issued by local authorities.
34. Exclusive License: An Exclusive License in the form attached as
Exhibit "A".
5
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35. Sexually Explicit Scenes: If the Picture contains any sexually
explicit scenes, then Producer shall deliver to Orion a statement, which
identifies the scenes and sets forth the names and ages of all performers
appearing in scenes; said statement shall be delivered in accordance with the
Child Protection and Obscenity Enforcement Act of 1988.
Acceptance by Orion of less than all of the foregoing items with respect to
the Picture and/or release of the Picture, prior to delivery of all of the
aforesaid items, shall in no event be construed as a waiver by Distributor of
Producer's obligation to deliver any such item not so delivered. No waiver of
delivery of any such item shall be valid or binding unless in writing and signed
by Distributor.
Distributor shall have the right to inspect and examine the material and
documents tendered as delivery hereunder and shall advise Producer within thirty
(30) days after the tendered delivery if and wherein same is not complete,
whereupon Producer shall promptly deliver to Distributor any items which it
shall have failed to deliver in the first instance. Distributor may (but shall
not be obligated to) accept delivery of the Picture if such delivery shall not
be complete, in which event Distributor may supply, or require Producer
thereafter to supply, at the sole cost and expense of Producer, such items which
Producer shall have failed to deliver in the first instance. Such acceptance of
incomplete delivery shall not be deemed to be a waiver of Distributor's right to
demand and require a full delivery as herein defined. All sums advanced by
Distributor which Distributor shall have the right but not the obligation to
advance, for delivery items not furnished or made available by Producer shall be
paid to Distributor by Producer promptly on demand. To secure the payment by
Producer to Distributor of any such sum, Producer assigns to Distributor any and
all amounts otherwise payable to Producer under this Agreement.
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<PAGE>
EXHIBIT "A"
EXCLUSIVE LICENSE
-----------------
In consideration of Ten Dollars ($10.00), paid by Orion Home Entertainment
Corporation ("Licensee"), and for other good and valuable consideration, receipt
of which is hereby acknowledged, the undersigned does hereby grant, assign and
license to Licensee under the copyright laws of the United States and Canada,
the following rights:
1. Picture:
------------------------
2 Term: Seven and One-Half (7 1/2) years from the earlier of complete
delivery of materials for each individual motion picture or street date for
that individual motion picture.
3. Territory: The "Territory" hereunder shall mean the United States and
Canada, their respective territories and possessions, including, without
limitation, Puerto Rico, Guam, the U.S. Virgin Islands and the Panama Canal
Zone, and their armed forces PX's wherever located (the "Licensee
Territory").
4. Rights: The sole and exclusive right and license to manufacture Licensed
Video Devices respecting the Picture; to distribute, sell, rent, advertise,
publicize and promote such Licensed Video Devices in the Territory for non-
commercial private home use; to authorize others to do each of the
foregoing; and to issue or authorize the issuance of public performance
licenses for such Licensed Video Devices ("Home Video Rights").
This license is executed in accordance with and is subject to the terms and
conditions of the Letter Agreement dated as of June 27, 1996, between the
undersigned and Licensee relating to the license to Licensee of the above
described rights in the Picture.
IN WITNESS WHEREOF, the undersigned has caused these presents to be signed
by its duly authorized officer on ____________, 1996.
PLAYBOY ENTERTAINMENT GROUP, INC.
By:
--------------------------
Its:
-------------------------
<PAGE>
Exhibit 10.13(a)
EXECUTION VERSION
AFFILIATION AGREEMENT
FOR DBS SATELLITE EXHIBITION
OF CABLE PROGRAMMING
AGREEMENT, made as of this 15 day of November, 1993, by and between
Playboy Entertainment Group, Inc., a Delaware corporation ("Programmer") with
offices at 9242 Beverly Blvd., Beverly Hills, CA 90210, and DirecTv, Inc., a
California corporation with offices at 2230 East Imperial Highway, El Segundo,
California 90245 ("Affiliate").
WHEREAS:
A. Affiliate is in the process of establishing a direct broadcast
service ("DBS") satellite-based television system in North America; and
B. Affiliate desires to obtain the rights to distribute Playboy TV
(the "Service", as defined in Section l(b) below) via the DBS Distribution
System in the Fifty (50) United States (the "Territory") and for no other
purpose and will provide or cause to be provided all necessary facilities to
receive the signal transmitted by Programmer.
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. Grant of Rights.
(a) Programmer hereby grants to Affiliate (which as used for all
purposes in this Agreement shall mean DirecTv and/or its designees or
affiliates) or its agents the right to distribute the Service in the Territory,
including, without limitation, to hotels, motels, commercial office buildings
and multiple dwelling facilities (provided, however, that Affiliate shall not
have the right to distribute the Service in any common areas to which the public
has free access of any commercial office buildings or multiple dwelling
facilities), via the DBS Distribution System during the Term (as defined in
Section 6(a) below) hereof. Subject to the terms and conditions of this
Agreement, the terms and conditions upon which Affiliate distributes the Service
to DirecTv Subscribers, including, without limitation, the retail price charged,
shall be determined by Affiliate in its sole discretion. Nothing herein shall
prevent or restrict Programmer from distributing the Service in the Territory or
elsewhere via any medium or technology other than the DBS Distribution System
(including, without limitation,
<PAGE>
EXECUTION VERSION
any Ku-Band satellite distribution system other than the DBS Distribution
System). The term "DBS Distribution System" shall mean the distribution system
for video and other programming services (including, without limitation, cable
programming services) whereby the cable programming satellite signal or feed is
received from Programmer's transponder source by a DirecTv turnaround earth-
station facility which compresses and encrypts the signal or feed and then
uplinks it at one of the DirecTv Frequencies on a DBS communications satellite
located at or about the 101 (degrees) West Longitude orbital location (a "DBS
Satellite") for transmission to DirecTv Subscribers. "DirecTv Subscribers" shall
mean those customers authorized to receive DBS service via the DBS Distribution
System, including, without limitation, each residential unit in a multiple
dwelling unit which is authorized to receive the DBS service via the DBS
Distribution System. "Service Subscriber" shall mean any DirecTv Subscriber who
is authorized to receive the service through the DBS Distribution System.
"DirecTv Frequencies" shall mean the DBS operating frequencies associated with
the 101 (degrees) West Longitude orbital location, for which Hughes
Communications Galaxy, Inc. ("HCG") (an affiliate of DirecTv, Inc.) is the FCC-
authorized permittee.
(b) The "Service" shall mean and consist of the national feed (or, if
Programmer uses multiple feeds for the Service, such other of such multiple
feeds designated by Affiliate) of the programming service commonly known as
"Playboy TV", which shall consist of entertainment programming for adult
audiences, presented on a 10-hour per day schedule from 8 PM (eastern time)
until 6 AM (eastern time) (each such 8 PM - 6 AM exhibition time block being
referred to hereinafter as an "Exhibition Day"), the content of which as
Programmer may determine in its sole discretion, including the substitution or
withdrawal of any scheduled programs, and of commercial, promotional or other
announcements. All rights and title in and to the entire contents of the
Service, including, but not limited to, films and recordings thereof, title or
titles, names, trademarks, concepts, stories, plots, incidents, ideas, formulas,
formats, general content and any other literary, musical, artistic, or other
creative material included therein shall, as between Programmer and Affiliate,
remain vested in Programmer.
(c) Subject to Section 17, Affiliate shall distribute the Service as
transmitted by Programmer, in its entirety, in the order and at the time
transmitted by Programmer without any intentional editing, delays, alterations,
interruptions, deletions or additions. Programmer acknowledges that the DBS
Distribution System requires and applies digital compression and encryption
processes prior to transmission and decryption and decompression processes upon
reception and agrees that such processing does not constitute an alteration
and/or other modification of the Service. Notwithstanding the first sentence of
this Section 1(c), Affiliate shall offer the Service to
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<PAGE>
EXECUTION VERSION
DirecTv Subscribers on a subscription (al a carte or package) basis
(collectively, the "Subscription Offerings") and on a pay-per-transaction (e.g.,
pay-per-night, pay-per-title, pay-per-hour etc.) basis (collectively, the "PPV
Offerings"). Affiliate shall determine in its sole discretion whether to sell
Subscription Offerings on an al a carte or package basis. Affiliate shall have
the right (but not obligation) in its discretion to exhibit the service through
the PPV Offerings in blocks of time as short as 60 minutes and up to the full
amount of time offered by the Service; provided, however, that any partial
exhibition of the Service which consists only of motion pictures must be no
shorter than 120 minutes.
(d) Except as allowed pursuant to this Agreement, Affiliate shall not
redistribute any portion of the Service except as specifically authorized by
Programmer.
(e) Programmer and Affiliate shall use their respective commercially
reasonable efforts to maintain for the Service a high quality of signal
transmission in accordance with their respective technical standards and
procedures.
(f) Affiliate shall have the right, in its sole discretion and for
Affiliate's sole benefit as between Programmer and Affiliate, to utilize the
channel capacity used to transmit the Service during the hours which the Service
is not exhibited.
2. Reports and Payments.
(a) Compensation. As full and complete compensation for Affiliate's
right to distribute the Service, Affiliate shall pay to Programmer the
applicable percentage of Gross Receipts for such calendar month (as such
percentage is calculated as set forth on Exhibit A based on the Per Capita Gross
Receipts (as defined in Exhibit A)).
(i) "Gross Receipts" are defined as the sum of all monies
received by affiliate during any calendar month derived solely from
Affiliate's distribution of the Service after deduction of taxes (other
than income or franchise taxes); provided, however, that Gross Receipts
shall in no event include any charge specifically made for access to
programming other than the service or any general access charge, hardware
licensing charge or other charge made on a "blanket" basis (which shall
mean that such charge will relate to access to all program services
available from Affiliate by means of the DBS Distribution System). If
Affiliate packages the Service with other programming services, then
Affiliate shall determine the Service's allocable share of revenues from
such package by application of the following formula:
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<PAGE>
EXECUTION VERSION
S = (A/B) X P
where
S = the Service's allocable share of revenues from such package
A = the Service's DirecTv al a carte price then in effect
B = the sum of the DirecTv al a carte prices of all programming services
included in such package (including, without limitation, the Service)
then in effect
P = the price of such package
To the extent that a DirecTv Subscriber prepays any portion of monies owed
solely in connection with Affiliate's distribution of the Service, then the
amount prepaid shall be included in Gross Receipts for the calendar month
in which such prepayment was received. Affiliate shall deduct the amount of
any Credit Transaction (as defined below in Section 2(a)(ii)), as such
amount is reasonably determined by Affiliate, from the Gross Receipts of
the calendar month; in which such Credit Transaction occurs.
(ii) "Credit Transaction" shall mean any refund (or other payment
or credit) to a DirecTv Subscriber in connection with (A) prepayments for
the Service, (B) Programmer's inability to transmit the Service to
Affiliate for distribution via the DBS Distribution System for any reason
other than Affiliate's non-performance of an obligation hereunder, (C) a
Force Majeure Event or (D) credits (excluding free previews of the Service
not authorized by Programmer) allowed by Affiliate in its commercially
reasonable judgment consistent with Affiliate's policies and procedures
applied consistently to Programmer and Affiliate's other sources of
programming services.
(iii) Affiliate shall be responsible for the collection of all
Gross Receipts and shall account to Programmer with regard to the Gross
Receipts for the Service on a calendar month basis, not later than 30 days
after the last day of the calendar month in which the Gross Receipts are
received by Affiliate. Each such accounting shall be certified by an
appropriate officer of Affiliate or an independent billing service as to
the accuracy of such print-out or statement and shall include:
(A) the aggregate Gross Receipts for such calendar month;
4
<PAGE>
EXECUTION VERSION
(B) the origin of all Gross Receipts for such calendar
month, itemized by PPV Offerings and Subscription Offerings;
(C) the number of DirecTv Subscribers as of the fifteenth
calendar day of such calendar month;
(D) the Per Capita Gross Receipts (as defined on Exhibit A);
(E) the applicable Programmer Share from Exhibit A;
(F) the dollar amount of Programmer's share of Gross
Receipts for such calendar month;
(G) for each type of Subscription Offering made available by
Affiliate during such calendar month, the number of Service
Subscribers as of the 15th day of such calendar month, the number of
Service Subscribers connecting to the Service during such calendar
month and the number of Service Subscribers disconnecting the Service
during such calendar month;
(H) for each type of PPV Offering, the number of Service
Subscribers purchasing such PPV Offering on each calendar day of such
calendar month;
(I) a list, for all hotels and motels to which the Service
is provided via the DBS Distribution System and the number of
Available Hotel/Motel Rooms (as defined on Exhibit B) during such
calendar month; and
(J) the Hotel/Motel License Fee (as defined below in
Section 2(b)).
Programmer shall accord confidential treatment to any information contained
in the aforementioned statement in accordance with Section 15.
(b) The parties understand and agree that the terms of this Section
2(b), and not Section 2(a), shall govern in the case of monies received from the
distribution of the Service to hotels or motels. In no event shall Affiliate pay
any fees or other charges on any Gross Receipts pursuant to both this Section
2(b) and any other section of this Agreement. Affiliate shall pay to Programmer
a license fee (the "Hotel/Motel License Fee") simultaneously with the accounting
rendered to Programmer as set forth in section 2(a)(iii); the Hotel/Motel
License Fee shall be
5
<PAGE>
EXECUTION VERSION
equal to the license fee set forth on Exhibit B attached to this Agreement.
Affiliate, simultaneously with such payment, shall notify Programmer in writing,
in a form reasonably requested by Programmer, of the names, addresses and room
capacities of all hotels and motels to which Affiliate shall have either
commenced or ceased distribution of the Service during the relevant calendar
month.
(c) At Programmer's request, Affiliate shall permit Programmer or its
representatives to review, during the Term (no more than once each calendar
year) and for one (1) year and on a one-time basis only thereafter, such DirecTv
Subscriber records as are reasonably necessary for the purpose of verifying such
statements at reasonable times, upon reasonable advance written notice and
during normal business hours at Affiliate's offices. Such review shall be at
Programmer's sole cost and expense and the information and process shall be
subject to the confidentiality provisions of Section 15. In the event any such
audit reveals an underpayment in excess of ten percent (10%) of the total
payment actually due for the period in question, Affiliate shall pay all of
Programmer's reasonable out-of-pocket costs of the review.
(d) Any amounts not paid by Affiliate by the date payment is due shall
accrue interest at the rate of one percent (1%) per month compounded monthly or
at the highest lawful rate, whichever shall be the lesser, from the date such
amounts were due until they are paid.
(e) Neither Programmer's acceptance of any information or payment nor
Programmer's inspection or audit of Affiliate's records or accounts will prevent
Programmer from later disputing the accuracy or completeness of any payment made
or information supplied by Affiliate or prevent Affiliate from later disputing
the accuracy of, or contesting the obligation to make, any payment hereunder.
(f) Programmer represents and warrants that the compensation level set
forth in Exhibit A and in Section 2(b) comply with all applicable Laws. Such
compensation level is substantially similar to Programmer's corresponding cable
rates. If Programmer at any time after the Service Commencement Date (as defined
in Section 6(a)) allows any distributor of the Service other than Affiliate (an
"Other Distributor") with a number of Service Subscribers at any time equal to
or less than a number equal to the then-existing number of Affiliate's Service
Subscribers (an "Equal Distributor") to distribute the Service and charges a
compensation level or computes penetration discounts or volume discounts, or
provides cooperative marketing funds or other terms or conditions which
effectively provide discounts to such compensation level, on a basis not
substantially similar to such distribution network than as set
6
<PAGE>
EXECUTION VERSION
forth on Exhibit A or in Section 2(b) ("Favored Fees"), then, as of the date
which is six months after the Service Commencement Date and again every six
months thereafter during the Term (individually, a "Review Date"), Programmer
shall so notify Affiliate in writing of such Favored Fees and Affiliate shall be
immediately entitled to incorporate into this Agreement the Favored Fees so
promulgated on substantially similar terms and conditions offered such Equal
Distributor effective as of the Review Date on which Programmer became obligated
to notify Affiliate of the Favored Fees. Nothing in the preceding sentence shall
require Affiliate to incorporate the Favored Fees and such terms and conditions
into this Agreement. As used in this Agreement, "Law" shall mean any FCC and any
other governmental (whether international, federal, state, municipal or
otherwise) statute, law, rule, regulation, ordinance, code, directive and order,
including without limitation, any court order.
3. Commercial Avails. Programmer hereby warrants and represents that it
does not make available to any distributor of the Service commercial
announcements of any nature in the schedule of the Service. If at any time
during the Term, Programmer shall provide the right to make commercial
announcements to any distributor of the Service, then Programmer shall offer
such right to Affiliate on terms and conditions no less favorable than those
offered to any other distributor of the Service.
4. Marketing, Promotion and Distribution of Programmer Programminq Services
by Affiliate.
(a) Throughout the Term hereof, Affiliate shall assign one single
channel of transmission on which the Service shall be distributed in its
entirety.
(b) Affiliate shall market and promote the Service in a similar manner
as Affiliate markets and promotes other similar premium programming services;
provided, however, that Affiliate may market and promote any other such premium
programming service differently and/or more frequently, if such service provider
provides Affiliate with consideration or compensation therefore. In connection
therewith, Programmer shall provide Affiliate, upon Affiliate's request, with
promotional and marketing advice. Affiliate shall make all marketing and
promotion decisions in its sole discretion, but the parties understand and agree
that Affiliate currently expects to use a range of promotional media (including,
without limitation, print advertising and cross-channel promotional spots on the
DBS Distribution System) to market and promote the Service. Affiliate shall
publicize the schedule of the Service in the Territory in a manner similar to
that which it employs, and based on the same factors it considers, in
publicizing the schedule of other similar premium programming services
distributed via the DBS Distribution System,
7
<PAGE>
EXECUTION VERSION
including, without limitation, the publication of the Service programming
schedule in the television listings and program guides which Affiliate, as
applicable, distributes.
(c) Subject to Section 17, Affiliate shall not at any time during the
Term (i) cease marketing or promoting the Service or (ii) withdraw distribution
of Service in any area of the Territory after the introduction thereof in such
area.
(d) Affiliate will expend the percentages (as set forth on Exhibit A)
of the Gross Receipts it receives from distribution of the Service, up to, as
set forth in the next sentence, an aggregate amount per 12-month period (with
each l2-month period starting on the Service Commencement Date (as defined in
Section 6(a) or the anniversary thereof) (a "l2-Month Period") for marketing,
advertising and promoting the distribution of the Service via the DBS
Distribution System. The aggregate limit on Affiliate's obligations set forth in
the preceding sentence shall be $l00,000 for the first two l2-Month Periods and
$150,000 for each 12-Month Period thereafter. Subject to the terms and
conditions of this Agreement, Affiliate shall make any decisions relating to
such marketing, advertising, promotion and expenditures in its sole discretion,
including, without limitation, the selection of promotional media (such as print
advertising, direct mail pieces, cross-channel promotional spots on the DBS
Distribution System etc.) and the scheduling of such marketing, advertising and
promotion activities. Any expenditure not made with unaffiliated third parties
shall be accounted for at fair market value. Affiliate's use of its on-air
programming guide shall be valued at zero dollars for purposes of this Section
4(d). In cases where Affiliate makes expenditures for more than one programming
service, Affiliate shall make an equitable allocation of such expenditure based
on dividing the amount of the expenditure by the number of services marketed,
promoted or advertised by such expenditure. If Affiliate intends to promote all
programming services then offered on the DBS Distribution System (other than the
Service) in one promotion piece, then Affiliate shall be obligated to include
the Service in such promotion piece, and Affiliate shall promote the Service in
a similar manner as the manner in which Affiliate promotes the other programming
services in such promotion piece. Affiliate shall deliver to Programmer,
within 60 days after the last day of each 12-month Period, documentation
evidencing the amount and nature of any such expenditures certified by an
officer of Affiliate.
(e) Programmer shall place at least one national full-page
advertisement in Playboy Magazine each 12-Month Period promoting solely the
distribution of the Service via the DBS Distribution System. In addition,
Programmer shall use its best endeavors to place three regional full-page
advertisements each 12-Month Period in Playboy Magazine in each of Playboy
Magazine's
8
<PAGE>
EXECUTION VERSION
12 regions in existence as of the date of this Agreement (collectively, the "12
Regions") promoting solely the distribution of the Service via the DBS
Distribution System.
(f) From time to time, Programmer may offer Affiliate an opportunity
to exhibit the Service free to DirecTv Subscribers ("Free Previews"). Free
Previews shall be made only with Programmer's prior written authorization and
shall be offered to Affiliate on a frequency and basis no less favorable than
those offered to any other distributor of the Service.
5. Representations, Warranties and Covenants.
(a) Affiliate Representations, Warranties and Covenants. Affiliate
warrants, represents and covenants to Programmer that it:
(i) has the power and authority to enter into this Agreement and
to fully perform its obligations hereunder;
(ii) has obtained, and shall maintain in full force during the
Term hereof, such federal, state and local authorizations as are necessary
to operate the business it is conducting in connection with its rights and
obligations under this Agreement;
(iii) shall distribute the Service in the Territory in accordance
with the terms set forth in this Agreement;
(iv) shall arrange for reception of the Service from a domestic
communications satellite or other distribution vehicle acceptable to
Affiliate in its sole discretion as such may be designated by Programmer to
Affiliate from time to time. The signal(s) for the Service may be encoded
and scrambled at the sole option and expense of Programmer. Affiliate
agrees to maintain a high quality signal for the Service when transmitted
from the applicable DBS Satellite to the DBS Subscribers via the DBS
Distribution System (provided that any failure to do so due to a Force
Majeure Event (as defined in Section 6(d)) shall not constitute a breach of
this Agreement) and agrees to acquire and maintain, at Affiliate's sole
expense, any equipment, including, without limitation, backup or reserve
descramblers, which may be necessary to decode and unscramble the signal(s)
for the Service;
(v) shall not, without Programmer's consent, knowingly authorize
or cause or knowingly suffer any portion of the Service to be recorded,
duplicated, cablecast, exhibited or otherwise used (except on a
videocassette
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recorder or other home taping device for private, noncommercial use) for
any purpose other than for distribution by Affiliate at the time the same
is made available. If Affiliate becomes aware that any unauthorized third
party is recording, duplicating, cablecasting, exhibiting or otherwise
using the Service for any other purpose, Affiliate shall immediately so
notify Programmer and Affiliate will take reasonable steps to prevent such
unauthorized use;
(vi) shall not knowingly authorize or knowingly permit the
exhibition of the Service or any portion thereof at any place where
admission for exhibition of such services is charged;
(vii) shall submit to Programmer such reports, logs or
statements, certified by an appropriate officer, as required pursuant to
Section 2 hereof;
(viii) shall not knowingly use the rights granted to it hereunder
for any unlawful purpose;
(ix) shall not, without Programmer's prior written approval, use
the name of or logo for "Playboy TV" or the names, titles or logos of the
Service or any of its programs, or the names, voices, photographs,
likenesses or biographies of any individual participant or performer in, or
contributor to, any program or any variations thereof, for any purpose
other than in material intended solely to advise DirecTv Subscribers or
potential DirecTv Subscribers of the availability and scheduling of the
Service or as a channel identifier. Programmer shall promptly provide
Affiliate with any and all promotional materials of the Service which it
provides to cable operators and other distributors of the Service having a
subscriber base similar in size to Affiliate's, at Programmer's sole cost
and expense. If Affiliate shall request additional such materials, then
Programmer shall promptly provide such materials, if available, to
Affiliate and Affiliate shall reimburse Programmer for the actual costs
thereof. Affiliate shall not publish or disseminate any material which
violates restrictions imposed by Programmer or Programmer's suppliers and
disclosed in advance and in writing to Affiliate by Programmer. The
restrictions set forth in this Section 5(a)(ix) shall apply only to the
extent they are applied by Programmer uniformly with respect to all of its
cable providers and shall not apply if Affiliate has received a valid
authorization from a third party for any of the uses described in this
Section 5(a)(ix);
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(x) shall use its reasonable efforts to make the customer service
representatives at Affiliate's telemarketing center available for training
by Programmer; provided, that such training shall take place at Affiliate's
telemarketing center, shall occur no more than once every six months and
shall not exceed 30 minutes in duration for each customer service
representative; and
(xi) shall cooperate in conducting commercially reasonable
marketing tests and surveys, rating pools and other research, provided
however, that any proprietary information so furnished by Affiliate shall
be kept confidential, and Affiliate shall keep confidential all research
funded by Programmer and delivered to Affiliate pursuant to Section
5(b)(iii) of this Agreement.
(b) Programmer Representations, Warranties and Covenants. Programmer
warrants, represents and covenants to Affiliate that it:
(i) has the power and authority to enter into this Agreement and
to fully perform its obligations hereunder;
(ii) has obtained, and shall maintain in full force during the
Term hereof, such federal, state and local authorizations as are necessary
to operate the business it is conducting in connection with its rights and
obligations under this Agreement;
(iii) shall cooperate in conducting commercially reasonable
marketing tests and surveys, rating pools and other research, provided
however, that any proprietary information so furnished by Affiliate shall
be kept confidential. Programmer shall provide Affiliate with written
copies of such research and shall reimburse Affiliate for any reasonable
out-of-pocket costs incurred by Affiliate in connection with such
cooperation;
(iv) shall cause its uplink authorization center to authorize and
enable Affiliate's descramblers to receive and descramble the Service;
(v) shall not, without Affiliate's prior written approval, use
the name of or logo for "DirecTv" or the names, titles or logos of the DBS
Distribution System or any of its programs, or the names, voices,
photographs, likenesses or biographies of any individual participant or
performer in, or contributor to, any program or any variations thereof, for
any purpose other than as set forth in Section 4(e);
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EXECUTION VERSION
(vi) has obtained or will obtain at its sole expense all
necessary trademarks, copyrights, licenses and any other intellectual
property or use rights required in connection with, or for Affiliate's
distribution of, the Service (including, without limitation, the right to
use the name of or logo for "Playboy TV" or the names, titles or logos of
the Service or any of its programs, or the names, voices, photographs,
music, likenesses or biographies of any individual participant or performer
in, or contributor to, any program or any variations thereof and to perform
its obligations hereunder and grant the rights granted pursuant to Section
1;
(vii) is in compliance with and will comply with all applicable
Laws, including without limitation, the Cable Television Consumer
Protection and Competition Act of 1992 and the regulations issued pursuant
thereto;
(viii) has no (and there are no), and Programmer covenants that
it shall not enter into directly or indirectly, allow or otherwise permit
any, affiliation, subdistribution or other agreements, whether written or
oral, granting to cable distributors and/or any other third party, person
or entity any form or type of exclusive or other rights that would limit or
restrict in any way Affiliate's rights to distribute the Service in the
Territory;
(ix) has not been convicted for the criminal violation of, and
has not been found by the FCC or other federal, state or local governmental
authority with appropriate jurisdiction (collectively, the "Governmental
Authority") to have violated, any federal, state or local law or regulation
as applicable concerning illegal or obscene program material or the
transmission thereof (the "Obscenity Laws"), and Programmer is not aware of
any pending investigation (including, without limitation, a grand jury
investigation) involving the Service or any pending proceeding against
Programmer for the violation of any Obscenity Laws; and
(x) will notify Affiliate as soon as it receives notification of,
or becomes aware of, any pending investigation by any Governmental
Authority, or any pending criminal proceeding against Programmer, which
investigation or proceeding concerns distribution of the Service,
including, without limitation, Obscenity Laws. For purposes of this Section
5(b)(xi), Programmer shall be deemed to be aware of any such investigation
or proceeding if any of the directors, officers, agents, representatives or
employees of managerial functions of Programmer or Affiliated Companies
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EXECUTION VERSION
(as defined in Section 8(a)) becomes aware of any such investigation or
proceeding.
6. Term; Termination.
-----------------
(a) The initial term of this Agreement shall be for the period
commencing on the date hereof and ending on the third anniversary of Service
Commencement Date (such term, as it may be extended below, the "Term"). This
Agreement shall thereafter be automatically extended for successive one (1) year
periods, unless either party notifies the other, at least three (3) months
before the end of the then-applicable Term, of its intention not to further
extend such Term, in which case this Agreement shall terminate at the end of
such Term. The "Service Commencement Date" means the date on which Affiliate
commences distribution of programming services for revenue-generating purposes
over a fully operational DBS Satellite as selected and determined by Affiliate
in its discretion and, subject to Programmer's provision of the Service pursuant
to the terms of this Agreement, shall commence no later than 30 days after
Affiliate's first DBS Satellite is fully operational and is being used for the
distribution of programming services for revenue-generating purposes. It is the
current intention of Affiliate to launch the distribution of the Service over
its first operational DBS Satellite.
(b) This Agreement may be terminated by either party (the "Affected
Party"), in its discretion, at any time after any of the following occurrences,
except as provided in this Agreement, with respect to the other party (the
"Other Party"):
(i) the failure by the Other Party, its successors or assigns to
perform any material obligation hereunder which is not cured or as to which
reasonable steps to cure have not been commenced (or are not thereafter
diligently pursued) within thirty (30) days after receipt of written notice
thereof from the Affected Party; or
(ii) the filing of a petition in bankruptcy or for reorganization
by or against the Other Party under any bankruptcy act; the assignment by
the Other Party for the benefit of its creditors, or the appointment of a
receiver, trustee, liquidator or custodian for all or a substantial part of
the Other Party's property, and the order of appointment is not vacated
within thirty (30) days; or the assignment or encumbrance by the Other
Party of this Agreement contrary to the terms hereof.
(c) Either party may terminate this Agreement if:
(i) the Service Commencement Date has not occurred on or
before December 31, 1995; or
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EXECUTION VERSION
(ii) a Force Majeure Event (as defined below in Section 6(d))
occurs, continues for 270 consecutive days and is continuing as of the
proposed effective date of termination.
(d) Notwithstanding any other provision in this Agreement, neither
Programmer nor Affiliate shall have any liability to the other or any other
person or entity with respect to any failure of Programmer or Affiliate, as the
case may be, to transmit or distribute the Service or perform its obligations
hereunder if such failure is due to any failure or degradation in performance of
the satellite providing Programmer's signal or feed or the DBS Satellite(s) or
transponders on such satellites (as applicable) or of the DBS Distribution
System (in which case, Affiliate shall be excused from its distribution
obligations under this Agreement), or of any scrambling/descrambling equipment
or any other equipment owned or maintained by others (including, without
limitation, Affiliate's automated billing and authorization system), any failure
at the origination and uplinking center used by Programmer or Affiliate, any
labor dispute, fire, flood, riot, legal enactment, government regulation, Act of
God, or any cause beyond the reasonable control of Programmer or Affiliate, as
the case may be (a "Force Majeure Event"), and such non-performance shall be
excused for the period of time such failure(s) causes such non-performance;
provided, however, that if Affiliate reasonably determines that it is
commercially or technically unfeasible to cure a Force Majeure Event with
respect to the DBS Distribution System or DBS Satellite and so notifies
Programmer, then either party may terminate this Agreement effective upon
written notice to the other party.
(e) Termination of this Agreement pursuant to this Section 6 shall not
relieve either party of any of its liabilities or obligations under this
Agreement which shall have accrued on or prior to the date of such termination.
(f) Affiliate may terminate this Agreement in the event the Service
shall no longer consist primarily of programming of the type or genre described
in Section l(b), as reasonably determined by Affiliate.
7. Separate Entities. No officer, employee, agent, servant or independent
contractor of either party hereto or their respective subsidiaries or affiliates
shall at any time be deemed to be an employee, servant or agent of the other
party for any purpose whatsoever, and the parties shall use commercially
reasonable efforts to prevent any such misrepresentation. Nothing in this
Agreement shall be deemed to create any joint-venture, partnership or principal-
agent relationship between Programmer and Affiliate, and neither shall hold
itself out in
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EXECUTION VERSION
its advertising or in any other manner which would indicate any such
relationship with the other.
8. Indemnification; Limitation of Liability.
----------------------------------------
(a) Programmer shall indemnify and hold harmless each of Affiliate,
its Affiliated Companies (as defined below), Affiliate's contractors,
subcontractors and authorized distributors and the directors, officers,
employees and agents of Affiliate, such Affiliated Companies and such
contractors, subcontractors and distributors (collectively, the "Affiliate
Indemnitees") from, against and with respect to any and all claims, damages,
liabilities, costs and expenses (including reasonable attorneys' and experts'
fees) incurred in connection with any claim against any of the Affiliate
Indemnitees arising out of (i) Programmer's breach of any provision of this
Agreement, (ii) material or programming supplied by Programmer pursuant to this
Agreement, (iii) the distribution or cablecast of any programming of the Service
which violates or requires payment for use or performance of any copyright,
right of privacy or literary, music performance or dramatic right, (iv)
Programmer's advertising and marketing of the Service, and/or (v) any other
materials, including advertising or promotional copy, supplied or permitted by
Programmer. In addition, Programmer shall pay and hold the Affiliate Indemnitees
harmless from any federal, state, or local taxes or fees which are based upon
revenues derived by, or the operations of, Programmer. As used in this Section
8, "Affiliated Companies" shall mean, with respect to any person or entity, any
other person or entity directly or indirectly controlling, controlled by or
under common control (i.e., the power to direct affairs by reason of ownership
of voting stock, by contract or otherwise) with such person or entity and any
member, director, officer or employee of such person or entity.
(b) Affiliate shall indemnify and hold harmless each of Programmer,
its Affiliated Companies, Programmer's contractors, subcontractors and
authorized distributors, each supplier to Programmer of any portion of the
Service hereunder and each participant therein and the directors, officers,
employees and agents of Programmer, such Affiliated Companies, such contractors,
subcontractors and distributors and such suppliers and participants therein
(collectively, the "Programmer Indemnitees") from, against and with respect to
any and all claims, damages, liabilities, costs and expenses (including
reasonable attorneys' and experts' fees) incurred in connection with any claim
against the Programmer Indemnitees arising out of (i) Affiliate's breach of any
provision of this Agreement, (ii) the distribution by Affiliate of the Service
(except with respect to claims relating to the specific content of the Service
for which Programmer is solely responsible pursuant to Section 8(a)(ii)), (iii)
Affiliate's advertising and marketing of the
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EXECUTION VERSION
Service, and (iv) any other materials, including advertising or promotional
copy, supplied or permitted by Affiliate. In addition, Affiliate shall pay and
hold Programmer harmless from any federal, state, or local taxes or fees,
including any fees payable to local franchising authorities, which are based
upon revenues derived by, or the operations of, Affiliate.
(c) Termination of this Agreement shall not affect the continuing
obligations of each of the parties hereto as indemnitors hereunder. The party
wishing to assert its rights set forth in this Section 8 shall promptly notify
the other of any claim or legal proceeding with respect to which such party is
asserting such right. If the indemnifying party shall acknowledge in writing to
the indemnified party that the indemnifying party shall be obligated under the
terms of its indemnity hereunder in connection with any claim or suit involving
only the payment of money (a "Money Claim"), then the indemnifying party shall
have the option to settle or to undertake and conduct the defense of any such
Money Claim. The indemnified party may, through counsel of its own choice and at
its own expense, participate in any such defense of the Money Claim, but in such
event the indemnifying party shall have sole and exclusive control over such
defense and the indemnifying party's decision shall govern and control. The
indemnified party expressly covenants that no compromise or settlement of any
such Money Claim, or any preliminary negotiations with respect to any compromise
or settlement, shall be made or entered into without the prior written approval
of the indemnifying party.
(d) If Programmer engages the services of any collection agency or
independent legal counsel to collect past due fees owed to Programmer by
Affiliate under this Agreement, Programmer shall be entitled to full
reimbursement from Affiliate for all costs and expenses incurred in such
collection efforts.
(e) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT:
(1) IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY ANY
FAILURE TO PERFORM OR THE BREACH OF ANY OBLIGATION UNDER THIS AGREEMENT FOR
ANY CAUSE WHATSOEVER.
(2) IN NO EVENT SHALL ANY PROJECTIONS, FORECASTS, ESTIMATIONS OF
SALES AND/OR MARKET SHARE OR EXPECTED PROFITS, OR OTHER ESTIMATIONS OR
PROJECTIONS BY AFFILIATE OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR AFFILIATES, REGARDING OR RELATED TO AFFILIATE'S DBS BUSINESS BE
BINDING AS COMMITMENTS OR, IN ANY WAY, PROMISES BY AFFILIATE.
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EXECUTION VERSION
9. Notices. Except as set forth below, all notices hereunder shall be in
writing and delivered by hand or sent by certified mail, return receipt
requested, facsimile machine, an overnight delivery service to the receiving
party at its address set forth above or as otherwise designated by written
notice. Notice to Programmer shall be provided as follows:
If by mail, facsimile Playboy Entertainment Group, Inc.
or overnight or 9242 Beverly Blvd.
personal delivery: Beverly Hills, CA 90210
Attention: Senior Vice President
Business and Legal Affairs
Fax: (310) 246-4077
Notice to Affiliate shall be provided as follows:
If by mail DirecTv, Inc.
or facsimile: P.O. Box 92424
Los Angeles, California 90009
Attention: Vice President, Programming
cc: Corporate Counsel
cc: Business Affairs
Fax: (310) 535-5222
If by overnight or DirecTv, Inc.
personal delivery: 2230 East Imperial Highway
El Segundo, California 90245
Attention: Vice President, Programming
cc: Corporate Counsel
cc: Business Affairs
Notice given by mail shall be considered to have been given five (5) days after
the date of mailing, postage prepaid certified or registered mail. Notice given
by telegram shall be considered to have been given on delivery of such telegram
to a telegraph office with charges therefor paid by or to be billed to the
sender. Notice given by facsimile machine shall be considered to have been given
on the date receipt thereof is electronically acknowledged. Notice given by an
overnight delivery service shall be considered to have been given on the next
business day.
10. Waiver. The failure of any party to insist upon strict performance of
any provision of this Agreement shall not be construed as a waiver of any
subsequent breach of the same or similar nature. All rights and remedies
reserved to either party shall be cumulative and shall not be in limitation of
any other right or remedy which such party may have at law or in equity.
11. Binding Agreement: Assignment. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns, except that it may
not be assigned by Affiliate
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EXECUTION VERSION
without the prior written consent of Programmer, which consent shall not be
unreasonably withheld; provided, however, that Affiliate may assign its rights
and obligations under this Agreement, in whole or in part (including without
limitation, Affiliate's right to distribute the Service) (i) to a successor
entity to Affiliate's DBS business or (ii) to a third party, provided Affiliate
remains primarily liable for the performance of such third party's obligations
hereunder.
12. Laws of California. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
made and fully performed therein, except to the extent that the parties'
respective rights and obligations are subject to mandatory local, State and
Federal laws or regulations.
13. Entire Agreement and Section Headings. This Agreement sets forth the
entire agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements, or understandings
relating to the subject matter hereof. This Agreement shall not be modified
other than in a writing, signed by each of the parties hereto. The section
headings hereof are for the convenience of the parties only and shall not be
given any legal effect or otherwise affect the interpretation of this Agreement.
14. Severability. The parties agree that each provision of this Agreement
shall be construed as separable and divisible from every other provision and
that the enforceability of any one provision shall not limit the enforceability,
in whole or in part, of any other provision hereof. In the event that a court of
competent jurisdiction determines that a restriction contained in this Agreement
shall be unenforceable because of the extent of time or geography, such
restriction shall be deemed amended to conform to such extent of time and/or
geography as such court shall deem reasonable.
15. Confidentiality. The parties agree that they and their employees have
maintained and will maintain, in confidence, the terms and provisions of this
Agreement, as well as all data, summaries, reports or information of all kinds,
whether oral or written, acquired or devised or developed in any manner from the
other party's personnel or files, and that they have not and will not reveal the
same to any persons not employed by the other party except (i) at the written
direction of such party; (ii) to the extent necessary to comply with the law or
the valid order of a court of competent jurisdiction, in which event the
disclosing party shall so notify the other party as promptly as practicable
(and, if possible, prior to making any disclosure) and shall seek confidential
treatment of such information, or in connection with any arbitration proceeding;
(iii) as part of its normal reporting or review procedure to its parent company,
its auditors and its
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EXECUTION VERSION
attorneys, and such parent company, auditors and attorneys agree to be bound by
the provisions of this Section 15; (iv) in order to enforce any of its rights
pursuant to this Agreement; and (v) to potential investors, insurers, financing
entities and, in the case of Affiliate, to any entity engaged in its DBS
business; provided, however, that such person agrees to be bound by the
provisions of this Section 15. Promptly after the Execution Date, the parties
shall use their best reasonable efforts to agree upon a mutually acceptable
press release with respect to the parties' general business relationship under
this Agreement and to jointly issue and release such press release at a date
mutually agreed upon. During the Term, neither party shall issue an independent
press release with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party.
16. Inadequacy of Money Damages.
Programmer and Affiliate hereby acknowledge and agree that Affiliate's
distribution and marketing of the Service pursuant to the terms and conditions
contained herein are of the essence of this Agreement. Affiliate further
acknowledges and agrees that such carriage and marketing requirements are
special and unique, and that Programmer would not be adequately compensated by
the payment of money damages in the event that Affiliate failed to comply with
any of such requirements. Programmer further acknowledges and agrees that the
grant of rights to Affiliate hereunder are special and unique, and that
Affiliate would not be adequately compensated by the payment of money damages in
the event that Programmer failed to comply with any of its obligations under
this Agreement, including without limitation, providing access to any Service
programming to Affiliate, as required hereunder.
17. Cessation of Program Distribution.
(a) If, in connection with Affiliate's distribution of the
Service via the DBS Distribution System,
(i) Programmer is indicted or is otherwise similarly charged as a
defendant in a criminal proceeding, or is convicted under any Obscenity Law
or has been found by any Governmental Authority to have violated any such
law;
(ii) based on Affiliate's distribution of the Service via the DBS
Distribution System, Affiliate is indicted or otherwise similarly charged
as a criminal defendant, becomes the subject of a criminal proceeding or a
governmental action seeking a fine, license revocation or other sanctions,
or any Governmental Authority seeks a cease and desist or other similar
order or filing;
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EXECUTION VERSION
(iii) the FCC has issued an order initiating a proceeding to
revoke Affiliate's authorization to operate the Satellite or the DBS
Distribution System;
(iv) Affiliate obtains a court order pursuant to Section 17.(c),
below, or a court or Governmental Authority of competent jurisdiction
orders Affiliate to cease distribution of the Service; or
(v) if Affiliate receives notice (the "Illegal Programming
Notice"), written or oral, from a Governmental Authority that such
authority considers the Service to be in violation of Obscenity Laws (the
"Illegal Programming"), and that if Affiliate does not cease transmitting
such Illegal Programming, then Affiliate and/or its affiliates and/or any
of their executives will be indicted or otherwise charged as a criminal
defendant, will become the subject of a criminal proceeding or a
governmental action seeking a fine, license revocation or other sanctions,
or that such Governmental Authority will seek a cease and desist or other
similar order or filling (with Affiliate being obligated, to the extent
permitted by law, to provide Programmer with a copy of such Illegal
Programming Notice, if written, or with other verification, including the
details thereof, if oral);
then upon notice from Affiliate to Programmer (the "Cessation of Program
Distribution Notice"), which may be oral, Affiliate may cease distributing
immediately, in the case of a cessation of program distribution pursuant to
subparagraphs (i), (ii), (iii) or (iv) above, or within 24 hours following
receipt of such notice, in the case of a cessation of program distribution
pursuant to subparagraph (v) above, the programming service which was the
subject of the violation or alleged violation of the Obscenity Laws or otherwise
gave rise to the denial of access (the "Illegal Programming Service").
(b) If Affiliate ceases, or has given Programmer notice of its
intent to cease, distribution of the Service pursuant to the provisions of
this Section 17, and if, in the case of a cessation of program distribution
pursuant to subparagraphs (i), (ii), (iii) or (iv) above, Programmer does
not believe the conditions set forth therein to Affiliate's cessation of
program distribution have been met; or in the case of subparagraph (v), if
Programmer does not believe the conditions set forth in subparagraph (v) to
Affiliate's cessation of program distribution have been met or if
Programmer believes that the Illegal Programming Notice does not require
cessation of all segments of the Service, then Programmer shall have the
immediate right to seek injunctive relief, including a temporary
restraining order on notice of four (4) hours or more to Affiliate, to
prevent the cessation or continuing cessation of such
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EXECUTION VERSION
program distribution by Affiliate AND SUCH RIGHT SHALL BE PROGRAMMER'S SOLE AND
EXCLUSIVE REMEDY HEREUNDER OR OTHERWISE AT LAW OR IN EQUITY FOR ANY CESSATION OF
PROGRAM DISTRIBUTION PURSUANT TO THIS SECTION 17.
(c) Affiliate shall also have the right to seek: (i) injunctive
relief, including a temporary restraining order on notice of four (4) hours
or more to Programmer, to prevent, suspend or otherwise limit the
distribution of the Service where Affiliate believes such distribution has
resulted or will result in a violation of any Obscenity Law; or (ii)
declaratory relief to establish its right to cease distribution of the
Service under this Agreement.
(d) Either party shall be entitled to oppose the other's attempt
to obtain equitable relief. However, in order to enable either party to
obtain a resolution of any such dispute as expeditiously as possible, both
parties hereby agree that: (i) neither party will contest the jurisdiction
of, or the venue of, any action for equitable relief brought by the other
party in the following courts: U.S. District Court for the Southern
District of New York, and the U.S. District Court for the Central District
of California; (ii) the party opposing equitable relief (the "Opposing
Party") will make itself available to accept service by telecopy or
personal delivery on a 24 hour-a-day basis for five (5) consecutive days
following receipt by the Opposing Party of the other party's notice of its
intent to seek such equitable relief; and (iii) if either party seeks a
temporary restraining order and provides notice to the Opposing Party at
least four (4) hours before the scheduled court hearing, then the Opposing
Party will not challenge the timeliness of such notice.
(e) All remedies of Affiliate set forth in this Agreement shall
be cumulative and in addition to, and not in lieu of any other remedies
available to Affiliate at law, in equity or otherwise, and may be enforced
by Affiliate concurrently or from time to time.
(f) In addition to any other indemnification obligations found
elsewhere in this Agreement, Programmer shall indemnify, defend and save
Affiliate, its directors, officers, employees, and its affiliates from any
liability or expense arising out of or related to matters set forth in
Sections 17(a) (i), (ii), (iv) or (v) of this Agreement. Programmer shall
pay all expenses (including attorneys' fees) incurred by Affiliate in
connection with all legal or other formal or informal proceedings,
instituted by any private third party or any Governmental Authority, and
arising out of or related to matters set forth in Sections 17(a) (i), (ii),
(iv) or (v) of this Agreement, and
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EXECUTION VERSION
Programmer shall satisfy all judgments, fines, penalties, costs, or other
awards which may be incurred by or rendered against Affiliate as a result
thereof, as and to the extent permitted by law. Affiliate will cooperate
with Programmer in the defense of any such proceedings with counsel
reasonably satisfactory to Affiliate, and Affiliate will not compromise or
settle any such proceeding without the prior written consent of Programmer,
which consent shall not be unreasonably withheld.
(g) If cessation of program distribution has occurred pursuant to
Section 17(a), and, within the term of this Aqreement,
(i) if access was denied under Section 17(a) (i), the
indictment or other charge against Programmer is dismissed or the
conviction or finding is reversed;
(ii) if access was denied under Section 17(a) (ii), the
indictment or other charge against Affiliate is dismissed, or
Affiliate is notified that it is no longer the subject of a criminal
proceeding or governmental action or that the Governmental Authority
is dismissing or will not longer seek a cease and desist order;
(iii) if access was denied under Section 17(a) (iii), the
FCC withdraws, revokes, or cancels its order or dismisses its
proceeding;
(iv) if access was denied under Section 17(a) (iv), the
court order expires or is revoked or reversed; or
(v) if access was denied under Section 17(a) (v), the
Illegal Programming Notice is withdrawn by such Governmental
Authority;
then, upon notice from Programmer to Affiliate (the "Resumption of Program
Distribution Notice"), which notice shall be in writing, Affiliate shall
resume distribution of the Service pursuant to the terms of this Agreement.
18. Survival of Representations and Warranties. All representations
and warranties contained herein or made by the parties, and each of them, in
connection herewith shall survive any independent investigation made by either
party.
19. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original
22
<PAGE>
EXECUTION VERSION
and all such counterparts together shall constitute but one and the same
instrument. The parties also agree that this Agreement shall be binding upon the
faxing by each party of a signed signature page thereof to the other party. If
such a faxing occurs, the parties agree that they will each also immediately
post, by Federal Express, a fully executed original counterpart of the Agreement
to the other party.
20. Home Shoppinq Service. Programmer has informed Affiliate that
Programmer might at some future time undertake distribution of a home shopping
service (the "Home Shopping Service"). The parties understand and agree that the
Home Shopping Service is not a part of this Agreement. The parties agree, when
and if Programmer decides in its sole discretion to undertake distribution of
the Home Shopping Service, to discuss the distribution of the Home Shopping
Service on the DBS Distribution System; it being further understood, however,
that neither Programmer nor Affiliate shall be bound to the other (i) in any way
whatsoever to offer the Home Shopping Service for distribution, to distribute
the Home Shopping Service, to negotiate for distribution rights of the Home
Shopping Service or to refrain from discussing similar concepts with other
parties or (ii) in any way whatsoever in connection with the Home Shopping
Service or similar concepts.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
DIRECTV
11-16-93 /s/ Larry N. Chapman
- ---------------------------------- By: -------------------------------------
Date Name: LARRY CHAPMAN
Title: VICE PRESIDENT, BUSINESS
AFFAIRS AND NEW BUSINESS
DEVELOPMENT
Playboy Entertainment Group, INC.
November 16, 1993 /s/ MK Fleming
- ----------------------------------- By: ------------------------------------
Date Name: Michael K. Fleming
Title: Sr. Vice President, General
Manager
23
<PAGE>
EXECUTION VERSION
EXHIBIT A
---------
PROGRAMMER'S RATE CARD FOR NON-HOTEL/MOTEL DISTRIBUTION
-------------------------------------------------------
<TABLE>
<CAPTION>
Required
Marketing,
Advertising,
Promotion
Affiliate Expenditure Programmer
Per Capita Gross Receipts Share by Affiliate Share
- ------------------------- ----- ------------ -----
<S> <C> <C> <C>
$0.00-$1.099 53% 3% 47%
$1.10-$1.599 55% 1.5% 45%
$1.60--above 58% 0% 42%
</TABLE>
The "Per Capita Gross Receipts" for any month shall be determined by taking
the amount of Gross Receipts for any such month and dividing that amount by the
number of DirectTv Subscribers as of the fifteenth calendar day of such month.
24
<PAGE>
EXECUTION VERSION
EXHIBIT B
---------
PROGRAMMER'S RATE CARD FOR HOTEL/MOTEL DISTRIBUTION
---------------------------------------------------
Affiliate shall pay to Programmer the Hotel/Motel License Fee. The
"Hotel/Motel License Fee" shall be equal to $1 per calendar month for each
Available Hotel/Motel Room. "Available Hotel/Motel Rooms" shall mean all private
residence rooms in all hotels and motels to which Affiliate distributes the
service pursuant to this Agreement which are (i) normally held out to the
general public for rental, (ii) operational during the majority of the relevant
calendar month and (iii) available to Affiliate for revenue-producing purposes
during the majority of the relevant calendar month.
25
<PAGE>
PLAYBOY ENTERTAINMENT GROUP, INC.
November 15, 1993
Ed Huguez
Senior Manager
DirecTv, Inc.
P.O. Box 92424
Los Anqeles, California 90009
Dear Ed:
This letter will serve as a side agreement to the contract dated November 15,
1993 entered into between Playboy Entertainment Group, Inc. ("PROGRAMMER") and
DirecTv, Inc. ("AFFILIATE") (the "CONTRACT"). Because of the requirements of a
pre-existing contract between Programmer and an unnamed third party (the
"UNNAMED PARTY"), Programmer and Affiliate agree that, notwithstanding Section
15 of the Contract, Programmer may make the following statement to the Unnamed
Party:
Playboy Entertainment Group, Inc. has entered into an agreement pursuant to
which it has granted DBS distribution rights for the programming service
commonly known as "Playboy TV". The terms of such agreement are less
favorable to the new distributor than those previously granted to you in
connection with our agreement with you to distribute Playboy TV.
Programmer agrees that it will not disclose to the Unnamed Party or any other
person or entity the specific terms in the Contract or any other information
covered by Section 15 of the Contract. Programmer further agrees that it will
not disclose Affiliate's identity to the Unnamed Party.
Programmer represents to Affiliate that (i) Programmer's pre-existing
contractual obligation is a current, legal, valid and binding obligation of the
Programmer and (ii) Programmer's pre-existing contractual obligation requires
the disclosure outlined above and prevents Programmer from disclosing to
Affiliate the identity of the Unnamed Party. Programmer further represents that
it will provide the above statement to the Unnamed Party only upon the Unnamed
Party's agreement that it will keep all such information confidential, and will
disclose such information only to its officers, directors, employees, auditors
or attorneys.
Nothing in this side letter or in Section 15 of the Contract shall prevent
Programmer from
9242 Beverly Boulevard, Beverly Hills, CA 90210/(310) 246-4000
FAX (310) 246-4077
<PAGE>
making a representation to any third party that the terms of any contract
offered by Programmer to such third party are as favorable as, or more favorable
than, those offered to all other distributors.
Sincerely,
PLAYBOY ENTERTAINMENT GROUP, INC.
AGREED AND ACCEPTED: /s/ MK Fleming
-----------------------------------------
Michael Fleming
DIRECTV, INC. Senior Vice President
By: /s/ Larry N. Chapman
------------------------------
Title: VICE PRESIDENT, BUSINESS AFFAIRS
--------------------------------
AND NEW BUSINESS DEVELOPMENT
<PAGE>
Exhibit 10.13(b)
FIRST AMENDMENT TO
AFFILIATION AGREEMENT FOR DBS SATELLITE EXHIBITION
OF CABLE PROGRAMMING
This First Amendment to that certain "Affiliation Agreement for DBS
Satellite Exhibition of Cable Programming" made as of November 15, 1993 between
Playboy Entertainment Group, Inc., a Delaware corporation ("Programmer") with
offices at 9242 Beverly Blvd., Beverly Hills, CA 90210, and DirecTv, Inc., a
California corporation with offices at 2230 East Imperial Highway, El Segundo,
California 90245 ("Affiliate") (the "Original Agreement") is made and entered
into as of April 19, 1994.
For other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged:
1. Amendment. The parties hereto amend the Original Agreement as follows:
a. The last two sentences of Section 2(a)(i)/1/ of the Original
Agreement (the "Original Sentences") are deleted in their entirety
and are replaced with the following sentence:
To the extent that a DirecTv Subscriber prepays any portion of
monies owed solely in connection with Affiliate's distribution of
the Service, then the amount prepaid shall not be included in
Gross Receipts unless and until a Credit Transaction in connection
with prepayments for the Service (as defined below in Section 2(a)
(ii)(A)) has occurred which is credited against such prepayment.
2. No Other Amendment. Except as specifically provided above in Section 1,
all terms and provisions of the Original Agreement shall remain
unmodified and in full force and effect.
- -----------------------
1. Which read as follows: "To the extent that a DirecTv Subscriber prepays any
portion of monies owed solely in connection with Affiliate's distribution of the
Service, then the amount prepaid shall be included in Gross Receipts for the
calendar month in which such prepayment was received. Affiliate shall deduct
the amount of any Credit Transaction (as defined below in Section 2(a)(ii)), as
such amount is reasonably determined by Affiliate, from the Gross Receipts of
the calendar month in which such Credit Transaction occurs."
1
<PAGE>
3. Possible Future Amendment of the Original Agreement. The parties agree
that upon the earlier to occur of (i) the time at which Affiliates financial
system is reasonably capable of including prepayments in Gross Receipts for the
calendar month in which a prepayment is received (as determined by Affiliate in
its reasonable discretion) or (ii) the time at which Affiliate accounts to any
of its other distributors for prepayments in the calendar month in which a
prepayment is received rather than at the time at which a DirecTV Subscribers
views the programming (if either event actually occurs), then the Original
Agreement shall be deemed to be amended such that the Original Sentences are
inserted in place of the amendment set forth in Section 1, above. Each of the
parties agrees that, if either event actually occurs, then it will promptly
execute such documents as are reasonably necessary to memorialize such
amendment.
4. Counterparts. This First Amendment may be executed in counterparts, each
of which shall be deemed to an original, and all such counterparts together
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this First Amendment is duly executed by the parties as
of the date first written above.
DIRECTV, INC. PLAYBOY ENTERTAINMENT
GROUP, INC.
By: /s/ Larry N. Chapman By: /s/ Myron DuBow
--------------------------- --------------------
Larry N. Chapman Name: Myron DuBow
Vice President, Programming Title: Senior V.P.
2
<PAGE>
Exhibit 10.13(c)
EXECUTION VERSION
SECOND AMENDMENT TO AFFILIATION AGREEMENT
FOR DBS SATELLITE EXHIBITION
OF CABLE PROGRAMMING BY AND BETWEEN
PLAYBOY ENTERTAINMENT GROUP, INC. AND DIRECTV, INC.
This Second Amendment (the "Second Amendment") to that certain AFFILIATION
AGREEMENT FOR DBS SATELLITE EXHIBITION OF CABLE PROGRAMMING dated as of
November 15, 1993, as amended by the First Amendment dated as of April 19, 1994
(as so amended, the "Agreement") by and between Playboy Entertainment Group,
Inc. a Delaware corporation ("Programmer") with offices at 9242 Beverly Blvd.,
Beverly Hills, CA 90210, and DIRECTV, Inc., a California corporation with
offices at 2230 East Imperial Highway, El Segundo, CA 90245 ("Affiliate"), is
hereby made and entered into this 26th day of July, 1995, as follows:
1. Amendments. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto amend the
Agreement, pursuant to Section 13 thereof, as follows:
A. Schedule. The first sentence of Section 1(b) is hereby amended to
read as follows:
(b) The "Service" shall mean and consist of the national
feed (or, if Programmer uses multiple feeds for the Service, such
other of such multiple feeds designated by Affiliate) of the
programming service commonly known as "Playboy TV," which shall
consist of entertainment programming for adult audiences,
presented (i) on a 10-hour per day schedule from 8 PM (eastern
time) until 5:59 AM (eastern time), or (ii) commencing August 21,
1995 (the "24 Hour Launch Date"), on a 24-hour per day schedule
as the parties shall mutually agree upon (each such 10 hour or 24
hour exhibition time block, as the case may be, shall be referred
to hereinafter as an "Exhibition Day"), the content of which
Programmer may determine in its sole discretion, including the
substitution or withdrawal of any scheduled programs, and of
commercial, promotional or other announcements.
B. PPV Offerings. The last sentence of Section 1(c) is hereby
amended to delete the period at the end of the sentence and add the following
clause thereafter:
; and provided further, commencing on the 24 Hour Launch Date and
continuing for such time as the Service is presented on a 24-hour
per day schedule, Affiliate shall exhibit the Service through the
PPV Offerings in 2 blocks of 12 hours each per Exhibition Day.
C. Launch Fees. The following paragraph is hereby inserted as
Section 2(g):
(g) With respect to each of the periods from September 15
to October 14, 1995, and from October 15, 1995 to November 14,
1995 (each, a "Calculation Period"), Affiliate shall deduct
"Launch Fees" from the applicable percentage of Gross Receipts
paid to Programmer, which Launch Fees shall equal the difference
of the applicable percentage of Gross Receipts otherwise payable
to
1
<PAGE>
EXECUTION VERSION
Programmer for such Calculation Period minus $267,000. (For
example, in the event the applicable percentage of Gross Receipts
otherwise payable to Programmer for the period from September 15
to October 14, 1995 equals $400,000, then Affiliate shall deduct
Launch Fees in the amount of $400,000 minus $267,000, or
$133,000, from the Gross Receipts paid to Programmer.) In the
event the aggregate Launch Fees deducted by Affiliate for the two
Calculation Periods equal less than $200,000, Affiliate shall
deduct from the applicable percentage of Gross Receipts otherwise
payable to Programmer for the second Calculation Period that
amount equal to the difference between $200,000 and the aggregate
Launch Fees for the two Calculation Periods. Notwithstanding the
foregoing, in the event Affiliate discontinues carrying the
Service on a 24-hour basis at any time prior to August 20, 1996,
Affiliate shall pay to Programmer, within 60 days of such
termination of 24 hour programming, an amount equal to the
product of the Launch Fees previously deducted by Affiliate and
any amounts received by Affiliate from Programmer pursuant to
this Section 2(g), times 12 minus the number of months during
which the Service is offered on a 24-hour basis, divided by 12.
(For example, in the event 24 hour programming of the Service is
discontinued after 5 months, Affiliate would return to Programmer
7/12 of all Launch Fees and other amounts paid by Programmer to
Affiliate under this Section 2(g).)
D. Advertising. The second, fourth, fifth, sixth and last sentences
of Section 4(d) are hereby deleted effective as of June 30, 1995, and the first
sentence of Section 4(d) is hereby amended to read as follows:
(d) Affiliate may expend such amounts as it deems necessary
or desirable, in its sole discretion after June 30 1995, during
any 12-month period (with each 12-month period starting on the
Service Commencement Date as defined in Section 6(a) or the
anniversary thereof) (a "12-Month Period") for marketing,
advertising and promoting the distribution of the Service via the
DBS Distribution System.
E. Playboy Magazine Advertisements. Section 4(e) is hereby amended
to delete the second sentence and add the following sentences after the last
sentence thereof:
Programmer shall provide to Affiliate one free advertisement
(promoting the distribution of the Service via the DBS
Distribution system or any other aspect of Affiliate's business,
in Affiliate's sole discretion,) in Playboy Magazine, for each
advertisement purchased by Affiliate in Playboy Magazine after
August 21, 1995 at the applicable market rate; provided, however,
in no event shall Programmer be required to provide more than 2
free advertisements to Affiliate in any one year period
commencing on July 1 and ending on June 30 of a given year.
Affiliate shall have sole discretion as to whether such free
advertisement is a national advertisement or consists of regional
advertisements placed in each of the 12 Regions.
2
<PAGE>
EXECUTION VERSION
F. Exclusivity. The word "and" which is the last word in clause (x) of
Section 5(a) is hereby deleted; and the period at the end of clause (xi) of
Section 5(a) is hereby deleted and replaced with:
; and
In addition, a new clause (xii) is hereby added to Section 5(a), to read as
follows:
(xii) shall not offer adult audience entertainment
programming (e.g., "Spice") on a 24-hour per day basis (other
than the Service) during the 60 days commencing with the 24 Hour
Launch Date.
2. Exhibit A. Programmer and Affiliate acknowledge and agree that
Exhibit A is hereby amended to read as set forth in the attached Revised Exhibit
A.
3. No Other Amendment. Except as specifically provided in Sections 1 and 2
above, all terms and provisions of the Agreement shall remain unmodified and in
full force and effect; provided however, that in the event that Affiliate
discontinues carrying the Service on a 24-hour per day basis at any time during
the Term, the amendments set forth in Sections 1 and 2 above (excluding
Affiliate's obligation to pay Programmer the amounts set forth in the
penultimate sentence of Section 1.C) shall be of no further force and effect;
and provided further, that with respect to Section 4(d) of the Agreement,
Affiliate's obligation to expend any minimum amount on marketing, advertising
and promotion of the distribution of the Service shall be prorated to equal only
that proportion of any 12-Month Period during which the Service is not offered
on a 24-hour per day basis.
4. Counterparts. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original, and all such counterparts together
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
through their duly authorized representatives as of the date first set forth
above.
ACCEPTED AND AGREED TO:
Playboy Entertainment Group, Inc. DIRECTV, Inc.
By: /s/ James L. English By: /s/ Lawrence N. Chapman
------------------------------ ------------------------
Name: James L. English Name: Lawrence N. Chapman
---------------------------- ----------------------
Title: President Worldwide Network Title: Senior Vice President
--------------------------- ---------------------
3
<PAGE>
EXECUTION VERSION
REVISED EXHIBIT A
-----------------
PROGRAMMER'S RATE CARD FOR NON-HOTEL/MOTEL DISTRIBUTION
-------------------------------------------------------
For the period prior to August 21, 1995:
- ----------------------------------------
<TABLE>
<CAPTION>
Required
--------
Marketing,
----------
Advertising,
-----------
Promotion
---------
Per Capita Gross Receipts* Affiliate Expenditure Programmer
- ------------------------- --------- ----------- ----------
Share** By Affiliate Share**
-------- ------------ -------
<S> <C> <C> <C>
$0.00-$1.099 53% 3% 47%
$1.10-$1.599 55% 1.5% 45%
$1.60-Above 58% 0% 42%
</TABLE>
For the period beginning August 21, 1995:
- ----------------------------------------
<TABLE>
<CAPTION>
Per Capita Gross Receipts* Affiliate Programmer
- ------------------------- ---------- ----------
Share** Share**
------- -------
<S> <C> <C>
$0.00-$1.099 53% 47%
$1.10-$1.599 55% 45%
$1.60-above 58% 42%
</TABLE>
*The "Per Capita Gross Receipts" for any month shall be determined by
taking the amount of Gross Receipts for such month and dividing that amount by
the number of DIRECTV Subscribers as of the fifteenth calendar day of such
month.
** As of January 1, 1995, the Affiliate Share and Programmer Share is
currently 60% and 40%, respectively, as a result of the adoption of Favored Fees
pursuant to Section 2(f) of the Agreement.
4
<PAGE>
Exhibit 10.14
AFFILIATION AGREEMENT BY AND BETWEEN Playboy Entertainment Group, Inc.
AND
PRIMESTAR(R) PARTNERS L.P., DATED February 29, 1996
TABLE OF CONTENTS
1. RIGHTS
2. TERM
3. CONTENT OF THE SERVICE
4. DELIVERY AND DISTRIBUTION OF THE SERVICE
5. FEES
6. REPORTS
7. PROMOTION
8. WARRANTIES AND INDEMNITIES
9. EARLY TERMINATION RIGHTS
10. FORCE MAJEURE
11. NOTICES
12. CONFIDENTIALITY; PRESS RELEASES
13. MISCELLANEOUS
(a) Assignment; Binding Effect
(b) Entire Agreement: Amendments; Waivers
(c) Governing Law
(d) Relationship
(e) Severability
(f) No Inference Against Author
(g) No Third Party Beneficiaries
(h) Headings
(i) Non-Recourse
EXHIBIT A,
License Fees
<PAGE>
AFFILIATION AGREEMENT
---------------------
THIS AGREEMENT made as of the 29th day of February, 1996 is by and between
Playboy Entertainment Group, Inc., a Delaware Corporation, ("Network"), and
PRIMESTAR(R) Partners, L.P., ("Affiliate"), regarding the carriage of the
television programming service known as Playboy TV (the "Service").
1. RIGHTS:
------
(a) Grant of Rights. Network hereby grants to Affiliate, and
Affiliate hereby accepts the non-exclusive right, and the obligation, to (1)
receive the signal of the Service, (2) digitize, compress or modify the signal
of the Service as set forth in Section 4(f) hereof, and to encode, re-uplink and
transmit the Service to any satellite for transmission and distribution to
Satellite Subscribers (3) authorize Affiliate's Distributors (pursuant to terms
and conditions, including fees, determined by Affiliate) to resell and
redistribute the Service to Satellite Subscribers, and (4) authorize the
reception of the Service nationwide (including collectively the fifty (50)
United States, its territories, possessions and commonwealths, and the District
of Columbia) by Satellite Subscribers who receive the signal of the Service by
means of equipment capable of receiving audio/visual/data signals and/or
programming directly from any K- or Ku-band satellite including, but not limited
to, medium power and high power satellites ("Satellites"). As used herein,
"Satellite Subscribers" or a "Satellite Subscriber" shall mean each
location to which Affiliate knowingly provides the Service, including,
without limitation,
Single family residences, whether detached single family
dwellings or multiple dwelling units, including, but not limited
to, apartment houses, condominiums, cooperatives, town homes,
and, subject to Network's prior approval (which shall not be
unreasonably delayed or withheld), the individual lodging rooms
of dormitories, hotels and motels.
"Distributor" shall mean any entity authorized by Affiliate to resell
or redistribute the Service to Satellite Subscribers but shall not
include any entity which retransmits the Service.
(b) In the event Network provides an eastern and western feed of the
signal of the Service, Network shall provide Affiliate with advance notice
thereof, and Affiliate shall have the right to elect, in its sole and absolute
discretion, to exhibit either the eastern or western feed of such signal.
2
<PAGE>
2. TERM:
----
Unless earlier terminated pursuant to the terms of this Agreement, the
initial term of this Agreement shall be for one (1) year commencing on February
29, 1996 and expiring on February 28, 1997.
3. CONTENT OF THE SERVICE:
----------------------
(a) Throughout the Term the Service shall contain at least ten (10)
hours of programming per day, exclusive of Infomercials (as defined below),
which ten (10) hours must consist of adult programming. Notwithstanding the
foregoing, Affiliate may, at Affiliate's option, distribute the Service, in
accordance with the terms and conditions of this Agreement, for more than ten
(10) hours per day upon Affiliate's written notice to Network of its desire to
increase the carriage hours for the Service and identifying the additional hours
during which the Service shall be distributed. Network shall, for each month of
the Term, send one (1) copy of its monthly program schedule as soon as it is
available to Affiliate, ATTENTION: Vice President, Marketing. During (i) the
hours of the day that Network is not transmitting the Service ("Dark Hours"),
(ii) the hours, if any, between 8 a.m. and 10 p.m. Eastern time that Affiliate
is not transmitting the Service (the "Additional Hours") and (iii) the hours of
the day that Network is transmitting sixty (60) minutes or longer program length
commercials ("Infomercials"), Affiliate may carry any programming Affiliate
desires, in Affiliate's sole and absolute discretion, without first notifying
Network. Network and Affiliate acknowledge that Infomercials are not a part of
the Service, and that Affiliate shall not be obligated to distribute such
Infomercials; provided, however that in the event that Affiliate elects, in its
sole and absolute discretion to distribute the Infomercials, Network shall
indemnify Affiliate in connection with such distribution as provided in Section
8(d) hereof. Affiliate acknowledges that the Service includes 900 number spots
of two (2) minutes each in duration, that the Service includes "Playboy Home
Shopping" and that once per week Network transmits an up to sixty (60) minute
block of promotional programming intended for its affiliates. Further, Affiliate
acknowledges that such 900 number spots, the "Playboy Home Shopping" programming
and sixty (60) minute promotional programming spots are not included in and are
separate and apart from Infomercials.
(a)(1) Network shall use commercially reasonable efforts to provide
Affiliate with a "clean" entry point to the Service at 10 p.m. Eastern
time each day, provided, however, that Network's occasional failure to
provide such entry due to live events or other programming shall not
be considered a breach of this Agreement.
(b) Network shall promptly give written notice of any offer made by
Network to any of Network's affiliate distributors for commercial announcement
time on the Service, and the terms and conditions of such offer. Network shall
make available to Affiliate the most favorable number of minutes of commercial
announcement time per hour of the Service given or offered by Network to any of
Network's affiliate distributors, which commercial announcement time may be used
at Affiliate's option and control. In addition, such commercial announcement
time shall be provided to Affiliate under the most favorable terms and
conditions for which commercial announcement time is provided by Network to any
such distributor, including, but not limited to, the distribution of such
commercial announcement time throughout the Service, placement of such
commercial announcement time in the Service programming, and insertion of such
commercial announcement into the Service programming time by Network. Affiliate
shall
3
<PAGE>
have the right to retain for itself all of the proceeds derived from the sale of
the commercial announcement time furnished to it hereunder.
(c) If for any reason, including without limitation causes beyond the
control of Network, Affiliate, in good faith, determines that the Service does
not include programming as required in Section 3(a) hereof, Affiliate may, in
addition to any and all remedies available to Affiliate hereunder, in law or in
equity, discontinue carriage of the Service upon the expiration of thirty (30)
days following Affiliate's notice to Network thereof, unless Network has cured
such default prior to the expiration thereof
(d) 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(d), it means that each subscriber of Affiliate receiving the Service shall be
able to receive, at all points in time between the hours of 10 p.m. and 8 a.m.
Eastern time, or as such carriage hours may be increased pursuant to Paragraph
3(a), 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 any given
point in time, programming that is different than the programming received by
any subscriber of Affiliate receiving the Service at such point in time,
Affiliate shall have the unconditional right to elect which programming it
desires to subdistribute as permitted by this Agreement, and/or which
programming it will authorize for reception by Satellite Subscribers.
4. DELIVERY AND DISTRIBUTION OF THE SERVICE
----------------------------------------
(a) During the Term, Network shall, at its own expense, deliver an
analog signal of the service to Affiliate's uplink facility by transmitting such
signal via a domestic satellite commonly used for transmission of 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 uplink of such transmissions to a Satellite, including a back-up receiver
decoder.
(b) Network shall provide to Affiliate a video and audio signal of
the Service of a technical quality equivalent to the technical quality of audio
and video signals delivered by other cable television programming services.
(c) Affiliate may distribute the Service as a part-time service,
between the hours of 10 p.m. and 8 a.m. Eastern time, or as such carriage hours
may be increased pursuant to Paragraph 3(a), (excluding Dark Hours, Additional
Hours and Infomercials) and will distribute the Service over one (1) designated
channel without alteration, editing or delay. Network agrees that Affiliate will
have complete authority to control, to designate and to change the channels on
which the Service is carried, provided, however, that Affiliate shall provide
Network with written notice of such change within thirty (30) days thereof, and
any new channel over which the Service is carried shall provide signal quality
equal to or better than the channel it replaces.
(d) Affiliate retains and reserves any and all rights in and to all
signal distribution capacity contained within the bandwidth of the Service as
received by Affiliate, including, without limitation, the vertical blanking
interval, audio sub-carriers and any other portions of the bandwidth of the
signal of the Service. Affiliate shall have no obligation to digitize, compress,
re-uplink or otherwise transmit any of the signal distribution capacity
contained within the bandwidth of the Service as received by
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Affiliate, including, without limitation, the vertical blanking interval, audio
channels and any other portions of the bandwidth that may be created or made
usable as a result of the conversion of the signal of the Service to a
compressed, digital or other non-analog format, except the principal audio
carriage frequency (including closed captioning information) and the principal
video carriage frequency of the Service. 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 shall not materially degrade, or otherwise materially 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 (including closed
captioning information).
(e) Affiliate and its Distributors may sell and distribute the Service
on a pay-per-transaction (e.g., pay-per-title, pay-per-hour, etc.) basis
(collectively the "PPV Offerings"). In addition, Affiliate agrees to use
commercially reasonable efforts to make available, no later than June 1, 1996,
for its Distributors to sell and distribute the Service on a monthly subscriber
basis (the "Subscription(s)"). Affiliate shall have the right (but not the
obligation) in its discretion to make the PPV Offerings available in blocks as
short as sixty (60) minutes, and no longer than four (4) hours; provided,
however, that any PPV Offerings which consists of a motion picture shall be no
shorter than one hundred-twenty (120) minutes. A Subscription shall last for a
period of no less than one (1) calendar month and shall entitle the viewer to
receive the Service during all of the hours the Service is broadcast by
Affiliate.
(f) Network hereby grants Affiliate the right to receive the signal of
the Service, to digitize, compress, modify, replace, convert or otherwise
technologically manipulate the signal, and to transmit the signal as so altered
(the "Altered Signal") to a satellite, including, without limitation a Ku-Band
Satellite, and/or to a location 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 as 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(f). In the event Network
interferes with or otherwise prevents receipt, digitization, compression,
modification, replacement, conversion, utilization or manipulation of the signal
of the Service by Affiliate pursuant to the terms of this Section 4(f), then
Affiliate shall have the right to discontinue carriage, immediately, of the
Service.
5. FEES
In consideration of the terms and conditions set forth herein, Affiliate
shall, subject to Sections 5(b)(i) - (iv), pay the following fees ("Fees" and
or "Fee"):
(a) For each calendar month during the Term, Affiliate shall pay
Network a Fee for each Satellite Subscriber who receives the Service hereunder,
whether Service is received by Satellite Subscriber on a PPV Offerings or
Subscription basis. The Fee(s) shall be calculated as set forth in Exhibit A.
(b) In calculating Fee(s) due as described under Section 5(a) above,
Satellite Subscriber shall not include (i) up to one hundred (100) full-time
employees of Affiliate or Distributor or any affiliated party who are not
charged for the Service, subject
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to Network's consent (which shall not be unreasonably delayed or withheld); or
(ii) subscribers who have not paid their monthly rate to Distributor for a given
month and are subsequently deauthorized; (iii) subscribers of Distributor who
are authorized to receive the Service as a free preview, provided, that such
free preview may be offered only with the Network's consent, or (iv) retail
locations (e.g., dealer showrooms) and other public locations (e.g., shopping
malls and fairs) where Affiliate or a Distributor is demonstrating the Service
for marketinq and promotional purposes.
(b)(1) Affiliate shall provide Network, at Affiliate's sole cost,
with two (2) integrated receiver decoders and the Service, one
(1) at Network's corporate office in Beverly Hills, California,
and one (1) at the Playboy mansion in Los Angeles, California;
such locations shall not be deemed Satellite Subscribers for the
purposes of the payments provisions hereof.
(c) Any undisputed Fees payable by Affiliate to Network hereunder
shall be due and payable forty-five (45) days after the end of the pertinent
calendar month during the Term. In the event of a good faith dispute regarding
any Fees, Affiliate shall notify Network of the basis of the dispute, the
parties shall use their respective good faith efforts to resolve the dispute
within sixty (60) days following Affiliate's notice to Network thereof, and no
such disputed Fees shall be due or payable by Affiliate to Network unless and
until such dispute has been resolved to the satisfaction of Affiliate and
Network.
(d) Any undisputed Fees that are unpaid within forty-five (45) days
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. Affiliate shall be liable to Network
for all reasonable costs and expenses (including, but not limited to, fines,
forfeitures, attorneys' fees, disbursements and administrative or court costs)
in connection with the collection of any such overdue amounts.
6. REPORTS
-------
(a) Affiliate shall send to Network, as and when available due to
current technical constraints, but when sent, not later than forty-five (45)
days after the end of each calendar month during the Term, a statement on a form
mutually acceptable to Affiliate and Network. Affiliate shall deliver such
statement to Network prior to or along with the amount payable to Network as
provided in this Agreement. Each such accounting statement shall be certified by
an appropriate officer of Affiliate or an independent billing service as to the
accuracy of such statement, and shall include:
(i) the aggregate Fees in connection with the PPV Offerings for the
calendar month;
(ii) the aggregate Fees in connection with Subscriptions for the
calendar month;
(iii) the origin of all Fees for such calendar month, itemized by PPV
Offerings and Subscription length;
(iv) the dollar amount of Network's share of Fees for such calendar
month;
(v) for each type of PPV Offering, the number of Satellite Subscribers
purchasing such PPV Offering and the number of purchases of PPV
Offerings each day during such calendar month; and the total number of
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Affiliate's subscribers for both PPV Offerings and Subscriptions
during such calendar month;
(vi) the total number of active Subscriptions, by Subscription term
length at the end of the last day of the applicable month, and at the
end of the last day of the immediately preceding month, and the total
number of authorizations and de-authorizations by Subscription term
length during the applicable month; and
(vii) a list of all hotels and motels to which the Service is provided
by Affiliate during such calendar month.
(b) Affiliate agrees 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, Affiliate's books and records shall be available
to Network for inspection and audit, during normal business hours, at Network's
expense, at Affiliate's offices upon reasonable notice to Affiliate. Network'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 current and prior calendar year only. If Network audits
Affiliate's books hereunder, Network must make any claim against Affiliate
within the earlier of three (3) months after Network's representative leaves
Affiliate's offices, or twenty-four (24) months after the close of the earliest
month which is the subject of such claim. In addition, any such claim, if and
when made, must relate to the then-current calendar year or the immediately
preceding calendar year only. If a claim is not made within any limitation set
forth herein, then the Fees, any Renewal Fees, and all reports required
hereunder shall be deemed final and uncontestable, and Network will be deemed to
have forever and conclusively waived its right, whether known or unknown, to
collect any shortfalls from Affiliate for the period(s) audited. If any such
audit reveals an under-payment to Network of greater than ten percent (10%) of
the sum due to Network hereunder, then Affiliate shall reimburse Network for the
reasonable costs of such audit, and any applicable interest thereon pursuant to
Subparagraph 5 (d) hereof.
7. PROMOTION AND MARKETING SUPPORT
-------------------------------
(a) Network shall establish a marketing fund for Affiliate to utilize
in promoting the Service, the amount of which shall equal the additional Fees
during the first month of this Agreement attributable to the additional two (2)
hours during which Affiliate shall transmit the Service pursuant to this
Agreement (the "Marketing Fund"). The Marketing Fund shall be calculated by
subtracting the license fees payable to Network generated from purchases during
the month of February 1996 from the license fees payable to Network generated
from purchases during the month of March 1996, which calculation shall be
determined and disclosed to Network by Affiliate in writing no later than July
10, 1996. Network will reimburse marketing claims submitted by Affiliate for
pre-approved promotions which encourage Satellite Subscribers to purchase the
PPV Offerings or Subscriptions when offered. Claims towards these funds must be
submitted to Network by February 28, 1997; any unused portion of this fund shall
remain with Network upon the expiration of the Term hereof. Affiliate shall
market and promote the Service in a manner similar to its marketing and
promotion of other similar, adult premium and/or pay-per-view services;
provided, however, that Affiliate may market and promote other such services
differently and/or more frequently, if such service provides Affiliate with
consideration or compensation therefore. In connection therewith, Network shall
provide Affiliate, upon Affiliate's request, with promotional and marketing
advice. Affiliate shall make all marketing and promotion decisions in its sole
discretion; the parties understand and agree that Affiliate currently expects to
use a range of media
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(including without limitation, print, advertising and cross channel promotional
spots) to market and promote the Service. Affiliate shall publicize the schedule
of the Service in the Territory in a manner similar to other similar adult
premium and/or pay-per-view services, including without limitation the
publication of the Service programming schedule in the television listinqs and
program guides which Affiliate distributes.
(i) Affiliate shall allow Network reasonable access to Affiliate's and
Distributor's customer service representatives for training by
Network, at Network's sole expense, no more than two (2) times per
calendar year.
(ii) Affiliate shall cooperate with Network in commercially reasonable
marketing tests, surveys, ratings pools and other research, provided,
however, that any proprietary information furnished by Affiliate shall
be kept confidential and Affiliate shall keep confidential all
research funded by network and delivered to Affiliate. Network agrees
to forward to Affiliate any and all information and reports resulting
from such research; provided, however, that Network shall not be
required to forward any information protected under confidentiality
terms with a third party.
(b) Affiliate acknowledges that the names and marks "Playboy" and
"Playmate" (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 in publicity about Network or the products or programming
included in the Service. Uses of such names and marks in routine promotional
materials such as program guides, program listings and bill stuffers, shall be
deemed approved unless Network specifically notifies Affiliate to the contrary
prior to such use by Affiliate.
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"); (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 to effectuate the acts
or performances contemplated by, or satisfy the obligations imposed on it
pursuant to, this Agreement, including, without limitation, all permits, rights,
licenses and approvals necessary, required or appropriate for any and all
performances included through to the premises and to the listeners frequenting
the premises of 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; and (ix) the obligations created
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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 limited partnership 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; (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 the
Affiliate enforceable in accordance with their terms.
(c) 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,
shareholders, 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 court
or administrative costs) arising out of any breach of any term of this Agreement
or any warranty, covenant or representation contained herein.
(d) Without limiting the provisions of Section 8(c) hereof, Network
will indemnify, defend and forever hold Affiliate, its Distributors and their
respective affiliated companies, and each of Affiliate's and its Distributor's
and their respective affiliated companies' respective officers, shareholders,
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 the content
of the Service and/or the Infomercials or the use and delivery of the Service
and/or the Infomercials hereunder (including, but not limited to, sponsorship,
promotional and advertising spots, any background music and anything else
inserted by Network or any party other than Affiliate), including, without
limitation, any losses, liabilities, claims, costs, damages and expenses based
upon any suit, 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
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, indecency, 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 (provided that Affiliate shall, to
like extent, indemnify Network for any deletion or addition of material by
Affiliate to the Service which deletion from, or addition to, the Service gives
rise to losses, liabilities, claims, costs, damages or expenses (including,
without limitation, fines, forfeitures, attorneys' fees, disbursements and court
or administrative costs)).
(e) 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 subject to the
indemnified party's prior consent, which consent shall not be unreasonably
withheld or delayed. The indemnified party will cooperate fully (at the cost of
the
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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.
(f) Network represents, warrants and covenants that (i) 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; (ii) such insurance shall remain in full force and effect
throughout the Term; (iii) Affiliate shall be named as an additional insured and
loss payee on the insurance policy and such policy shall provide that the
proceeds thereof shall be payable to Affiliate; (iv) Network shall provide
Affiliate with documentation to such effect upon the execution hereof; (v) at
least thirty (30) days prior to the expiration of such policy Network shall
provide Affiliate with appropriate proof of issuance of a policy continuing in
force and effect the insurance covered by the insurance so expiring; and (v)
Network shall provide Affiliate with thirty (30) days written notice of any
changes in such policy.
(g) 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 from the time such notice is received
by Affiliate to fully cure such material breach and to demonstrate to Network
that such material breach has been cured; 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
creditors 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, including, but not limited to Network changing the content or
reducing the volume of hours of the Service as described in Section 3 hereunder;
provided, however, if 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
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sought by any creditors 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. Notwithstanding anything contained herein to the contrary,
Affiliate shall have the right, in Affiliate's sole and absolute discretion, to
discontinue carriage of the Service by providing Network with written notice
within thirty (30) days of such deletion.
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; flood;
tornado; hurricane, strike, or other labor dispute; riot or civil commotion;
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. 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 resumes full operation. 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 or any
Renewal Fees which would be due for such month, calculated in accordance with
this Agreement, 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
and carried by Affiliate during such month absent such interruptions).
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: Playboy Entertainment Group, Inc.
9242 Beverly Boulevard
Beverly Hills, California 90210
ATTN.: Vice President, Satellite
cc: General Counsel
Fax: 310-246-4098
To Affiliate: PRIMESTAR Partners, L.P.
Three Bala Plaza West, Suite 700
Bala Cynwyd, Pennsylvania 19004
ATTN.: Director of Programming & PPV
Fax: 610-617-5312
cc: General Counsel
Fax: 610-668-2862
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Notices or reports given by personal delivery shall be deemed given on
delivery. Notices or reports 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. Notices or
reports 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. Notices or reports
given by facsimile transmission shall be deemed given on the day of transmission
if transmitted prior to 5 P.M. on a business day, or on the next business day
after the day of transmission if transmitted after 5 P.M. on a business day,
holiday, Saturday or Sunday.
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 and 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, employees, auditors or attorneys), any
information with respect to the terms and provisions of this Agreement and
Network shall not disclose any information obtained in any inspection and/or
audit of Affiliate's books and records, or any information contained in any data
or report required or delivered hereunder or any materials related thereto, and
any information regarding Affiliate's subscribers or Satellite Subscribers
including, but not limited to, the number of such subscribers, including
Satellite Subscribers, except: (i) to the extent necessary (but redacted to the
greatest extent possible) to comply with law or with 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 provided that prior to such disclosure such party
shall seek confidential treatment of such information; and (iv) if mutually
agreed by Affiliate and Network, in advance of such disclosure, in writing.
Network shall comply with all laws, rules, regulations and court and
administrative decrees to which it is subject. In addition, Network shall not
use or disclose information (whether personally identifiable information or not)
to any third party regarding Affiliate's subscribers or Satellite Subscribers
and shall not engage in any direct mailing or telephone solicitation, for any
purpose, to subscribers or Satellite Subscribers of Affiliate. This Section 12
shall survive, indefinitely, the expiration or termination of this Agreement
regardless of the reason for such expiration or termination.
13. MISCELLANEOUS
-------------
(a) Assignment, Binding Effect. This Agreement, including both its
obligations and benefits, shall redound to the benefit of, and be binding on the
respective
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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 any or each partner or owner of Network or Affiliate as of the
date hereof.
(b) 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. 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. The failure of Affiliate or Network to enforce or seek enforcement of
the terms of this Agreement following any breach shall not be construed as a
waiver of such breach.
(c) 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,
without regard to choice of law rules.
(d) 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.
(e) 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.
(f) No Inference Against. 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.
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(g) 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.
(h) 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.
(i) 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 was not made nor intended to be made as a
personal representation, undertaking, warranty, covenant, 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 known
or unknown, 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.
AFFILIATE: NETWORK:
PRIMESTAR Partners, L.P. Playboy Entertainment Group, Inc.
By: /s/ Dennis Wilkenson By: /s/ Douglas H. Lindquist
--------------------------- ------------------------------------
Title: S.V.P. Title: Vice President, Playboy Satellite
------------------------ ---------------------------------
14
<PAGE>
EXHIBIT A
To Affiliation Agreement By and Between Playboy Entertainment Group, Inc. and
PRIMESTAR(R) Partners, L.P., Dated February 29, 1996.
License Fees
With regard to the PPV Offerings, for each month during the Term, Affiliate
shall pay to Network a Fee equal to the greater of (i) Forty percent (40%) of
Gross Receipts, as defined below, and (ii) either (a) One Dollar and Ninety-
Eight Cents ($1.98) per two (2) hour PPV Offerings or (b) Two Dollars and
Thirty-Eight Cents ($2.38) per four (4) hour PPV Offerings (excluding Special
Events as defined below) during such month.
With regard to Subscriptions, for each month during the Term, Affiliate shall
pay to Network a Fee equal to Forty Percent (40%) of Gross Receipts; provided,
however, that the minimum Fee(s) for Subscriptions shall not be less than Three
Dollars and Ninety-Eight Cents ($3.98) per month for each Subscription.
"Gross Receipts" shall mean the gross monthly PPV Offerings and Subscription
revenue received from Satellite Subscribers for the Service (excluding revenues
from Special Events); provided, however that revenue received from the sale of
Subscriptions shall be calculated each month during the Term, by employing the
number of Subscription Satellite Subscribers equal to the average of the actual
number of Subscription Satellite Subscribers as of the first day of the month
and the actual number of Subscription Satellite Subscribers as of the last day
of the month.
"Special Events" shall mean specific programs or blocks of programs intended for
pay-per-view distribution at a higher than usual retail rate and designated by
Network as such in advance, in its sole discretion. The License Fee payable for
Special Event shall be determined by Network, in its sole discretion; provided,
however, that not withstanding anything contained in the Agreement to the
contrary, Affiliate shall have the right not to distribute any such Special
Event.
<PAGE>
Exhibit 10.15(c)
Critics' Choice
VIDEO
*****
June 28, 1996
Mr. Jim Cardwell
MGM/UA Home Entertainment, Inc.
4000 Warner Blvd.
Burbank, CA 91522
Dear Jim,
We have agreed to extend the direct marketing license agreement dated February
23, 1994, between Warner Home Video, a division of Time Warner Entertainment
Company, L.P. ("WHV") and Critics' Choice Video, Inc. ("Critics' Choice") on the
terms outlined below:
1. Extend the agreement for a period of 18 months, covering the period from
February 23, 1997, to August 23, 1998, plus a 6-month sell-off period extending
to February 23, 1999.
2. Critics' Choice shall pay to WHV an additional advance in the sum of five
hundred thousand dollars ($500,000) split as follows between the two labels: 70%
Turner ($350,000) and 30% non-Turner ($150,000), which is consistent with the
original agreement. The advance shall be paid no later than February 23, 1997.
3. Critics' Choice shall be permitted to continue to recoup royalties paid to
WHV on the unearned portion of the current agreement through the end of the
extended term, as well as during the 6 month sell-off period.
4. Critics' Choice agrees to feature Turner and non-Turner titles which are
or become the subject of this agreement on 30% of the front or back covers
produced by Critics' Choice during the entire term of this extension beginning
immediately. Front and back cover titles will be featured exclusively only with
other MGM product.
800 W. Thorndale Avenue, Itasca, IL 60143
708 775-3300 Facsimile 708 775-3340
<PAGE>
5. Critics' Choice understands and agrees that Post-1986 titles are not
included in this extension.
6. Critics' Choice understands and agrees that WHV will continue to make
available through a version of the catalog exclusive program additional Turner
titles, though exclusivity is not guaranteed.
7. Except as provided above, all of the other terms and conditions of the
license agreement between us will remain as is.
Very truly yours,
Accepted and Agreed to:
Warner Home Video, A
Division of Time Warner
Critics' Choice Video, Inc. Entertainment Company, L.P.
By: /s/ Herbert M. Laney By: /s/ Jim Cardwell
------------------------ -------------------------
Name: Herbert M. Laney Name: Jim Cardwell
---------------------- -----------------------
Its: President Its: Executive V.P., WHV
----------------------- ------------------------
Date: June 28, 1996 Date: June 29, 1996
---------------------- -----------------------
<PAGE>
Exhibit 10.16(a)
INDEX TO CHAIFA INVESTMENT, LIMITED PRODUCT LICENSE AGREEMENT
-------------------------------------------------------------
THE SCHEDULE
<TABLE>
<CAPTION>
PARAGRAPH PAGE NO.
- --------- --------
<S> <C>
1. GRANT OF LICENSE
a. Grant l - 2
b. Term 2
c. Minimum Net Sales 2
d. License Year and License Quarter 2
e. Territory 3
2. COVENANTS OF LICENSEE
a. Use 3 - 4
b. Best Efforts 4
c. Royalties
(i) Guaranteed Royalties 4
(ii) Earned Royalties 4
(iii) Interest 5
d. Statements 5 - 6
e. Payments 6 - 7
f. Records and Audit 7
g. Expenses of Conducting Examinations 7 - 8
h. Product Quality 8
i. Submission of Samples of Products,
Wrapping Materials and Related
Materials 8 - 9
j. Preservation of Trademarks and Copyrights 9
k. Submission of Manufactured Samples,
Wrapping Materials and Related
Materials and Permission to Inspect 10 - 11
l. List of Sources and Customers 11
m. Inventory 11 - 12
n. Trademarks and Non-Competitive Brands 12
o. Indemnification by Licensee 13
p. Title and Protection 13 - 14
q. Advertising Expenditures 14
3. ADDITIONAL COVENANTS OF THE PARTIES
a. Reservation of Rights 15
b. Rights of Licensor 15
c. Rights of Licensee 16
4. TITLE AND PROTECTION
a. Indemnification by Licensor 16
b. Enforcement 16 - 17
</TABLE>
<PAGE>
INDEX TO CHAIFA INVESTMENT, LIMITED PRODUCT LICENSE AGREEMENT
-------------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
PARAGRAPH PAGE NO.
- --------- --------
<S> <C>
5. RELATIONSHIP BETWEEN THE PARTIES
a. No Joint Venture 17
b. Assignment 17 - 18
6. SUBLICENSING
7. DEFAULTS AND RIGHTS OF TERMINATION
a. Defaults and Right to Cure 18
b. Bankruptcy or Assignment for Creditors,
Business Discontinuance 18
c. Loss of Trademark Rights 18
d. Impossible Performance 19
8. TERMINATION OR EXPIRATION
a. Effect of Termination or Expiration 19
b. Reserved Rights 19
c. Inventory 19 - 20
d. Continued Sales After Termination or
Expiration 20
e. Equitable Relief 20
f. Continuity of Sales 20 - 21
g. Guaranteed Royalties 21
9. NOTICES 21
10. INVALIDITY 21 - 22
11. CONSENTS AND APPROVALS 22
12. APPLICABLE LAW 22
13. BROKER 22
14. TITLES 22
15. ENTIRE AGREEMENT 22 - 23
</TABLE>
<PAGE>
THE SCHEDULE referred to in the Agreement dated as of September 26, 1989
S.1. THE LICENSOR: Playboy Enterprises, Inc.
919 North Michigan Avenue
Chicago, Illinois 60611
S.2. THE LICENSEE: Chaifa Investment, Limited
Unit 1, 17/F, Westlands Centre
20 Westlands Road, Quarry Bay
Hong Kong
S.3. THE LICENSED TRADEMARKS: PLAYBOY, PLAYMATE and
RABBIT HEAD DESIGN
S.4. THE TYPE OF LICENSE: Exclusive
S.5. THE USE OF THE TRADEMARKS: Design, manufacture, advertise, sell and
distribute
S.6. THE PRODUCTS: Men's and ladies' underwear, swimwear, socks, robes,
pajamas, outerwear, shirts, activewear, jeans, and
jeanswear, suits, belts, scarves, small leather goods,
hankies, ties, hats, caps, wristbands, headbands and
totebags (but specifically excluding footwear) ALL SPECIFIC
PRODUCTS PRODUCED UNDER THESE GENERAL PRODUCT CATEGORY
HEADINGS TO BE APPROVED OF BY LICENSOR FROM TIME TO TIME.
S.7. THE TERRITORY: Hong Kong
S.8. Initial Term
------------
THE COMMENCEMENT DATE: October 1, 1989
THE EXPIRATION DATE: September 30, 1994
Extended Term (if applicable):
-----------------------------
October 1, 1994 - September 30, 1999
<PAGE>
THE SCHEDULE (Continued)
S.9. THE GUARANTEED ROYALTY:
$100,000.00 (U.S.) per each License Year (including each License Year
of the Extended Term, if applicable).
S.10. THE EARNED ROYALTY:
Five percent (5%) of net sales (as defined in Paragraph 2.d.(ii) of
the agreement) of the Products.
S.ll. THE MINIMUM NET SALES:
Initial Term:
------------
1st License Year (10/1/89 - 9/30/90) - HK$20,000,000.00
2nd License Year (10/1/90 - 9/30/91) - HK$25,000,000.00
3rd License Year (10/1/91 - 9/30/92) - HK$30,000,000.00
4th License Year (10/1/92 - 9/30/93) - HK$40,000,000.00
5th License Year (10/1/93 - 9/30/94) - HK$50,000,000.00
Extended Term (if applicable):
-----------------------------
The Minimum Net Sales in each and every License Year of the Extended Term
(if applicable) shall be HK $50,000.00.
S.12. THE ADDRESS WHERE BOOKS KEPT: See S.2
PLAYBOY ENTERPRISES, INC.
(LICENSOR)
By /s/ W. Stokkan
---------------------
CHAIFA INVESTMENT, LIMITED
(LICENSEE)
For and on behalf of
CHAIFA INVESTMENT LIMITED
By /s/ John Chan Chun Tung
---------------------------------------
Authorized Signature
<PAGE>
LICENSE AGREEMENT
-----------------
This agreement is made as of the 26th day of September, 1989, between the
corporation described in Paragraph S.1. of the Schedule attached hereto and made
a part hereof (hereinafter called "Licensor") and the corporation described in
Paragraph S.2. of the Schedule (hereinafter called "Licensee").
WHEREAS, Licensor has certain rights to the trademark PLAYBOY and other
trademarks identified in Paragraph S.3. of the Schedule (hereinafter
collectively referred to as the "Trademarks");
WHEREAS, Licensee recognizes that the Trademarks have been used:
a. in an internationally distributed magazine (Playboy) published by
Licensor or its subsidiaries, affiliates or licensees;
b. in widespread advertising, publicity, broadcasting and telecasting
and allied fields by Licensor, its subsidiaries and affiliates;
c. in promotional and advertising material in diverse businesses by
Licensor, its subsidiaries and affiliates;
d. in the manufacture, advertisement, distribution and sale world-wide
of a broad range of consumer products including, but not limited to,
jewelry, clothing, footwear, leather goods, audio and visual recordings,
and personal health, home and automotive articles and accessories;
WHEREAS, the parties hereto desire that Licensor grant to Licensee a
license to use the Trademarks in the design, manufacture, advertising and sale
of "Products" (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual promises herein contained,
it is mutually aqreed as follows:
1. GRANT OF LICENSE.
----------------
a. Grant: Upon and subject to the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee, and Licensee hereby accepts the
right, license and privilege specified in Paragraph S.4. of the Schedule,
of using the Trademarks in connection with, and only with, the use,
specified in Paragraph S.5. of the Schedule, of specifically designated and
approved articles of merchandise specified in Paragraph S.6. of the
Schedule (such articles of merchandise bearing the Trademarks are
hereinafter collectively referred to as the "Products") in the territory
specified in Paragraph
<PAGE>
S.7. of the Schedule (hereinafter called the "Territory"). Such right, license
and privilege is hereinafter called the "License."
b. Term:
----
(i) The term of the License shall commence on the date specified in
Paragraph S.8. of the Schedule (hereinafter called "Commencement Date") and
shall expire on the date specified in Paragraph S.8. of the Schedule,
unless sooner terminated as provided under this agreement.
(ii) See ADDENDUM.
c. Minimum Net Sales: Anything in this agreement to the contrary
notwithstanding, if Licensee's "net sales", as hereinafter defined, in any
License Year shall be less than the Minimum Net Sales specified in Paragraph
S.ll. of the Schedule for such License Year, then Licensor shall have the right
at any time to either (i) declare this License to be a non-exclusive License
thereby giving Licensor the right to either itself design, manufacture,
advertise, distribute and sell the Products or grant non-exclusive licenses to
other parties to design, manufacture, advertise, distribute and sell the
Products; or (ii) terminate the License herein granted by notifying Licensee of
its election to terminate within thirty (30) days after Licensor's receipt of
the statement for such License Year for which Minimum Net Sales were not
attained. Such declaration of non-exclusivity as set forth in (i) above or
termination as set forth in (ii) above shall have no effect upon the amounts due
and payable to Licensor for periods prior to or after such declaration or prior
to termination.
d. License Year and License Quarter:
--------------------------------
(i) For all purposes under this agreement a "License Year" shall be
twelve (12) consecutive calendar months commencing on the Commencement Date
and ending twelve (12) months thereafter and each twelve (12) month period
thereafter, and if the termination of this License is effective other than
at the end of such twelve (12) month period, then the final less than
twelve (12) month period ending on the effective date of termination shall
be deemed to be a License Year.
(ii) For all purposes under this agreement, a "License Quarter" shall
be the first (lst) and each succeeding three (3) month period of each
License Year; and if the termination of this License is effective other
than at the end of a License Year, then the final less than three (3) month
period ending on the effective date of termination shall be deemed to be a
License Quarter.
-2-
<PAGE>
e. Territory: The License shall extend only to the Territory and the use by
Licensee of the Trademarks shall be confined to the Territory.
2. COVENANTS OF LICENSEE.
---------------------
a. Use:
---
(i) Subject to Licensor's prior approval as hereinafter required,
Licensee shall commence the manufacture, sale and distribution of each and
every one of the Products as soon as practicable after the Commencement
Date. If Licensee has not commenced the manufacture, sale and distribution
of an approved line of Products by June 30, 1990, Licensor may elect to
treat such an occurrence as an incurable default by Licensee under this
agreement.
(ii) Licensee shall not cause or authorize any use of the Trademarks
in any area of the world outside the Territory and shall not knowingly
manufacture, sell or otherwise deal with or distribute any of the Products
or any other goods, articles or services bearing any words or symbols
associated with or confusingly similar to the Trademarks or associated with
Licensor on behalf of, or to, any person, firm or corporation, that
Licensee believes or has reason to believe intend, or are likely, to deal
with the same in any area of the world outside the Territory. Licensee
shall, upon notice from Licensor, immediately and permanently cease
delivering Products to any person, firm or corporation named in such notice
as one that directly or indirectly deals with the Products outside the
Territory.
(iii) Nothing contained in this Paragraph 2.a. or this agreement shall
prevent Licensor from (a) using or granting others the right or license to
use the Trademarks on or in connection with the Products in any area of the
world other than the Territory or on or in connection with goods (other
than the Products) of all other types and descriptions in any area of the
world, including the Territory or (b) producing or having produced limited
quantities of the Products to be used by Licensor or its affiliates in the
Territory specifically for promotional and advertising purposes and not for
sale.
(iv) Licensee warrants and represents that it has, and will continue
to have throughout the entire term of this agreement, the legal right to
enter into this agreement and to assume the obligations hereunder and that
there are no, and Licensee shall not enter into during the term hereof,
contracts, agreements or
-3-
<PAGE>
understandings with anyone which would in any way restrict or prevent
Licensee from its performances and obligations under this agreement.
Licensee shall be responsible for obtaining, at its own expense, any and
all licenses, permits, approvals (including governmental or other agency
licenses, permits and approvals) necessary for Licensee to design,
manufacture, advertise, distribute and sell the Products, or to pay
royalties or taxes or to fulfill any other obligation or exercise any right
of Licensee under this License. In the event Licensee is unable, for any
reason, to obtain all of the necessary permits, licenses or approvals prior
to the Commencement Date, Licensor shall have the right to terminate this
agreement upon notice to Licensee without any period of grace and without
any obligation to Licensee whatsoever.
b. Best Efforts: Licensee shall, throughout the term of the License and
as permitted by this agreement, constantly use its best efforts in the
advertising, promoting, selling and distributing and any other dealing with or
disposal of the Products to protect the good name and goodwill associated with
the Trademarks and Licensor and to obtain the greatest number of sales of the
Products, such sales to be reported in measurements of both units and local
currency, throughout the entire Territory and the entire term of this agreement
and any extensions thereof. Except as provided in Paragraphs 2.a.(iii) and 2.q.
hereof, Licensee shall be responsible for and shall assume and pay for all costs
and expenses related to the design, manufacture, sale, promotion, advertising
and distribution of the Products.
c. Royalties:
(i) Guaranteed Royalties: Licensee shall pay to Licensor or its
nominee guaranteed minimum royalties (hereinafter called "Guaranteed
Royalty" or "Guaranteed Royalties") in the amount specified in Paragraph
S.9. of the Schedule; which shall be payable in four (4) equal installments
with each such installment due on or before the first (lst) day of each
License Quarter (i.e., October 1, January 1, April 1 and July 1) of each
such License Year.
(ii) Earned Royalties: In addition to Guaranteed Royalties, Licensee
shall pay to Licensor or its nominee percentage royalties (hereinafter
called "Earned Royalties") for each License Year in the amount equal to the
amount by which in each License Year the amount specified in Paragraph
S.10. of the Schedule exceeds the Guaranteed Royalty for such License Year.
Earned Royalties shall be payable in accordance with the terms and
conditions of Paragraph 2.d. and 2.e. below.
-4-
<PAGE>
(iii) Interest: All sums including but not limited to the Guaranteed
and Earned Royalties, that shall not be paid on the due date shall bear interest
at an amount equal to the highest percentage allowed by law over the prime rate
of interest as established by The First National Bank of Chicago in Chicago,
Illinois applicable to ninety (90) day commercial loans effective on the date
that such sum should have been paid from such due date until the date on which
such sum is paid in full.
d. Statements:
(i) Within forty-five (45) days after each License Quarter, Licensee
shall furnish to Licensor or its nominee a complete and accurate statement
certified to be true by the Chief Financial Officer or Company Secretary of
Licensee showing for the preceding License Quarter and the License Year through
such period the units, description and computations in local currency of "net
sales," as hereinafter defined, of all the Products distributed, sold or
otherwise disposed of by Licensee in each country in the Territory during the
preceding License Quarter, the computation of Earned Royalties as set forth in
Paragraph 2.c.(ii) hereof and the amount of Earned Royalties due and payable
thereon. When during any License Year such statement shows that the amount of
the Guaranteed Royalty for such License Year has been exceeded, Licensee shall
commence payment of Earned Royalties for such License Year by remittance,
accompanying such statement, of Earned Royalties payable through the period
covered by such statement. Any overpayments or underpayments of Earned Royalties
caused by errors in prior quarterly statements revealed by the statement for the
last License Quarter of any License Year shall be immediately adjusted by the
parties. Such statement shall also reflect the advertising expenditures made by
Licensee through such period pursuant to Paragraph 2.q. hereof (which will
include the details of all such advertising expenditures, supported by copies of
vouchers and copies of any print advertising).
(ii) As used in this agreement, the term "net sales" means the invoice
price charged by Licensee for the Products less (x) refunds, credits and
allowances actually made or allowed to customers for returned Products, (y)
customary trade discounts (including anticipations) afforded to and actually
taken by customers against payment for the Products and (z) value added tax
(only where applicable) assessed on sales. If Licensee sells Products to a
marketing organization or any individual or company in whole or in part
controlled by Licensee, the invoice price used to determine net
-5-
<PAGE>
sales hereunder shall be the invoice price at which the Products are resold by
such entity to an unrelated customer in an arm's length transaction.
(iii) In the event the percentage of returns of Products in any
License Year exceeds thirty percent (30%) of net sales for such License Year,
then Licensor may elect to treat such an occurrence as an incurable default by
Licensee under this agreement and Paragraph 7. hereof shall apply.
e. Payments.
(i) All payments Licensee is required to make by the terms of this
Agreement shall be made in United States Dollars through a bank specified by
Licensor. No deduction shall be made for income or other taxes without
Licensor's written permission, unless Licensee is compelled to do so by law; in
which case Licensee shall provide Licensor with evidence that such tax has been
paid in the proper amount. Licensee shall give due notice to Licensor of any
such proposed deductions. In the event payments in the manner provided in this
Paragraph 2.e. shall become impossible or illegal by reason of the action of
governmental authority, then, at Licensor's option, this Agreement may be
terminated; and whether or not Licensor exercises such option, while such
restrictions remain in effect, all payments due Licensor shall be made to an
account in the Territory, or elsewhere where permitted by law, to be designated
by Licensor.
(ii) In determining the proper rate of exchange to be applied to the
payments due hereunder, it is agreed that:
(a) Licensee shall calculate Earned Royalties on a calendar month
basis in local currency (with each such month considered to be a separate
accounting period for the purpose of computing Earned Royalties).
(b) Licensee shall compute a conversion of each such monthly
total into United States currency utilizing the rate of exchange in effect on
the last day of each relevant calendar month as determined by the Bankers
Trust Co. of New York City, New York (U.S.A.).
(c) The converted amounts (in U.S. currency) shall be added
together on a cumulative basis and when during any License Year such
computation shows
-6-
<PAGE>
that the amount of the Guaranteed Royalty for such License Year has
been exceeded, Licensee shall commence payment of Earned Royalties for
such License Year by remittance of such excess in U.S. currency to
Licensor; which remittance will accompany the statement required by
Paragraph 2.d. hereof. If there is no excess, no Earned Royalties will
be payable for such License Year by Licensee (but in no event shall
Licensor be responsible for returning to Licensee any portion of the
Guaranteed Royalties paid or payable).
f. Records and Audit: Licensee shall keep accurate books of account and
records (including but not limited to utilization of consecutively numbered
invoices) covering all transactions relating to this agreement or arising out of
the License (which records shall be maintained separately from Licensee's books
and records relating to other items manufactured or sold by Licensee) and shall
permit Licensor or any of its nominees, employees or agents to have full access
to and to inspect the same at all reasonable hours of the day to enable Licensor
and its nominees, employees or agents to conduct an examination of and to copy,
at Licensor's expense, all such books and records. Licensee shall maintain in
good order and condition all such books and records for a period of two (2)
years after the expiration or termination of the License or, in the event of a
dispute between the parties hereto, until that dispute is resolved, whichever
date is later, and such books and records shall be kept at the address stated in
Paragraph S.12 of the Schedule; except as such address may be changed from time
to time in accordance with Paragraph 9. hereof. Receipt or acceptance by
Licensor of any statement furnished pursuant hereto or any sums paid by Licensee
hereunder shall not preclude Licensor from questioning the correctness thereof
at any time, and if any inconsistencies or mistakes are discovered in such
statement or payment, they shall be immediately rectified and prompt adjustment
and corresponding payments shall be made to compensate therefor.
g. Expenses of Conductinq Examinations: If an examination referred to in
Paragraph 2.f. above discloses an overpayment or underpayment of Earned
Royalties, the appropriate amount shall be immediately paid or refunded to the
party entitled thereto. If such examination reveals that for the period covered
by such examination there is an error of five percent (5%) or more in the Earned
Royalty previously reported as being due from Licensee, all expenses involved in
the conducting of such examination shall be borne by Licensee. If such error is
less than five percent (5%), such expenses shall be borne by Licensor. In the
event an examination discloses an underpayment in excess of nine percent (9%)
for
-7-
<PAGE>
any License Year, then Licensor may elect to treat such an occurrence as an
incurable default by Licensee under this agreement.
h. Product Quality: Licensee hereby warrants and agrees that, the
Products manufactured, advertised, promoted, sold, distributed or otherwise
disposed of under this agreement shall bear faithfully produced Trademarks and
shall meet the high standards of quality, workmanship, material, design, size,
color and style established by Licensor in accordance with the terms and
conditions of Paragraphs 2.h., 2.i., 2.j. and 2.k. hereof; and Licensee will not
knowingly cause or authorize any Product not conforming to the conditions of
this Paragraph 2. to be available for sale within the Territory as doing so may
adversely affect Licensor's goodwill in the Trademarks. All Products made
available for sale in the Territory shall conform to and comply with, in all
respects, all governmental and jurisdictional laws, rules and regulations
governing the design, quality or safety of such Products. Licensee shall not
cause or authorize: the use of any substandard or offensive materials in or used
in connection with the Products; in its actions under or related to this
License, any violation of any governmental or jurisdictional law, rule or
regulation, including but not limited to regulations imposing advertising
standards or requiring trade or content description of Products; the use of the
Trademarks or any other word, device or symbol associated in any way with
Licensor, its subsidiaries and affiliates in connection with any product or
activity that is not the subject of this License.
i. Submission of Samples of Products, Wrappinq Materials and Related
Materials: Licensee acknowledges that all Products and other items bearing the
Trademarks must be approved in advance by Licensor. Licensee shall, at its own
expense submit to Licensor or its nominee at least two (2) signed and dated
samples, prototypes or equivalents acceptable to Licensor of each of the
cartons, containers, labels, wrappers, packages or other inner or outer
packaging materials, fixtures, displays, artwork, printing, advertising, sales,
marketing and promotional materials and other items bearing the Trademarks and
intended for use in connection with the Products (hereinafter called "Wrapping
Materials and Related Materials") and of each of the Products that Licensee
intends to manufacture, advertise, promote, sell, distribute or otherwise
dispose of in the Territory from time to time. Licensee agrees not to commence
or permit such manufacture, advertisement, promotion, sale, distribution of or
dealing in Products, Wrapping Materials or Related Materials until Licensee has
received: (i) the written approval of Licensor, or its nominee, for such Product
and such Wrapping Material and Related Material and (ii) a sample, prototype or
-8-
<PAGE>
equivalent acceptable to Licensor that has been signed and dated by Licensor as
a record of its approval of the same. If any sales by Licensee of Products,
Wrapping Materials or Related Materials do not conform in Licensor's sole
opinion to the previously approved samples, then Licensor shall have the right
to notify Licensee, in writing, specifying in what respect Licensor disapproves;
in such event, Licensee shall, immediately upon receipt of notification of
disapproval, suspend all advertising, manufacture, sale and distribution of the
disapproved Product, Wrapping Materials or Related Materials until Licensee has
made all necessary changes and corrections to the satisfaction of Licensor and
obtained Licensor's written reapproval of such Product, Wrapping Materials or
Related Materials. Sales by Licensee of Products, Wrapping Materials or Related
Materials that do not conform to the previously approved samples shall
constitute a material default under the terms of this License. Licensor shall
use its best efforts to signify its approval or reapproval (which shall not be
unreasonably withheld) or disapproval within fourteen (14) business days of
receipt by Licensor of any Product, Wrapping Material or Related Material. In
the event Licensee shall not have been advised of the approval or disapproval by
the beginning of the second (2nd) full business day preceding such deadline,
Licensee shall notify such person or persons as Licensor may designate from time
to time, by telegram, telex, cable or facsimile, and in the event Licensor's
designees shall not have notified Licensee of Licensor's disapproval within two
(2) business days after receipt of such telegram, telex, cable or facsimile,
Licensor's approval of such Product, Wrapping Material or Related Material shall
be conclusively presumed.
j. Preservation of Trademarks and Copyriqhts: Licensee shall:
(i) affix to any Product, Wrapping Material or Related Material
such trademark and copyright notices and notices of the sponsorship of
Licensor as Licensor may request from time to time or as required by law
during the term of the License;
(ii) manufacture, sell, distribute or otherwise deal with Wrapping
Materials or Related Materials solely in connection with the Products;
(iii) not cause or grant permission to any third parties to acquire
any copyright or other proprietary right in connection with any such word,
device, design or symbol used by Licensee in connection with any of the
Products, Wrapping Materials or Related Materials.
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k. Submission of Manufactured Samples, Wrapping Materials and Related
------------------------------------------------------------------
Materials and Permission to Inspect:
-----------------------------------
(i) Licensee shall, within seven (7) days of a specific demand from
Licensor, dispatch to Licensor at Licensee's expense, samples of any of the
Products, Wrapping Materials and Related Materials that Licensee is using,
manufacturing, selling or distributing or otherwise disposing of under the
terms of this agreement for inspection. Also, to ensure that all of the
Products, Wrapping Materials and Related Materials dealt with by Licensee
are constantly maintained in conformance with the previously approved
samples, Licensee shall take such action as may be required to ensure that
Licensor and its designated agents and representatives shall have the right
to enter upon and inspect, at all reasonable hours in the day, any office,
factory, warehouse or other facility where any of the Products or Wrapping
Materials and Related Materials are designed, manufactured, stored or
otherwise dealt with; and Licensor shall have the right to take, without
payment, such samples of any of the Products, Wrapping Materials and
Related Materials at any such place as Licensor reasonably requires for the
purposes of such inspection. If any such dispatched or taken Products,
Wrapping Materials and Related Materials fail to conform to the previously
approved samples, then Licensor shall have the right to notify Licensee in
writing, specifying in what respect Licensor disapproves; in such event,
Licensee shall, immediately upon receipt of notification of disapproval,
suspend all manufacture, sale and distribution and wherever possible call
back from Licensee's customers all of the disapproved Product, Wrapping
Material or Related Material until it has made all necessary changes and
corrections to the satisfaction of Licensor and obtained Licensor's written
reapproval of such Product, Wrapping Material or Related Material.
Products, Wrapping Materials or Related Materials that do not conform to
the approved samples, including seconds, shall not be sold, distributed or
otherwise released by Licensee unless all references to all Trademarks
shall have first been completely obliterated or removed or otherwise made
totally unidentifiable.
(ii) Licensee may, however, dispose of Products as "off-quality"
merchandise. Whenever such off-quality merchandise is sold as aforesaid, no
use of or reference to the Trademarks shall be made. Licensee shall notify
its customers to assure compliance by them with the requirements of this
Paragraph 2.k.(ii). Licensee shall be deemed to have met this obligation by
its removal of all labels, tags and marks which would identify the goods as
Products and by placing the following legend on all purchasers' invoices
for such goods:
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"Purchaser agrees that it will not use the Trademarks (here described,
e.g., PLAYBOY, PLAYMATE and RABBIT HEAD DESIGN) or any other phrase or
statement using the Trademarks (here described, e.g., PLAYBOY, PLAYMATE
and RABBIT HEAD DESIGN) on any advertising, publicity, labeling,
wrapping or packaging with respect to the merchandise listed hereon."
(iii) In the event the percentage of off-quality Products in any License
Year exceeds thirty percent (30%) of net sales for such License Year, then
Licensor may elect to treat such an occurrence as an incurable default by
Licensee under this agreement and Paragraph 7. hereof shall apply.
1. List of Sources and Customers: Licensee, on demand from Licensor,
shall provide Licensor with a list of the names and addresses of all
manufacturing sources, subcontractors, suppliers, dealers, wholesalers,
retailers and customers who have been engaged in the manufacture, sale,
distribution or other dealings with the Products, Wrapping Materials and Related
Materials during the term of the License (such list shall include customers to
whom Products, Wrapping Materials or Related Materials have been delivered after
the expiration or termination of this License); and such list shall, if so
requested by Licensor, contain the full specification of any designs, utility
models, patents or trademarks that may be involved, directly or indirectly, in
the manufacture, production or distribution of any of the Products, Wrapping
Materials or Related Materials; and Licensee shall obtain the consent of any
relevant third parties for such disclosure. Such list will be kept confidential
and will not be used by Licensor other than as provided in this Paragraph 2.1.
All copies of such list in Licensor's possession will be returned to Licensee or
destroyed by Licensor upon the termination or expiration of this agreement (in
which case Licensor shall provide Licensee with an appropriate certificate of
destruction). Licensor will not be obligated to maintain the confidentiality of
any information that: (i) is or becomes generally available to the public other
than as a result of a disclosure by Licensor; (ii) becomes available to Licensor
on a nonconfidential basis from a source other than Licensee; or (iii) is
disclosed as a result of an order of court.
m. Inventory: It is the intent of this agreement that, insofar as
practical, Licensee shall at all times be able to fulfill all orders for
Products promptly and yet not have an excessive inventory on hand at the time of
the termination or expiration of the License. Within forty-five
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(45) days after each License Year, Licensee will furnish Licensor with a
statement signed by the Chief Financial Officer or Company Secretary of
Licensee, setting forth in detail the quantities of finished goods and work in
progress inventories of the Products.
n. Trademarks and Non-Competitive Brands:
-------------------------------------
(i) Licensee shall not during or after the term of this agreement use
or cause or authorize to be used any words, device, design or symbol
confusingly similar to the Trademarks. Any permutations of the Trademarks
and any secondary marks adopted and used by Licensee on or in connection
with the Products and any words, device, design or symbol or any new
packaging or tradedress developed or created by Licensee for use on or in
connection with the Products shall be and become the property of Licensor
and shall be included as Trademarks subject to this agreement. Licensee
shall make no use of same except in regard to the Products and will assign
to Licensor the beneficial ownership of all rights that Licensee has
acquired or may acquire in such permutations, secondary marks, developments
and creations.
(ii) Licensee shall not during the term of this agreement manufacture,
distribute, advertise, promote, sell or deal with in any way in the
Territory, any product, design, symbol, tradedress, packaging, wrapping
materials or services using any brand or trademark that is in any manner
competitive with or confusingly similar to those borne by, or authorized in
connection with, the Products or associated in any way with the Products or
Licensor or Licensor's subsidiaries or affiliates, unless approved in
writing by Licensor.
o. Indemnification by Licensee: Licensee shall indemnify, defend and hold
Licensor, its subsidiaries and affiliates, their respective shareholders,
licensees, franchisees, and the agents, officers, directors and employees of all
the foregoing harmless from any costs, claims, suits, losses, damages and
expenses (including attorneys' fees) whatsoever arising out of or in connection
with the design, manufacture, advertisement, distribution or sale or any other
dealing with the Products, Wrapping Materials and Related Materials.
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p. Title and Protection:
--------------------
(i) Licensee hereby acknowledges the great value of the goodwill associated
with the Trademarks and the worldwide recognition of the same and that the
proprietary rights therein, and goodwill attached thereto, are solely owned and
belong to Licensor and that the Trademarks and other words, devices, designs and
symbols have a secondary meaning that is firmly associated in the mind of the
general public with Licensor, its subsidiaries and affiliates and their
respective publications, published material and other activities; and any
additional goodwill attached to the Trademarks, created through the use of such
Marks by Licensee shall inure to the benefit of Licensor alone. During and after
the term of the License, Licensee shall not:
(a) directly or indirectly seek for itself, or assist any third party
to use or acquire, any rights, proprietary or otherwise, in any patent,
trademark, copyright or such other intellectual or intangible property so
associated or connected, without the prior written authority of Licensor;
(b) in any way seek to avoid its obligations under this agreement
because of the assertion or allegation by any person(s) that the Trademarks
or any of them are invalid or by reason of any contest concerning the
rights of Licensor;
(c) file or prosecute trademark applications regarding Licensee's use
of the Trademarks unless asked to do so in writing by Licensor. Licensee
will cooperate with Licensor in connection with any such filings.
(ii) (a) Licensee shall use the Trademarks in each jurisdiction strictly in
accordance with the legal requirements in such jurisdiction. Licensee shall
cooperate fully with Licensor in preparing and causing to be recorded in
every jurisdiction where applicable Registered User agreements and all
other documents which may be necessary or desirable to evidence, protect
and implement the rights of Licensor pursuant to the agreement. Upon
expiration or termination of this agreement for any reason whatsoever,
Licensee shall execute and file documents, as required by Licensor,
terminating any and all Registered User agreements and other documents
regarding the Trademarks, or, at Licensor's option, shall, and hereby does,
authorize Licensor to terminate all Registered User
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agreements and other documents regarding the Trademarks on Licensee's
behalf.
(b) In the event any designs developed by Licensor for the Products
may be made the subject of patent, trademark or copyright protection,
Licensor shall have the right, at its own expense, to file applications
therefor, and shall be the exclusive owner of such rights. Licensee shall
cooperate with Licensor or its designees in obtaining and perfecting such
rights, including providing Licensor or its designees with copies of
documents, sketches, renderings or the like normally prepared by Licensee
in connection with the manufacture of the Products and executing such
documents as may reasonably be required. Nothing herein contained shall be
construed as a transfer of, or obligation to transfer, any patent rights
for products developed by Licensee.
q. Advertising Expenditures: In addition to all other amounts or payments,
and not to be credited against any Guaranteed or Earned Royalty payment
otherwise required under this agreement, Licensee agrees to spend within each
License Year for advertising and promotion (specifically trade and/or consumer
media such as newspapers, magazines, television and/or radio), not less than
three percent (3%) of Licensee's net sales for such License Year. A portion of
such advertising sums shall be paid to Licensor as follows:
(i) Concurrently with the remittance of the statements required under
Paragraph 2.d.(i) hereof, Licensee shall remit to Licensor for use in
Licensor's advertising and promotion pool an amount equal to one percent
(1%) of Licensee's net sales for the time period covered by such statement,
which amount shall be credited against Licensee's annual advertising
expenditures required herein.
(ii) If the report included with the statement required under
Paragraph 2.d.(i) hereof for the last License Quarter of each License Year
shows that the required amount has not been spent, the difference between
the amount actually spent and the amount to be spent must be remitted to
Licensor for use in Licensor's advertising and promotion pool within thirty
(30) days after such statement is due.
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3. ADDITIONAL COVENANTS OF THE PARTIES.
-----------------------------------
a. Reservation of Rights: All rights not expressly and specifically granted
herein to Licensee are reserved by Licensor.
b. Rights of Licensor: Without limiting the generality of Paragraph 3.a.
hereof, nothing herein contained shall be construed as prohibiting Licensor, its
subsidiaries and affiliates from:
(i) purchasing any of the Products from Licensee and offering any such
Products for sale and selling same to consumers at any nightclub,
restaurant, cabaret, resort, hotel or casino operated or franchised by
Licensor, its subsidiaries and affiliates or through Licensor's direct mail
fulfillment programs. Licensee shall have the option to fill all such
orders at such prices as given to other customers ordering the same
quantities of similar merchandise. Licensee shall have thirty (30) days
from the date it receives such orders within which to notify Licensor of
the exercise of Licensee's option. In the event Licensee does not exercise
such option or fails to notify Licensor of the exercise of such option
within the thirty (30) day time limit, anything in this Paragraph 3.b. or
elsewhere in this agreement to the contrary notwithstanding, Licensor, its
subsidiaries and affiliates shall be allowed to purchase such Products from
other manufacturing sources without liability to Licensee and sell such
Products as indicated in this Paragraph 3.b.
(ii) In the event of any such sale of Products by Licensee to
Licensor, Licensee shall ship or deliver such Products either directly to
Licensor or, as Licensor may direct, to any other business concern or
person. Such sales of Products by Licensee to Licensor shall be, at
Licensor's option, at such prices less the applicable Earned Royalty. If
Licensor elects to have such sales made less the applicable Earned Royalty,
Licensee will not have to pay additional royalties on such sales and will
not be required to include such sales in the statements required under
Paragraph 2.d.(i) hereof. Licensee may, however, include such sales in the
computation of net sales under Paragraph l.c. hereof. Licensee shall bill
Licensor in accordance with Licensee's normal billing procedure for any
such Products shipped or delivered.
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c. Rights of Licensee: Except as provided in Paragraphs 2.a.(iii) and
3.b.(i) hereof, Licensee enjoys the full exclusive License granted herein and
Licensor agrees not to import or authorize any third (3rd) party to import into
the Territory the Products from any place outside of the Territory.
4. TITLE AND PROTECTION.
---------------------
a. Indemnification by Licensor: Licensor represents and warrants that: it
is the owner of the Trademarks; the Trademarks are valid; and the Trademarks
are, to the best of its knowledge, free from any claim by third parties that
would interfere with the rights granted to Licensee under this agreement.
Licensor shall indemnify, defend and hold Licensee, its agents, officers,
directors and employees harmless against any claims or suits, provided prompt
notice of which is given Licensor by Licensee, arising solely and directly out
of the authorized use of the Trademarks on the Products by Licensee in the
Territory, but in no event shall such indemnification include consequential
damages. Licensor shall have the option to settle or to undertake and conduct
the defense of any such claim or suit; but Licensee shall, upon notice from
Licensor and pursuant to Licensor's instructions, handle, undertake and conduct
the defense of any such suit at Licensor's expense. If Licensor does not so
notify Licensee, Licensee may through counsel of its own choice and at its own
expense participate in any such litigation, but in such event Licensor shall
have sole and exclusive control over such defense and Licensor's decisions shall
govern and control. Licensee expressly covenants that no compromise or
settlement of any claim or suit, or any preliminary negotiations with respect to
any compromise or settlement, shall be made or entered into without the prior
written approval of Licensor.
b. Enforcement: Licensee shall promptly notify Licensor in writing of any
actual, suspected or apparent infringement or imitation of the Trademarks on
products similar or identical to the Products that may come to the attention of
Licensee. Licensor shall take that action in regard to such infringement or
imitation as Licensor, in its sole judgment, deems to be reasonable. Licensor
shall, in its sole and absolute discretion, decide whether to undertake or
conduct any suit or assert any claim with respect to such infringement or
imitation; but Licensee shall, upon notice from Licensor and pursuant to
Licensor's instructions, vigorously handle, undertake and conduct any such suit
or assert any such claim at Licensor's expense in the name of Licensor, or
Licensee or in both names as Licensor may direct. Licensee expressly covenants
that no compromise or settlement of any such suit or claim, or any preliminary
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negotiations with respect to any compromise or settlement, shall be made or
entered into without the prior written approval of Licensor. Licensee may share
in any damage recovery obtained by Licensor as a result of any such suit or
claim only if Licensee notified Licensor upon the initiation of such suit or
claim that Licensee desires to participate financially in such suit or claim and
only in an amount that shall bear the same ratio to the damage recovery as the
amount of Licensee's financial participation bears to the total costs and
expenses incurred by Licensor in obtaining such damage recovery. In no event
shall Licensor be responsible to Licensee for any consequential damages that may
result from such infringement or imitation.
5. RELATIONSHIP BETWEEN THE PARTIES.
---------------------------------
a. No Joint Venture: Nothing herein contained shall be construed to place the
parties in the relationship of partners or joint venturers, and Licensee shall
have no power to obligate or bind Licensor, its subsidiaries and affiliates in
any manner whatsoever.
b. Assignment:
-----------
(i) Licensor, in entering into this agreement, is relying entirely
upon the skills, reputation and personnel, including the officers,
directors and shareholders, of Licensee. This agreement and all rights and
duties hereunder are personal to Licensee and shall not, without the prior
consent of Licensor (which may be given or withheld in the sole discretion
of Licensor), be sold, transferred, leased, assigned, mortgaged or
otherwise encumbered by Licensee or by operation of law. Any attempt to
sell, transfer, lease, assign, mortgage or otherwise encumber this
agreement, or any of the rights and duties hereunder, or any change in the
principal officers, principal directors or shareholders of Licensee or an
entity having a financial interest in Licensee (other than non-controlling
shareholders of a corporation whose shares are freely traded on a
nationally recognized stock exchange), without the prior written consent of
Licensor shall constitute a material violation of and an incurable default
under this agreement. The consent of Licensor to any one assignment,
transfer, sublicense or subcontract shall not be deemed to be consent to
any subsequent assignment, transfer, sublicense or subcontract.
(ii) Licensor may assign this agreement to any of its subsidiaries or
affiliates or to any entity that succeeds to the interest of Licensor in
the Trademarks without the consent of Licensee and shall have the right
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to nominate any other person, company or corporation to receive
royalty income or to undertake the obligations of Licensor under the
terms of this agreement whether or not this agreement is so assigned.
6. SUBLICENSING. Licensee may not, without the prior written approval of
Licensor, whose approval may be withheld without providing any reasons and whose
discretion shall be final and absolute, enter into sublicense or subcontract
agreements, with respect to the manufacture, sale and distribution of the
Products in the Territory.
7. DEFAULTS AND RIGHTS OF TERMINATION.
a. Defaults and Riqht to Cure: If Licensee violates any of its
obligations or warranties under the terms of this agreement and fails to
remedy such violations within fifteen (15) days after receipt of notice
from Licensor of such violations, Licensor shall have the right and option,
but not the duty, to terminate this License upon ten (10) days' prior
written notice to Licensee. The termination of this License shall be
without prejudice to any rights that Licensor may otherwise have against
Licensee under this agreement or under law.
b. Bankruptcy or Assiqnment for Creditors, Business Discontinuance: If
Licensee files a petition in bankruptcy or is adjudicated a bankrupt, or if
a petition in bankruptcy is filed against Licensee, or if Licensee shall
become insolvent or shall make or agree to make an assignment for the
benefit of creditors or an arrangement pursuant to any bankruptcy law, or
if Licensee discontinues business, or if a receiver shall be appointed for
Licensee, the License shall automatically terminate forthwith without the
necessity of any notice whatsoever. If the License is so terminated,
Licensee or its receivers, representatives, trustees, agents,
administrators, successors or assigns shall have no right to sell, exploit
or in any way deal with any Products, Wrapping Materials or Related
Materials, except with and under the special written consent and
instructions of Licensor that they shall be obligated to follow.
c. Loss of Trademark Riqhts: If Licensee's right to use the Trademarks
is adjudged illegal or invalid, and such adjudication has become final and
non-appealable, or if a settlement agreement is entered into that prohibits
Licensee's right to use the Trademarks, this License shall automatically
terminate as of the date of such final and non-appealable adjudication or
the entry of such settlement agreement without the necessity of any notice
whatsoever. Licensee shall have no claim of any nature against Licensor for
the loss of the right to use the Trademarks.
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d. Impossible Performance: Licensee and Licensor shall be released from their
respective obligations under this agreement and the License shall terminate, if
governmental regulations or other causes arising out of a state of national
emergency or war, or any other similar cause beyond the control of the parties
hereto, shall render performance impossible. Either party shall so inform the
other in writing of any such cause and of its desire to be released, and
immediately thereafter the License shall terminate and all royalties on sales of
the Products theretofore made shall become immediately due and payable.
8. TERMINATION OR EXPIRATION.
-------------------------
a. Effect of Termination or Expiration: Upon and after the expiration or
termination of the License, all rights granted to Licensee under this agreement
shall forthwith revert to Licensor. Licensee will refrain from any further use
of the Trademarks or any further reference to anything, including but not
limited to words, devices, designs and symbols, similar to the Trademarks or in
any way associated with Licensor, its subsidiaries and affiliates, in connection
with the conduct of Licensee's business, except with the written consent of
Licensor and except as expressly provided in this Paragraph 8.
b. Reserved Riqhts: The expiration or termination of this License under any of
the terms of this License shall not relieve Licensor or Licensee, respectively,
of any obligations incurred prior or subsequent to such expiration or
termination; nor shall expiration or termination impair or prejudice any of the
rights of Licensor or Licensee, respectively, accruing prior or subsequent
thereto. Except as provided in Paragraph 8.g. hereof, upon termination, the
Guaranteed Royalty for the then current License Year shall be prorated based on
the ratio that the number of days in such License Year prior to termination
bears to three hundred sixty-five (365). Earned Royalties due for such License
Year shall be the excess of Earned Royalty over such prorated Guaranteed
Royalty. Any overpayment or underpayment of Guaranteed or Earned Royalties shall
be adjusted by the parties in accordance with Paragraph 2.d.(i) hereof.
c. Inventory: Within ninety (90) days prior to the expiration of the License,
or in the event of its termination, within ten (10) days after (i) receipt of
notice of termination or (ii) the happening of any event that terminates the
License where no such notice is required, Licensee shall furnish to Licensor a
complete and accurate statement showing the number and description of Products
in process and on hand. Licensor or its authorized agents shall have the right
to conduct a physical inspection and take
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inventory to ascertain or verify such inventory and statement, and any refusal
by Licensee to submit to such physical inventory by Licensor or its authorized
agents shall forfeit Licensee's right to complete any work in process and to
dispose of all such inventory; Licensor retaining all other legal and equitable
rights it may have in the circumstances, which rights are hereby reserved.
d. Continued Sales After Termination or Expiration: Upon the expiration of the
term of this License or if this License is terminated pursuant to any paragraph
of this agreement except paragraphs 2.i., 2.k.(iii) and 7.b. hereof, and except
as provided in Paragraph 8.c. above or expires, Licensee may for a period of
ninety (90) days after expiration of the term of this License or notice of
termination dispose of, through Licensee's existing, recognized network of
distributors, Products, the samples for which have previously been approved as
provided under this agreement and that are in process or on hand at the date of
expiration of the term of this License or the time such notice of termination is
received; but in such event Licensee shall pay royalties and furnish statements
with respect to said period in accordance with the terms of this agreement as
though the License were still in effect; except that if this License is
terminated for failure of Licensee to pay those royalties required under the
terms of this agreement, Licensor shall be entitled to receive and Licensee
shall pay to Licensor, in addition to Earned Royalties payable on such sale, all
amounts received by Licensee for the sale of such Products until all past due
amounts, including interest thereon, have been paid.
e. Equitable Relief: Subject to Paragraph 8.d. above, Licensee hereby
acknowledges that its failure to cease the manufacture, sale or distribution of
the Products, Wrapping Materials and Related Materials upon the termination or
expiration of this agreement, will result in damage to Licensor and to the
rights of any subsequent licensee for which there is no adequate remedy at law.
Accordingly, in the event of such failure, Licensor shall be entitled to
equitable relief by way of temporary and permanent injunction and such other
relief as any court of competent jurisdiction may deem just and proper. In this
regard Licensee hereby consents to the judgment of temporary and permanent
injunction in favor of Licensor in order to give effect to this Paragraph 8.e.
f. Continuity of Sales: In order to enable Licensor to maintain continuity of
sales of the Products upon expiration or termination of this agreement, Licensor
shall have the right, notwithstanding anything to the contrary contained in
Paragraph l.a. hereof, to authorize another person or firm
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to manufacture, to show, and to solicit and receive orders for, the
Products for a time three (3) months preceding the expiration of this
agreement, or from the time that notice is given of termination of this
agreement, whichever is sooner. Such person or firm shall not, however, be
authorized to ship to its customers any of the Products so manufactured and
shown until after this agreement has expired or has been terminated.
g. Guaranteed Royalties: Anything in this agreement to the contrary
notwithstanding, if Licensor terminates this agreement as a result of
default by Licensee, Licensee shall immediately pay to Licensor as
liquidated damages all outstanding Guaranteed Royalties required to be paid
during the "Full Term" (as hereinafter defined) of this agreement in
addition to any Earned Royalties that may be due through the effective date
of termination. As used in this Paragraph 8.g., "Full Term" shall mean
each and every License Year of the initial term and any renewal term that
may be in effect at the time of such termination as if this agreement had
not been terminated as contemplated under this Paragraph 8.g.
9. NOTICES. All notices, requests, consents, demands and other communications
required or permitted by the terms of this agreement shall be in writing and
shall be sent to Licensee at the address specified in Paragraph S.2. of the
Schedule and to Licensor at the address specified in Paragraph S.1. of the
Schedule marked, Attention: General Counsel. All reports required or permitted
by the terms of this agreement shall be sent marked, Attention: Licensing
Operations Director. All material requiring approval shall be sent to Licensor
at 919 North Michigan Avenue, Chicago, Illinois 60611 marked, Attention: Vice
President, International Licensing or to such different or additional parties
and addresses as A. William Stokkan or Licensor may hereafter designate from
time to time. All notices and other material shall be sent postage prepaid,
certified or registered mail, return receipt requested or by telex or facsimile,
provided answer-back confirmation is requested and received. Notices and other
material shall be deemed conclusively to have been served when actually received
or refused by the addressee or upon notification of non-deliverability by the
postal authorities, or upon receipt of answer-back confirmation in the case of
telex or facsimile as the case may be. Notice of any change of address or
addressee shall be made in accordance with the terms of this Paragraph 9.
10. INVALIDITY. If any provision or any application of any provision hereof is
adjudged illegal, unenforceable or invalid and such adjudication has become
final and non-appealable, such provision or application shall be deemed deleted
without affecting the remainder of this agreement unless such deletion shall
have a material adverse effect upon the rights or obligations of either party
hereto and notice of such effect is given as provided in the
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following sentence. Either party may notify the other within forty-five (45)
days after such adjudication has become final and non-appealable that in its
opinion such deletion would have a material adverse effect upon the notifying
party and that the License is terminated by reason thereof; but the existence of
such effect and the termination of the License shall be subject to contest by
the party receiving such notice if it notifies the other party, within forty-
five (45) days after service of the notice of termination upon it, of its desire
so to contest the matter and thereafter proceeds promptly with a proceeding so
to contest the matter. During such time as the matter is being contested, this
agreement shall remain in full force and effect.
11. CONSENTS AND APPROVALS. In this agreement where the consent or approval of
Licensor is required to any action of Licensee, such consent or approval shall
only be effective if granted in writing by Licensor. If Licensor fails or
declines to grant such consent or approval to Licensee, Licensor shall not be
liable to give any reason therefore nor for any events or circumstances that
arise as a result of such failure.
12. APPLICABLE LAW. This agreement shall be governed by the laws of the State
of Illinois (U.S.A.).
13. BROKER. Licensee and Licensor acknowledge that P&B Company, Inc. acted as
broker for this agreement. Licensee is under no obligation to pay any brokerage
fees or commissions in connection with this agreement.
14. TITLES. The titles to the sections, subsections or other headings in this
agreement are for reference purposes only and shall not define, limit or affect
the meaning or interpretation of this agreement.
15. ENTIRE AGREEMENT. This agreement represents the entire understanding of
the parties. None of the terms of this agreement can be waived or modified
except by an express agreement in writing signed by the parties. There are no
representations, promises, warranties, covenants or undertakings other than
those contained in this agreement. The failure of either party hereto to
enforce, or the delay by either party in enforcing, any of its rights under this
agreement shall not be deemed as constituting a waiver or a modification thereof
and either party may, within the time provided by applicable law, commence
appropriate proceedings to enforce any or all of such rights. No person, firm,
group or corporation other than Licensee, Licensor, its subsidiaries and
affiliates shall be deemed to have acquired any rights by reason of anything
contained in this agreement.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed as of the day and year first above written.
PLAYBOY ENTERPRISES, INC.
(LICENSOR)
By /s/ W. Stokkan
_______________________________________
CHAIFA INVESTMENT, LIMITED
(LICENSEE)
By /s/ W. Stokkan
_______________________________________
For and on behalf of
CHAIFA INVESTMENT LIMITED
/s/ John Chan Chun Tung
.........................................
Authorized Signature
-23-
<PAGE>
ADDENDUM
ATTACHED TO AND MADE A PART OF
THE PRODUCT LICENSE AGREEMENT
BETWEEN
PLAYBOY ENTERPRISES, INC.
AND
CHAIFA INVESTMENT LIMITED
DATED AS OF
SEPTEMBER 26, 1989
1. b. (ii) If, but only if, Licensee's "net sales" (as hereinafter defined) in
the License Year that ends September 30, 1994 equals or exceeds Hong Kong
Fifty Million (HK$50,000,000.00), Licensee shall have the option of
renewing this agreement on the same terms and conditions, except as
hereinbelow provided, for an additional five (5) License Years (from
October 1, 1994 through September 30, 1999). Licensee must exercise its
option, if applicable, in writing, not less than ninety (90) days prior to
September 30, 1994. In the event Licensee exercises its option, the
"Guaranteed Royalties" (as hereinafter defined) for each License Year of
such additional term shall be One Hundred Thousand Dollars ($100,000.00
U.S.) and the Minimum Net Sales of each License Year of such additional
term shall be Hong Kong Fifty Million (HK$50,000,000.00). If Licensee fails
to exercise its option or exercises its option, but fails to meet the
minimum net sales requirements, the exercise of such option shall be null
and void and of no force and effect.
<PAGE>
Exhibit 10.16(b)
CHINA AGREEMENT
INDEX TO CHAIFA INVESTMENT, LIMITED
PRODUCT LICENSE AGREEMENT
-------------------------
THE SCHEDULE
<TABLE>
<CAPTION>
PARAGRAPH PAGE NO.
- --------- --------
<S> <C>
1. GRANT OF LICENSE
a. Grant 1 - 2
b. Term 2
c. License Year and License Quarter 2
d. Territory 3
e. Minimum Net Sales 3
2. COVENANTS OF LICENSEE
a. Use 3 - 4
b. Best Efforts 4
c. Royalties
(i) Guaranteed Royalties 5
(ii) Earned Royalties 5
(iii) Interest 5
d. Statements 5 - 6
e. Payments 6 - 7
f. Records and Audit 7 - 8
g. Expenses of Conducting Examinations 8
h. Product Quality 8 - 9
i. Approval of Products, Wrapping
Materials and Related Materials 9 - 10
j. Title and Protection and Preservation
of Trademarks and Copyrights 10 - 12
k. Right to Subcontract and
Lists of Sources and Customers 12 - 13
l. Production Costs 13
m. Inventory 13
n. Trademarks and Non-Competitive Brands 13 - 14
o. Indemnification and Product Liability
Insurance 14 - 15
p. Advertisinq Expenditures 15
3. ADDITIONAL COVENANTS OF THE PARTIES
a. Reservation of Rights 16
b. Rights of Licensor 16
4. TITLE AND PROTECTION
a. Indemnification by Licensor 17
b. Enforcement 17 - 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CHAIFA INVESTMENT, LIMITED
PRODUCT LICENSE AGREEMENT
-------------------------
(Continued)
PARAGRAPH PAGE NO.
- --------- -------
<S> <C>
5. RELATIONSHIP BETWEEN THE PARTIES
a. No Joint Venture 18
b. Assignment 18
6. SUBLICENSING 19
7. DEFAULTS AND RIGHTS OF TERMINATION
a. Defaults and Right to Cure 19
b. Bankruptcy or Assignment for Creditors,
Business Discontinuance 19
c. Loss of Trademark Rights 19 - 20
d. Impossible Performance 20
8. TERMINATION OR EXPIRATION
a. Effect of Termination or Expiration 20
b. Reserved Rights 20
c. Inventory 20 - 21
d. Continued Sales After Termination or
Expiration 21
e. Equitable Relief 21
f. Continuity of Sales 22
g. Guaranteed Royalties 22
9. NOTICES 22 - 23
10. INVALIDITY 23
11. CONSENTS AND APPROVALS 23
12. APPLICABLE LAW 23
13. NO BROKER 23
14. TITLES 23
15. ENTIRE AGREEMENT 23 - 24
</TABLE>
<PAGE>
THE SCHEDULE referred to in the Agreement dated as of March 4, 1991
<TABLE>
<CAPTION>
<C> <C> <S>
S.l. THE LICENSOR: Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
S.2. THE LICENSEE: Chaifa Investment, Limited
Unit 1, 17/F Westlands Centre
20 Westlands Road, Quarry Bay
Hong Kong
S.3. THE TRADEMARKS: PLAYBOY and RABBIT HEAD DESIGN
S.4. THE TYPE OF LICENSE: Exclusive
S.5. THE USE OF THE TRADEMARKS: Design, manufacture, advertise, sell
and distribute
S.6. THE PRODUCTS: Clothing specifically, men's and
ladies underwear, swimwear, socks,
robes, pajamas, outerwear, shirts,
activewear, jeans and jeanswear,
suits, scarves, hankies, ties, hats,
caps, wristbands, headbands, shoes,
and small leather goods, specifically,
belts and luggage including tote bags.
S.7. THE TERRITORY: People's Republic of China
S.8. THE COMMENCEMENT DATE: January 1, 1991
THE EXPIRATION DATE: December 31, 1994
S.9. THE GUARANTEED ROYALTY:
</TABLE>
1st License Year (01/01/91 - 12/31/91) - $50,000
2nd License Year (01/01/92 - 12/31/92) - $50,000
3rd License Year (01/01/93 - 12/31/93) - $50,000
4th License Year (01/01/94 - 12/31/94) - $50,000
<PAGE>
THE SCHEDULE (Continued)
S.10. THE EARNED ROYALTY:
Five percent (5%) of "net sales" (as defined in Paragraph 2.d.(ii) of
the agreement) of the Products.
S.11. MINIMUM NET SALES: 0
S.12. THE ADDRESS WHERE BOOKS KEPT: See S.2
PLAYBOY ENTERPRISES, INC.
(LICENSOR)
By /s/ M. E. Levenson
--------------------------------
CHAIFA INVESTMENT, LIMITED
(LICENSEE)
By /s/ John Chan Chun Tung
--------------------------------
<PAGE>
CHAIFA INVESTMENT, LIMITED
--------------------------
This agreement is made as of the 4th day of March, 1991, between the
corporation described in Paragraph S.1. of the Schedule attached hereto and made
a part hereof (hereinafter called "Licensor") and the corporation described in
Paragraph S.2. of the Schedule (hereinafter called "Licensee").
WHEREAS, Licensor has certain rights to the trademark PLAYBOY and other
trademarks identified in Paragraph S.3. of the Schedule (hereinafter
collectively referred to as the "Trademarks");
WHEREAS, Licensee recognizes that the Trademarks have been used:
a. in an internationally distributed magazine (Playboy) published by
Licensor or its subsidiaries, affiliates or licensees;
b. in widespread advertising, publicity, broadcasting and
telecasting and allied fields by Licensor, its subsidiaries and affiliates;
c. in promotional and advertising material in diverse businesses by
Licensor, its subsidiaries and affiliates;
d. in the manufacture, advertisement, distribution and sale world-
wide of a broad range of consumer products, including, but not limited to,
jewelry, clothing, footwear, leather goods, audio and visual recordings,
and personal health and home articles and accessories;
WHEREAS, the parties hereto desire that Licensor grant to Licensee a
license to use the Trademarks in the design, manufacture, advertising and sale
of "Products" (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual promises herein contained,
it is mutuallY aqreed as follows:
1. GRANT OF LICENSE.
----------------
a. Grant:
-----
(i) Upon and subject to the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee, and Licensee hereby accepts
the right, license and privilege specified in Paragraph S.4. of the
Schedule, of using the Trademarks in connection with, and only with,
the use, specified in Paragraph S.5. of the Schedule, of specifically
designated and approved articles of merchandise specified in Paragraph
S.6. of
<PAGE>
the Schedule (such articles of merchandise bearing the Trademarks are
hereinafter collectively referred to as the "Products") in the
territory specified in Paragraph S.7. of the Schedule (hereinafter
called the "Territory"). Such right, license and privilege is
hereinafter called the "License."
(ii) Nothing contained in this agreement shall prevent Licensor
from (a) using or granting others the right or license to use the
Trademarks on or in connection with the Products in any area of the
world other than the Territory or on or in connection with any goods
other than the Products in any area of the world including the
Territory, (b) manufacturing or having manufactured in the Territory
the Products for sale outside the Territory, or (c) producing or
having produced limited quantities of the Products to be used in the
Territory specifically for promotional and advertising purposes and
not for sale. In-house direct mail order sales, premium sales and
incentive sales of the Products are specifically excluded from this
License and are expressly reserved by Licensor.
b. Term: The term of this License shall commence on the date
specified in Paragraph S.8. of the Schedule (hereinafter called
"Commencement Date") and shall expire on the date specified in Paragraph
S.8. of the Schedule, unless sooner terminated as provided under this
agreement.
c. License Year and License Ouarter:
--------------------------------
(i) For all purposes under this agreement a "License Year" shall
be twelve (12) consecutive calendar months commencing on the
Commencement Date and ending twelve (12) months thereafter and each
twelve (12) month period thereafter, and if the termination or
expiration of this License is effective other than at the end of such
twelve (12) month period, then the final less than twelve (12) month
period ending on the effective date of termination or expiration shall
be deemed to be a License Year.
(ii) For all purposes under this agreement, a "License Quarter"
shall be the first (lst) and each succeeding three (3) month period of
each License Year; and if the termination of this License is effective
other than at the end of a License Year, then the final less than
three (3) month period ending on the effective date of termination
shall be deemed to be a License Quarter.
2
<PAGE>
d. Territory: The License shall extend only to the Territory and the use by
Licensee of the Trademarks shall be confined to the Territory.
e. Minimum Net Sales: Anything in this agreement to the contrary
notwithstanding, if Licensee's "net sales" (as hereinafter defined), in any
License Year shall be less than the Minimum Net Sales specified in Paragraph
S.11. of the Schedule for the Territory in such License Year, then Licensor
shall have the right at any time to either declare the License in the Territory
to be a non-exclusive License thereby giving Licensor the right to design,
manufacture, advertise, distribute and sell the Products itself or grant non-
exclusive licenses to other parties to design, manufacture, advertise,
distribute and sell the Products; or terminate the License herein granted by
notifying Licensee of its election to terminate within thirty (30) days after
Licensor's receipt of the statement for such License Year for which Minimum Net
Sales were not attained. Such declaration of non-exclusivity or termination as
set forth above shall have no effect upon the amounts due and payable to
Licensor for periods prior to or after such declaration or deletion or prior to
termination.
2. COVENANTS OF LICENSEE.
a. Use:
(i) Subject to Licensor's prior approval as hereinafter required,
Licensee shall commence the manufacture, sale and distribution of each and
every one of the Products as soon as practicable after the Commencement
Date. If Licensee has not commenced the manufacture, sale and distribution
of an approved line of Products within 6 months (180 days) of the
Commencement Date, Licensor may elect to treat such an occurrence as an
incurable default by Licensee under this agreement. If, during any License
Year, Licensee has not on a regular and ongoing basis sold or distributed
any specific Product within the category of Products under Paragraph S.6.
of the Schedule in the Territory, Licensor shall have the right to delete
any one or more of such Products from this License upon not less than
thirty (30) days prior written notice to Licensee with the effect that
Licensee shall have no further right to manufacture, sell or distribute
such Products and Licensor may license such right to manufacture, sell or
distribute to any party Licensor may designate.
(ii) Licensee shall not cause or authorize any use of the Trademarks
in any area of the world outside the Territory and shall not knowingly
manufacture, sell or otherwise deal with or distribute any of the Products
on
3
<PAGE>
behalf of, or to, any person, firm or corporation, that Licensee believes
or has reason to believe intend, or are likely, to deal with the same in
any way outside the Territory. Licensee shall, upon notice from Licensor,
immediately and permanently cease delivering Products to any person, firm
or corporation named in such notice as one that directly or indirectly
deals with the Products outside the Territory. (However, Licensee may
manufacture the Products outside the Territory provided that Licensee
strictly complies with Paragraph 2.k. herein.)
(iii) Licensee warrants and represents that it has, and will continue
to have throughout the entire term of this agreement, the legal right to
enter into this agreement and to assume the obligations hereunder and that
there are no, and Licensee shall not enter into during the term hereof,
contracts, agreements or understandings with anyone which would in any way
restrict or prevent Licensee or Licensor from their performances and
obligations under this agreement or which would in any way interfere with
Licensor's contractual relationships with any other Licensees,
subsidiaries, affiliates or other 3rd parties. Licensee shall be
responsible for obtaining, at its own expense, any and all licenses,
permits, approvals (including governmental or other agency licenses,
permits and approvals) necessary for Licensee to design, manufacture,
advertise, distribute and sell the Products, or to pay royalties or taxes
or to fulfill any other obligation or exercise any right of Licensee under
this License. In the event Licensee is unable, for any reason, to obtain
prior to the Commencement Date or maintain throughout the term of this
License all of the necessary permits, licenses or approvals, Licensor shall
have the right to terminate this agreement upon notice to Licensee without
any period of grace and without any obligation to Licensee whatsoever.
b. Best Efforts: Licensee shall, throughout the term of the License and
as permitted by this agreement, constantly use its best efforts in the
advertising, promoting, selling and distributing and any other dealing with or
disposal of the Products to protect the good name and goodwill associated with
the Trademarks and Licensor and to obtain the greatest number of sales of the
Products throughout the entire Territory and the entire term of this agreement.
4
<PAGE>
c. Royalties:
(i) Guaranteed Royalties: Licensee shall pay to Licensor or its
nominee guaranteed minimum royalties (hereinafter called "Guaranteed
Royalty" or "Guaranteed Royalties") in the amount specified in Paragraph
S.9. of the Schedule; which shall be payable in four (4) equal installments
with each such installment due on or before the first (lst) day of each
License Quarter of each such License Year. Licensee's obligation to pay
Guaranteed Royalties hereunder shall be secured by an irrevocable letter of
credit in Licensor's favor in form and content reasonably satisfactory to
Licensor and drawn on a bank reasonably satisfactory to Licensor. Licensee
will provide Licensor with a copy of such letter of credit upon execution
of this agreement for the first (lst) License Year and will provide
Licensor with letters of credit for each subsequent License Year not later
than thirty (30) days prior to the first (lst) day of each such subsequent
License Year.
(ii) Earned Royalties: In addition to Guaranteed Royalties, Licensee
shall pay to Licensor or its nominee percentage royalties (hereinafter
called "Earned Royalties") for each License Year in the amount equal to the
amount by which in each License Year the amount specified In Paragraph
S.10. of the Schedule exceeds the Guaranteed Royalty for such License Year.
Earned Royalties shall be payable in accordance with the terms and
conditions of Paragraph 2.d. and 2.e. below.
(iii) Interest: All sums including but not limited to the Guaranteed
and Earned Royalties, that shall not be paid on the due date shall bear
interest at an amount equal to the highest percentage allowed by law over
the prime rate of interest as established by The First National Bank of
Chicago in Chicago, Illinois applicable to ninety (90) day commercial loans
effective on the date that such sum should have been paid from such due
date until the date on which such sum is paid in full.
d. Statements:
(i) Within forty-five (45) days after each License Quarter, Licensee
shall furnish to Licensor or its nominee a complete and accurate statement
in a format acceptable to Licensor certified to be true by the Chief
Financial Officer or Company Secretary of Licensee showing for the
preceding License Quarter and the License Year through such period (a) a
listing of Licensee's accounts in each country of the Territory and the
units and description of all the Products distributed and sold
5
<PAGE>
to each such account or otherwise disposed of by Licensee; (b) the
computations of "net sales" (as hereinafter defined) on all such sales; and
(c) the computation of Earned Royalties as set forth in Paragraph 2.c.(ii)
hereof and the amount of Earned Royalties due and payable thereon. When
during any License Year such statement shows that the amount of the
Guaranteed Royalty for such License Year has been exceeded, Licensee shall
commence payment of Earned Royalties for such License Year by remittance,
accompanying such statement, of Earned Royalties payable through the period
covered by such statement. Any overpayments or underpayments of Earned
Royalties caused by errors in prior quarterly statements revealed by the
statement for the last License Quarter of any License Year shall be
immediately adjusted by the parties. Such statement shall also reflect the
advertising expenditures made by Licensee through such period pursuant to
Paragraph 2.o. hereof (which will include the details of all such
advertising expenditures, supported by copies of vouchers and copies of any
print advertising).
(ii) As used in this agreement, the term "net sales" means the invoice
price charged by Licensee for the Products less (x) refunds, credits and
allowances actually made or allowed to customers for returned Products, (y)
customary trade discounts (including anticipations) afforded to and
actually taken by customers against payment for the Products and (z) value
added tax assessed on sales (only where applicable). If Licensee sells
Products to a marketing organization or any individual or company in whole
or in part controlled by Licensee, the invoice price used to determine net
sales hereunder shall be the invoice price at which the Products are resold
by such entity to an unrelated customer in an arm's length transaction
(iii) In the event the percentage of returns of Products in any
License Year exceeds thirty percent (30%) of net sales for such License
Year, Licensor may elect to treat such an occurrence as an incurable
default by Licensee under this agreement.
e. Payments.
(i) All payments Licensee is required to make by the terms of this
Agreement shall be made in United States Dollars through a bank specified
by Licensor. No deduction shall be made for income or other taxes without
Licensor's written permission, unless Licensee is compelled to do so by
law; in which case Licensee shall provide Licensor with evidence that such
tax has been
6
<PAGE>
paid in the proper amount. Licensee shall give due notice to Licensor of
any such proposed deductions. In the event payments in the manner provided
in this Paragraph 2.e. shall become impossible or illegal by reason of the
action of governmental authority, then, at Licensor's option, this
Agreement may be terminated; and whether or not Licensor exercises such
option, while such restrictions remain in effect, all payments due Licensor
shall be made to an account in the Territory, or elsewhere where permitted
by law, to be designated by Licensor.
(ii) In determining the proper rate of exchange to be applied to the
payments due hereunder, it is agreed that:
(a) Licensee shall calculate Earned Royalties on a calendar month
basis in local currency (with each such month considered to be a
separate accounting period for the purpose of computing Earned
Royalties).
(b) Licensee shall compute a conversion of each such monthly
total into United States currency utilizing the rate of exchange in
effect on the last day of each relevant calendar month as determined
by the Bankers Trust Co. of New York City, New York (U.S.A.).
(c) The converted amounts (in U.S. currency) shall be added
together on a cumulative basis and when during any License Year such
computation shows that the amount of the Guaranteed Royalty for such
License Year has been exceeded, Licensee shall commence payment of
Earned Royalties for such License Year by remittance of such excess in
U.S. currency to Licensor; which remittance will accompany the
statement required by Paragraph 2.d.(i) hereof. If there is no excess,
no Earned Royalties will be payable for such License Year by Licensee
(but in no event shall Licensor be responsible for returning to
Licensee any portion of the Guaranteed Royalties paid or payable).
f. Records and Audit: Licensee shall keep accurate books of account and
records (including but not limited to utilization of consecutively numbered
invoices) covering all transactions relating to this agreement or arising out of
this License (which records shall be maintained separately from Licensee's books
and records relating to other items manufactured or sold by Licensee) and shall
permit Licensor or any of its nominees, employees or agents to have full
7
<PAGE>
access to and to inspect the same at all reasonable hours of the day to enable
Licensor and its nominees, employees or agents to conduct an examination of and
to copy, at Licensor's expense, all such books and records. Licensee shall
maintain in good order and condition all such books and records for a period of
two (2) years after the expiration or termination of the License or, in the
event of a dispute between the parties hereto, until that dispute is resolved,
whichever date is later, and such books and records shall be kept at the address
stated in Paragraph S.12 of the Schedule; except as such address may be changed
from time to time in accordance with Paragraph 9. hereof. Receipt or acceptance
by Licensor of any statement furnished pursuant hereto or any sums paid by
Licensee hereunder shall not preclude Licensor from questioning the correctness
thereof at any time, and if any inconsistencies or mistakes are discovered in
such statement or payment, they shall be immediately rectified and prompt
adjustment and corresponding payments shall be made to compensate therefor. In
the event of an underpayment by Licensee in excess of nine percent (9%) in any
License Year, Licensor may elect to treat such occurrence as an incurable
default by Licensee under this agreement.
g. Expenses of Conducting Examinations: If an examination referred to in
Paragraph 2.f. above discloses an overpayment or underpayment of Earned
Royalties, the appropriate amount shall be immediately paid or refunded to the
party entitled thereto. If such examination reveals that for the period covered
by such examination there is an error of five percent (5%) or more in the Earned
Royalty previously reported as being due from Licensee, all expenses involved in
the conducting of such examination shall be borne by Licensee. If such error is
less than five percent (5%), such expenses shall be borne by Licensor.
h. Product Ouality: Licensee hereby warrants and agrees that, the
Products manufactured, advertised, promoted, sold or distributed under this
agreement shall bear faithfully produced Trademarks and shall meet the high
standards of quality, workmanship, material, design, size, color and style
established by Licensor in accordance with the terms and conditions of this
agreement; and Licensee will not knowingly cause or authorize any Product not
conforming to the conditions of this agreement to be available for sale within
the Territory as doing so may adversely affect Licensor's goodwill in the
Trademarks. All Products made available for sale in the Territory shall conform
to and comply with, in all respects, all governmental, jurisdictional and local
laws, rules and regulations governing the design, quality or safety of such
Products. Licensee shall not cause or authorize: (i) the use of any substandard
or offensive materials in Products; (ii) in its actions under or related to this
License, any
8
<PAGE>
violation of any governmental, jurisdictional or local law or regulation,
including, but not limited to, regulations imposing advertising standards or
requiring trade or content description of Products; or (iii) the use of the
Trademarks or any other word, device or symbol associated in any way with
Licensor, its subsidiaries and affiliates in connection with any product or
activity that is not the subject of this License.
i. Approval of Products, Wrapping Materials and Related Materials:
(i) Licensee understands and agrees that all Products and other items
bearing the Trademarks or intended for use in connection with the Products
(including, but not limited to, cartons, containers, labels, wrappers,
packages and other inner and outer packaging materials, fixtures, displays,
artwork, printing, advertising, sales, marketing and promotional
materials - collectively hereinafter called "Wrapping Materials and Related
Materials") must be approved in advance by Licensor. Licensee shall, at its
own expense submit to Licensor or its nominee for written approval, samples
of each of the Products, Wrapping Materials and Related Materials, which
shall include, but not be limited to: (a) an initial sketch or photograph;
(b) a sample, prototype or equivalent acceptable to Licensor; and (c) two
(2) actual manufactured or produced Products, Wrapping Materials or Related
Materials in its final form as intended to be sold and distributed by
Licensee. In no event shall Licensee commence or permit the mass
manufacture, advertisement, sale or distribution of any Product, Wrapping
Material or Related Material until Licensee has received Licensor's written
approval of the actual manufactured samples of same pursuant to (c) above.
While Licensor shall have the sole and absolute discretion to approve or
withhold approval of any Product, Wrapping Material or Related Material or
any sample of them throughout each stage of development of same without
providing any reasons to Licensee, Licensor shall only withhold approval on
the actual manufactured items submitted pursuant to (c) above because such
items do not conform to the previously approved samples. In the event
Licensor fails to signify its approval or disapproval of any Product,
Wrapping Material or Related Material within fourteen (14) days of
Licensor's receipt of same, Licensor shall be deemed to have disapproved of
same.
(ii) To ensure that all of the Products, Wrapping Materials or Related
Materials dealt with by Licensee are constantly maintained in conformance
with the previously
9
<PAGE>
approved samples, Licensee shall, within seven (7) days of a demand from
Licensor, dispatch to Licensor, at Licensee's expense, samples of any of
the Products, Wrapping Materials or Related Materials that Licensee is
using, manufacturing, selling, distributing or otherwise disposing of under
the terms of this agreement for inspection. In addition, Licensor and its
designated agents and representatives shall have the right to enter upon
and inspect, at all reasonable hours in the day, any office, factory,
warehouse or other facility where any of the Products, Wrapping Materials
or Related Materials are designed, manufactured, stored or otherwise dealt
with and to take, without payment, such samples of any of the Products,
Wrapping Materials and Related Materials as Licensor reasonably requires
for the purposes of such inspection.
(iii) If any Product, Wrapping Material or Related Material dispatched
or taken pursuant to (ii) above or otherwise comes to the attention of
Licensor does not conform in Licensor's sole opinion to the previously
approved samples, Licensor shall so notify Licensee, in writing, specifying
in what respect such Product, Wrapping Material or Related Material is
unacceptable. Immediately upon receipt of such notice, Licensee shall
suspend all manufacture, sale and distribution of and shall call back from
Licensee's customers all such Product, Wrapping Material or Related
Material and shall not resume the manufacture, sale or distribution of such
item or items unless and until Licensee has made all necessary changes to
the satisfaction of Licensor and has received Licensor's written reapproval
of such Product, Wrapping Material or Related Material.
(iv) Product, Wrapping Materials or Related Materials that are not
approved by Licensor or that are determined by Licensor to be "off-quality"
shall not be sold, distributed or otherwise dealt with by Licensee. All
such Products, Wrapping Materials or Related Materials shall be destroyed
by Licensee with, if Licensor so requests, an appropriate certificate of
destruction provided to Licensor. Sales by Licensee of off-quality or
unapproved Products, Wrapping Materials and Related Materials shall
constitute a material default under the terms of this agreement.
j. Title and Protection and Preservation of Trademarks and Copyriqhts:
(i) Licensee hereby acknowledges; the great value of the goodwill
associated with the Trademarks; the worldwide recognition of the same; that
the proprietary
10
<PAGE>
rights therein, and goodwill attached thereto, are solely owned and belong
to Licensor; that the Trademarks and other words, devices, designs and
symbols have a secondary meaning that is firmly associated in the mind of
the general public with Licensor, its subsidiaries and affiliates and their
respective publications, published material and other activities; and that
any additional goodwill attached to the Trademarks, created through the use
of such Marks by Licensee shall inure to the benefit of Licensor alone.
During and after the term of the License, Licensee shall not:
(a) attack or question the validity of, or assist any other
person in such action, the title or any rights of Licensor, its
subsidiaries and affiliates or any of their respective licensees or
sublicensees in and to the Trademarks or any other trademark,
copyright or such other intellectual or intangible property associated
or connected with Licensor, its subsidiaries or affiliates or any of
its or their publications, published material or other activities or
licensees;
(b) directly or indirectly seek for itself, or assist any third
party to use or acquire, any rights, proprietary or otherwise, in any
patent, trademark, copyright or such other intellectual or intangible
property so associated or connected, without the prior written
authority of Licensor;
(c) in any way seek to avoid its obligations under this
agreement because of the assertion or allegation by any person(s)
that the Trademarks or any of them are invalid or by reason of any
contest concerning the rights of Licensor;
(d) file or prosecute trademark applications regarding Licensee's
use of the Trademarks unless asked to do so in writing by Licensor.
Licensee will cooperate with Licensor in connection with any such
filings.
(ii) Licensee shall:
(a) use the Trademarks in each jurisdiction strictly in
accordance with the legal requirements in such jurisdiction. Licensee
shall cooperate fully with Licensor in preparing and causing to be
recorded in every jurisdiction where applicable Register User
agreements and all other documents which may be necessary or desirable
to evidence, protect and implement the riqhts of Licensor
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pursuant to this agreement. Upon expiration or termination of this
agreement for any reason whatsoever, Licensee shall execute and file
documents, as required by Licensor, terminating any and all Register
User agreements and other documents regarding the Trademarks or, at
Licensor's option shall, and hereby does, authorize and empower
Licensor to terminate all Registered User or other documents regarding
the Trademarks on Licensee's behalf and in Licensee's name.
(b) affix or imprint irremovably and legibly on each Product, and
on, or within all Wrapping Material and Related Material such
trademark credit notices and copyright notices as Licensor directs;
(c) manufacture, sell, distribute or otherwise deal with Wrapping
Materials and Related Materials solely in connection with the
Products;
(d) not cause or grant permission to any third parties to acquire
any copyright or other proprietary right in connection with any word,
device, design or symbol used by Licensee in connection with any of
the Products, Wrapping Materials or Related Materials.
k. Right to Subcontract, Licensees Financial Statements and Lists of
Sources and Customers:
(i) Licensee may subcontract the manufacture of any Product (or
portion of any Product) bearing the Trademarks under this agreement
provided Licensee obtains from any and all such subcontractors an agreement
in writing, with a copy to Licensor, that no use of the Trademarks will be
made for any purpose other than supplying Products solely to Licensee;
(ii) With the statement submitted at the end of each License Year
pursuant to Paragraph 2.d.(i) hereof and at any other time so requested by
Licensor, Licensee shall provide Licensor: a) copies of Licensee's most
recent financial statements, such as annual reports, 10-K's, balance sheets
or other similar public documents that indicate Licensee's financial
status; and b) with an updated list of the names and addresses of all
manufacturing sources, suppliers, dealers, wholesalers, retailers and
customers who have been engaged in the manufacture, sale, distribution or
other dealings with the Products, Wrapping Materials and Related Materials
during the term of the License (such list shall include customers to whom
Products, Wrapping Materials or Related
12
<PAGE>
Materials have been delivered after the expiration or termination of this
License); and such list shall, if so requested by Licensor, contain the
full specification of any designs, utility models, patents or trademarks
that may be involved, directly or indirectly, in the manufacture,
production or distribution of any of the Products, Wrapping Materials or
Related Materials; and Licensee shall obtain the consent of any relevant
third parties for such disclosure.
l. Production Costs: Except as provided in Paragraphs 1.a.(ii) and 2.o.
hereof, Licensee shall be responsible for and shall assume and pay for all costs
and expenses related to the design, manufacture, sale, promotion, advertising
and distribution of the Products.
m. Inventory: It is the intent of this agreement that, insofar as
practical, Licensee shall at all times be able to fulfill all orders for
Products promptly and yet not have an excessive inventory on hand at the time of
the termination or expiration of this License. Within forty-five (45) days after
each License Year or within ten (10) days of a request from Licensor, Licensee
will furnish Licensor with a statement signed by the Chief Financial Officer or
Company Secretary of Licensee, setting forth in detail the quantities of
finished goods and work in progress inventories of the Products.
n. Trademarks and Non-Competitive Brands:
(i) Licensee shall not during or after the term of this agreement use
or cause or authorize to be used any words, device, design or symbol
confusingly similar to the Trademarks. Permutations of the Trademarks,
secondary marks or new words, devices, designs, slogans or symbols shall
not be used on or in connection with the Products without Licensor's prior
written consent and approval. Upon such authorization by Licensor and use
by Licensee, such permutations, secondary marks, words, devices, designs,
slogans and symbols shall be and become the property of Licensor and shall
be included as Trademarks subject to this agreement. Should Licensee create
or develop any packaging or tradedress unique to the Products, such
packaging or tradedress shall be and become the property of Licensor and
shall not be used by Licensee on or in connection with any other product or
merchandise during or after the term of this agreement. Upon termination or
expiration of this agreement or at any other time Licensor so requests,
Licensee will assign, without charge to Licensor, all of Licensee's right,
title and interest, including all rights of copyright, in and to such
packaging or tradedress and shall cooperate fully with Licensor in
preparing and
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<PAGE>
recording whatever documentation may be necessary to effect said
assignment.
(ii) Licensee shall not during the term of this agreement manufacture,
distribute, advertise, promote, sell or deal with in any way in the
Territory any product that is in Licensor's sole and absolute judgment
competitive with the Products produced by Licensee under this agreement
without Licensor's prior written consent.
(iii) Licensee shall not during or after the term of this agreement
and use color combinations or designs or styles unique to the Products on
or in connection with any other brand of product and will assign to
Licensor the beneficial ownership of all rights that Licensee has acquired
or may acquire in such color combinations, designs or styles upon
expiration or termination of this agreement.
o. Indemnification and Product Liability Insurance:
Licensee shall:
(i) indemnify, defend and hold Licensor, its subsidiaries and
affiliates, their respective shareholders, licensees, franchisees, and the
agents, officers, directors and employees of all the foregoing harmless
from any costs, claims, suits, losses, damages and expenses (including
attorneys' fees) arising out of or in connection with the manufacture,
sale, distribution or any other dealing whatsoever with the Products or any
other alleged action whatsoever by Licensee or arising out of any alleged
defect in any of the Products or non-conformity to or non-compliance with
any statutory or other regulations pertaining to the design, quality,
safety, advertising or marketing of the Products, Wrapping Materials and
Related Materials;
(ii) Forthwith obtain and maintain, at its own expense, satisfactory
product liability insurance in the minimum amount of Five Million Dollars
($5,000,000.00) of primary and umbrella coverage from an insurance company
reasonably satisfactory to Licensor and qualified to transact business in
the Territory (such insurance policy shall name Licensor, its subsidiaries
and affiliates, and their respective shareholders and licensees and the
agents, officers, directors and employees of all of the foregoing, as
required by Licensor, as additional insureds (as Licensors) by reason of
the indemnity contained in this Paragraph 2.o. and shall evidence the
insurer's agreement that such insurance shall not be amended, cancelled,
terminated or permitted to lapse without thirty (30) days' prior
14
<PAGE>
written notice to Licensor), and provide Licensor with a certificate of
such insurance upon execution of this agreement by Licensee and on each
anniversary date of the grant or issue of each such policy evidencing that
each such policy has not been altered with respect to Licensor, its
subsidiaries and affiliates in any way whatsoever nor permitted to lapse
for any reason, and evidencing the payment of premium of each such policy;
(iii) cause such policies to be in full force and effect prior to the
commencement of any manufacture, sale, distribution or dealing with any of
the Products whatsoever. Failure by Licensee to obtain the required
insurance prior to the commencement of any manufacture, sale, distribution
or dealing with any of the Products whatsoever or failure by Licensee to
adequately maintain such insurance during the term of this License shall
be an incurable default by Licensee under this agreement.
p. Advertisinq Expenditures: In addition to all other amounts or
payments, and not to be credited against any Guaranteed or Earned Royalty
payment otherwise required under this agreement, Licensee agrees to expend
within each License Year for advertising and promotion (specifically trade
and/or consumer media such as newspapers, magazines, television and/or radio,
but specifically excluding displays, fixtures or other point-of-sale materials),
not less than three percent (3%) of Licensee's net sales for such License Year.
A portion of such advertising sums shall be paid to Licensor as follows:
(i) Concurrently with the remittance of the statements required under
Paragraph 2.d.(i) hereof, Licensee shall remit to Licensor for use in
Licensor's advertising and promotion pool an amount equal to one percent
(1%) of Licensee's net sales for the time period covered by such statement,
which amount shall be credited against Licensee's annual advertising
expenditures required herein.
(ii) If the report included with the statement required under
Paragraph 2.d.(i) hereof for the last License Quarter of each License Year
shows that the required amount has not been spent, the difference between
the amount actually spent and the amount to be spent must be remitted to
Licensor for use in Licensor's advertising and promotion pool within thirty
(30) days after such statement is due.
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3. ADDITIONAL COVENANTS OF THE PARTIES.
-----------------------------------
a. Reservation of Rights: All rights not expressly and specifically
granted herein to Licensee are reserved by Licensor.
b. Riqhts of Licensor: Without limiting the generality of Paragraph 3.a.
hereof, nothing herein contained shall be construed as prohibiting Licensor, its
subsidiaries and affiliates from:
(i) purchasing any of the Products from Licensee and offering any
such Products for sale and selling same to consumers in connection with any
business or event operated or sponsored by Licensor, its subsidiaries and
affiliates or through a direct mail fulfillment programs which Licensor may
designate. Licensee shall have the option to fill all such orders at such prices
as given to other customers ordering the same quantities of similar merchandise.
Licensee shall have thirty (30) days from the date it receives such orders
within which to notify Licensor of the exercise of Licensee's option. In the
event Licensee does not exercise such option or fails to notify Licensor of the
exercise of such option within the thirty (30) day time limit, anything in this
Paragraph 3.b. or elsewhere in this agreement to the contrary notwithstanding,
Licensor, its subsidiaries and affiliates shall be allowed to purchase such
Products from other manufacturing sources without liability to Licensee and sell
such Products as indicated in this Paragraph 3.b.
(ii) In the event of any such sale of Products by Licensee to
Licensor, Licensee shall ship or deliver such Products either directly to
Licensor or, as Licensor may direct, to any other business concern or person.
Such sales of Products by Licensee to Licensor shall be, at Licensor's option,
at such prices less the applicable Earned Royalty. If Licensor elects to have
such sales made less the applicable Earned Royalty, Licensee will not have to
pay additional royalties on such sales and will not be required to include such
sales in the statements required under Paragraph 2.d.(i) hereof. Licensee may,
however, include such sales in the computation of net sales under Paragraph l.c.
hereof. Licensee shall bill Licensor in accordance with Licensee's normal
billing procedure for any such Products shipped or delivered.
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4. TITLE AND PROTECTION.
--------------------
a. Indemnification by Licensor: Licensor represents and warrants that: it
is the owner of the Trademarks; the Trademarks are valid; and the Trademarks
are, to the best of its knowledge, free from any claim by third parties that
would interfere with the rights granted to Licensee under this agreement.
Licensor shall indemnify, defend and hold Licensee, its agents, officers,
directors and employees harmless against any claims or suits, provided prompt
notice of which is given Licensor by Licensee, arising solely and directly out
of the authorized use of the Trademarks on the Products by Licensee in the
Territory, but in no event shall such indemnification include consequential
damages, including, but not limited to any compensation or reimbursement for
loss of prospective profits, anticipated sales or other losses occasioned by
cancellation or termination of this agreement or any other reason. Licensor
shall have the option to settle or to undertake and conduct the defense of any
such claim or suit; but Licensee shall, upon notice from Licensor and pursuant
to Licensor's instructions, handle, undertake and conduct the defense of any
such suit at Licensor's expense. If Licensor does not so notify Licensee,
Licensee may through counsel of its own choice and at its own expense
participate in any such litigation, but in such event Licensor shall have sole
and exclusive control over such defense and Licensor's decisions shall govern
and control. Licensee expressly covenants that no compromise or settlement of
any claim or suit, or any preliminary negotiations with respect to any
compromise or settlement, shall be made or entered into without the prior
written approval of Licensor.
b. Enforcement: Licensee shall promptly notify Licensor in writing of any
actual, suspected or apparent infringement or imitation of the Trademarks on
products similar or identical to the Products that may come to the attention of
Licensee. Licensor shall take that action in regard to such infringement or
imitation as Licensor, in its sole judgment, deems to be reasonable. Licensor
shall, in its sole and absolute discretion, decide whether to undertake or
conduct any suit or assert any claim with respect to such infringement or
imitation; but Licensee shall, upon notice from Licensor and pursuant to
Licensor's instructions, vigorously handle, undertake and conduct any such suit
or assert any such claim at Licensor's expense in the name of Licensor, or
Licensee or in both names as Licensor may direct. Licensee expressly covenants
that no compromise or settlement of any such suit or claim, or any preliminary
negotiations with respect to any compromise or settlement, shall be made or
entered into without the prior written approval of Licensor. Licensee may share
in any damage recovery obtained by Licensor as a result of any such suit or
claim only if
17
<PAGE>
Licensee notified Licensor upon the initiation of such suit or claim that
Licensee desires to participate financially in such suit or claim and only
in an amount that shall bear the same ratio to the damage recovery as the
amount of Licensee's financial participation bears to the total costs and
expenses incurred by Licensor in obtaining such damage recovery. In no
event shall Licensor be responsible to Licensee for any consequential
damages that may result from such infringement or imitation.
5. RELATIONSHIP BETWEEN THE PARTIES.
--------------------------------
a. No Joint Venture: Nothing herein contained shall be construed to
place the parties in the relationship of partners or joint venturers, and
Licensee shall have no power to obligate or bind Licensor, its subsidiaries
or affiliates in any manner whatsoever.
b. Assignment:
----------
(i) Licensor, in entering into this agreement, is relying
entirely upon the skills, reputation and personnel, including the
officers, directors and shareholders, of Licensee. This agreement and
all rights and duties hereunder are personal to Licensee and shall
not, without the prior consent of Licensor (which may be given or
withheld in the sole discretion of Licensor), be sold, transferred,
leased, assigned, mortgaged or otherwise encumbered by Licensee or by
operation of law. Any attempt to sell, transfer, lease, assign,
mortgage or otherwise encumber this agreement, or any of the rights
and duties hereunder, or any change in the principal officers,
principal directors or shareholders of Licensee or an entity having a
financial interest in Licensee (other than non-controlling
shareholders of a corporation whose shares are freely traded on a
nationally recognized stock exchange), without the prior written
consent of Licensor shall constitute a material violation of and an
incurable default under this agreement. The consent of Licensor to any
one assignment or transfer shall not be deemed to be consent to any
subsequent assignment or transfer.
(ii) Licensor may assign this agreement to any of its
subsidiaries or affiliates or to any entity that succeeds to the
interest of Licensor in the Trademarks without the consent of Licensee
and shall have the right to nominate any other person, company or
corporation to receive royalty income or to undertake the obligations
of Licensor under the terms of this agreement whether or not this
agreement is so assigned.
18
<PAGE>
6. SUBLICENSING. Licensee may not, without the prior written approval of
Licensor, whose approval may be withheld without providing any reasons and whose
discretion shall be final and absolute, enter into sublicense or subcontract
agreements for any of the rights or obligations of Licensee under this License.
The consent of Licensor to any one sublicense shall not be deemed to be a
consent to any subsequent sublicense.
7. DEFAULTS AND RIGHTS OF TERMINATION.
----------------------------------
a. Defaults and Right to Cure: If Licensee shall violate any of its
obligations or warranties under the terms of this agreement, Licensor shall
have the right and option, but not the duty, to terminate this License upon
ten (10) days' prior written notice, but no neglect or failure to serve
such notice shall be deemed to be a waiver of any breach of any covenant or
stipulation under this agreement. Such termination of this License shall
become effective unless the violation complained of shall be completely
remedied to the satisfaction of Licensor within such ten (10) day period.
If the violation complained of is of a kind that a remedy or cure cannot
effectively restore the prior circumstances, then this agreement shall
terminate forthwith upon service of such notice without any period of grace
as aforesaid. The termination of this License shall be without prejudice to
any rights that Licensor may otherwise have against Licensee under this
agreement or under law.
b. Bankruptcy or Assignment for Creditors' Business Discontinuance:
If Licensee files a petition in bankruptcy or is adjudicated a bankrupt, or
if a petition in bankruptcy is filed against Licensee, or if Licensee shall
become insolvent or shall make or agree to make an assignment for the
benefit of creditors or an arrangement pursuant to any bankruptcy law, or
if Licensee discontinues business, or if a receiver shall be appointed for
Licensee, this License shall automatically terminate forthwith without the
necessity of any notice whatsoever. If this License is so terminated,
Licensee or its receivers, representatives, trustees, agents,
administrators, successors or assigns shall have no right to sell, exploit
or in any way deal with any Products, Wrapping Materials or Related
Materials, except with and under the special written consent and
instructions of Licensor that they shall be obligated to follow.
c. Loss of Trademark Riqhts: If Licensee's right to use the
Trademarks is adjudged illegal or invalid, and such adjudication has become
final and non-appealable, or if a settlement agreement is entered by
Licensor into that prohibits Licensee's right to use the Trademarks, this
License shall automatically terminate as of the date of such final and non-
appealable adjudication or the entry of such settlement
19
<PAGE>
agreement without the necessity of any notice whatsoever. Licensee shall
have no claim of any nature against Licensor for the loss of the right to
use the Trademarks.
d. Impossible Performance: Licensee and Licensor shall be released
from their respective obligations under this agreement and this License
shall terminate, if governmental regulations or other causes arising out of
a state of national emergency or war, or any other similar cause beyond the
control of the parties hereto, shall render performance impossible. Either
party shall so inform the other in writing of any such cause and of its
desire to be released, and immediately thereafter this License shall
terminate and all royalties on sales of the Products theretofore made shall
become immediately due and payable.
8. TERMINATION OR EXPIRATION.
-------------------------
a. Effect of Termination or Expiration: Upon and after the
expiration or termination of this License, all rights granted to Licensee
under this agreement shall forthwith revert to Licensor. Licensee will
refrain from any further use of the Trademarks or any further reference to
anything, including but not limited to words, devices, designs and symbols,
similar to the Trademarks or in any way associated with Licensor, its
subsidiaries and affiliates, in connection with the conduct of Licensee's
business, except with the written consent of Licensor and except as
expressly provided in this Paragraph 8.
b. Reserved Rights: The expiration or termination of this License
under any of the terms of this agreement shall not relieve Licensor or
Licensee, respectively, of any obligations incurred prior or subsequent to
such expiration or termination; nor shall expiration or termination impair
or prejudice any of the rights of Licensor or Licensee, respectively,
accruing prior or subsequent thereto. Upon termination, the Guaranteed
Royalty for the then current License Year shall be prorated based on the
ratio that the number of days in such License Year prior to termination
bears to the number of days in the License Year had the agreement not been
terminated. Earned Royalties due for such License Year shall be the excess
of Earned Royalty over such prorated Guaranteed Royalty. Any overpayment or
underpayment of Guaranteed or Earned Royalties shall be adjusted by the
parties in accordance with Paragraph 2.d.(i) hereof.
c. Inventory: Within ninety (90) days prior to the expiration of
this License, or within ten (10) days after (i) receipt of notice of
termination or (ii) the happening of any event that terminates this License
where no such notice is required, Licensee shall furnish to Licensor a
complete and
20
<PAGE>
accurate statement showing the number and description of all Products in
process and on hand. Licensor or its authorized agents shall have the right
to conduct a physical inspection and take inventory to ascertain or verify
such inventory and statement, and any refusal by Licensee to submit to such
physical inventory by Licensor or its authorized agents shall forfeit
Licensee's right to complete any work in process and to dispose of any such
inventory; Licensor retaining all other legal and equitable rights it may
have in the circumstances, which rights are hereby reserved.
d. Continued Sales After Termination or Expiration: Upon the
expiration of the term of this License or if this License is terminated
pursuant to any paragraph of this agreement except paragraphs 2.i. or 7.b.
hereof, and except as provided in Paragraph 8.c. and provided Licensee is
in complete compliance with the payment of all royalties or other amounts
owed to Licensor, Licensee may for a period of ninety (90) days after the
Expiration Date or notice of termination (the "Sell-off Period") dispose
of, through Licensee's existing, recognized network of distributors,
Products that have been approved by Licensor and that are in process or on
hand at the date of expiration of the term of this License or the time such
notice of termination is received; but in such event Licensee shall pay
royalties and furnish statements with respect to the Sell-off Period in
accordance with the terms of this agreement as though this License were
still in effect. It is expressly understood and accepted by Licensee that
the Sell-off Period provided for under this Paragraph 8.d. shall be non-
exclusive. If this License is terminated pursuant to Paragraphs 2.i. or
7.b. hereof or for failure of Licensee to pay royalties or any other
payment required under the terms of this agreement, Licensor shall forfeit
any and all rights to a Sell-off Period and shall be obligated to turn over
to Licensor all Products in process or on hand at the time of termination.
e. Equitable Relief: Subject to Paragraph 8.d. above, Licensee hereby
acknowledges that its failure to cease the manufacture, sale or
distribution of the Products, Wrapping Materials and Related Materials upon
the termination or expiration of this agreement, will result in damage to
Licensor and to the rights of any subsequent licensee for which there is no
adequate remedy at law. Accordingly, in the event of such failure, Licensor
shall be entitled to equitable relief by way of temporary and permanent
injunction and such other relief as any court of competent jurisdiction may
deem just and proper. In this regard Licensee hereby consents to the
judgment of temporary and permanent injunction in favor of Licensor in
order to give effect to this Paragraph 8.e.
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f. Continuity of Sales: In order to enable Licensor to maintain
continuity of sales of the Products upon expiration or termination of this
agreement, Licensor shall have the right, notwithstanding anything to the
contrary contained in Paragraph l.a. hereof, to authorize another person or
firm to manufacture, to show, and to solicit and receive orders for, the
Products for a time three (3) months preceding the expiration of this
agreement, or from the time that notice is given of termination of this
agreement, whichever is sooner. Such person or firm shall not, however, be
authorized to ship to its customers any of the Products so manufactured and
shown until after this agreement has expired or has been terminated (but
may ship Products on a nonexclusive basis during the Sell-Off Period, if
any, pursuant to Paragraph 8.d. hereof).
g. Guaranteed Royalties: Anything in this agreement to the contrary
notwithstanding, if Licensor terminates this agreement as a result of
default by Licensee, Licensee shall immediately pay to Licensor as
liquidated damages all outstanding Guaranteed Royalties required to be paid
during the "Full Term" (as hereinafter defined) of this agreement in
addition to any Earned Royalties that may be due through the effective date
of termination. As used in this Paragraph 8.g., "Full Term" shall mean each
and every License Year of the initial term and any renewal term that may be
in effect at the time of such termination as if this agreement had not been
terminated as contemplated under this Paragraph 8.g.
9. Notices. All legal notices, consents, and other communications
required by the terms of this agreement, including any change of address or
addressee, shall be in writing and shall be sent to Licensee at the address
specified in Paragraph S.2. of the Schedule and to Licensor at the address
specified in Paragraph S.1. of the Schedule marked, Attention: Senior Vice
President, Product Licensing, with a separate copy marked, Attention: General
Counsel. Such legal notices shall be sent by telex or facsimile with a copy sent
postage prepaid, certified or registered mail, return receipt requested and
shall be deemed conclusively to have been served when actually received or
refused by the addressee or upon notification of non-deliverability by the
postal authorities, as the case may be. All reports required by the terms of
this agreement shall be sent marked, Attention: Senior Vice President, Product
Licensing. All material requiring approval shall be sent to Licensor marked,
Attention: Brand Director or to such different or additional parties and
addresses as Licensor may designate from time to time. All reports and material
requiring approval and responses to same may be sent by telex or facsimile
provided the sender requests and receives written confirmation from the
addressee that such communication has been received and is legible; and such
reports and material shall be deemed conclusively to have been given upon
receipt by the sender of the confirmation of
22
<PAGE>
receipt and legibility. Reports or material requiring approval that cannot be
sent by telex or facsimile shall be sent postage pre-paid, DHL or other similar
express mail carrier, return receipt requested and shall be deemed conclusively
to have been given when actually received or refused by the addressee or upon
notification of non-deliverability by the postal authorities, as the case may
be.
10. INVALIDITY. If any provision or any application of any provision
hereof is adjudged illegal, unenforceable or invalid and such adjudication has
become final and non-appealable, such provision or application shall be deemed
deleted without affecting the remainder of this agreement unless such deletion
shall have a material adverse effect upon the rights or obligations of either
party hereto and notice of such effect is given as provided in the following
sentence. Either party may notify the other within forty-five (45) days after
such adjudication has become final and non-appealable that in its opinion such
deletion would have a material adverse effect upon the notifying party and that
this License is terminated by reason thereof; but the existence of such effect
and the termination of this License shall be subject to contest by the party
receiving such notice if it notifies the other party, within forty-five (45)
days after service of the notice of termination upon it, of its desire so to
contest the matter and thereafter proceeds promptly with a proceeding so to
contest the matter. During such time as the matter is being contested, this
agreement shall remain in full force and effect.
11. CONSENTS AND APPROVALS. In this agreement where the consent or
approval of Licensor is required to any action of Licensee, such consent or
approval shall only be effective if granted in writing by Licensor. If Licensor
fails or declines to grant such consent or approval to Licensee, Licensor shall
not be liable to give any reason therefore nor for any events or circumstances
that arise as a result of such failure.
12. APPLICABLE LAW. This agreement shall be governed by the laws of the
State of Illinois (U.S.A.).
13. NO BROKER. Licensee warrants and represents that Licensee used no
broker in connection with this transaction.
14. TITLES. The titles to the sections, subsections or other headings in
this agreement are for reference purposes only and shall not define, limit or
affect the meaning or interpretation of this aqreement.
15. ENTIRE AGREEMENT. This agreement represents the entire understanding
of the parties. None of the terms of this agreement can be waived or modified
except by an express agreement in writing signed by the parties. There are no
representations, promises, warranties, covenants or undertakings other than
those
23
<PAGE>
contained in this agreement. The failure of either party hereto to enforce, or
the delay by either party in enforcing, any of its rights under this agreement
shall not be deemed as constituting a waiver or a modification thereof and
either party may, within the time provided by applicable law, commence
appropriate proceedings to enforce any or all of such rights. No person, firm,
group or corporation other than Licensee, Licensor, its subsidiaries and
affiliates shall be deemed to have acquired any rights by reason of anything
contained in this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
PLAYBOY ENTERPRISES, INC.
(LICENSOR)
By /s/ M.E. Levenson
-------------------------------
CHAIFA INVESTMENT, LIMITED
(LICENSEE)
By /s/ John Chan Chun Tung
-------------------------------
24
<PAGE>
Exhibit 10.16(c)
PLAYBOY ENTERPRISES, INC.
Mr. John Chan Chun Tung July 21, 1992
Chaifa Investment, Limited
Unit 1, 17/F Westlands Centre
20 Westlands Road
Quarry Bay, HONG KONG
Dear Mr. Chan:
This letter, when the enclosed copy has been signed, dated and returned by
you, will evidence our mutual agreement to amend the Product License Agreement
between Chaifa Investment, Limited ("Licensee") and Playboy Enterprises, Inc.
("Licensor") dated as of March 4, 1991 (the "Agreement") as follows:
1. The Agreement will be extended for five (5) additional License Years
(from January 1, 1995 through December 31, 1999), unless earlier terminated as
provided under the Agreement.
2. The Guaranteed Royalty for each such additional License Year shall be
$50,000.00. U.S.
3. The Earned Royalty for each such additional License Year shall be five
percent (5%) of net sales of the Products.
4. Except as modified above, all of the other terms and conditions of the
Agreement shall remain in full force and effect.
If the above accurately sets forth your understanding of our agreement,
please sign, date and return the enclosed copy of this letter.
Very truly yours,
PLAYBOY ENTERPRISES, INC.
For and on behalf of
CHAIFA INVESTMENT LIMITED By: /s/ M.E. Levenson
---------------------------
/s/ John Chan Chun Tung M.E. Levenson
- ------------------------------ Senior Vice President
Authorized Signature Product Licensing
ACCEPTED and AGREED to:
CHAIFA INVESTMENT, LIMITED
By: JOHN CHAN CHUN TUNG
---------------------------------
Title: DIRECTOR & GENERAL MANAGER
------------------------------
Date: 31 JULY 1992
-------------------------------
680 NORTH LAKE SHORE DRIVE / CHICAGO, ILLINOIS 60611 / 312-751-8000
<PAGE>
Exhibit 10.16(d)
PLAYBOY ENTERPRISES, INC.
August 17, 1993
Mr. John Chan Chun Tung
Chaifa Investment, Limited
Unit 1, 17/F Westlands Centre
20 Westlands Road, Quarry Bay
HONG KONG
Dear Mr. Chan:
This letter, when the enclosed copy has been signed, dated and returned
by you will evidence our mutual agreement to further amend: (i) the Product
License Agreement between Playboy Enterprises, Inc. ("Licensor") and Chaifa
Investment, Limited ("Licensee") dated as of September 26, 1989 ("the Hong Kong
Agreement"); and (ii) the Product License Agreement between Licensor and
Licensee dated as of March 4, 1991 ("the PRC Agreement") (which are sometimes
hereinafter collectively referred to as "the Agreements") as follows:
1. a. The PRC and Hong Kong Agreements will be further extended through
December 31, 2004, unless earlier terminated as provided under the
Agreements.
b. Licensor agrees in principle to extend the Agreements for two
additional five-year periods, 2005-2009 and 2010-2014, on terms to be
negotiated (taking into account, among other considerations, the working
relationship between Licensor and Licensee and such other factors as
Licensor deems appropriate).
2. The expiration date of the first extended term under the Hong Kong
Agreement will be December 31, 1999 (which will make the last License Year for
such term the 15-month period from October 1, 1998 through December 31, 1999 and
each subsequent License Year coincide with the calendar year).
680 NORTH LAKE SHORE DRIVE/CHICAGO, ILLINOIS 60611 312-751-8000
<PAGE>
3. Guaranteed Royalties under the PRC Agreement will be:
<TABLE>
<CAPTION>
License Year Amount (in U.S.D.)
------------ ------------------
<S> <C>
1/1/2000 - 12/31/2000 $1,400,000
1/1/2001 - 12/31/2001 $1,650,000
1/1/2002 - 12/31/2002 $1,900,000
1/1/2003 - 12/31/2003 $2,150,000
1/1/2004 - 12/31/2004 $2,400,000
</TABLE>
4. Guaranteed Royalties under the Hong Kong Agreement will be $350,000
U.S.D. for each License Year referred to in Paragraph 3. above.
5. Minimum net sales under the PRC Agreement will be:
<TABLE>
<CAPTION>
License Year Amount (in U.S.D.)
------------ ------------------
<S> <C>
1/1/2000 - 12/31/2000 $20,000,000
1/1/2001 - 12/31/2001 $23,000,000
1/1/2002 - 12/31/2002 $26,000,000
1/1/2003 - 12/31/2003 $29,000,000
1/1/2004 - 12/31/2004 $31,000,000
</TABLE>
6. Minimum net sales under the Hong Kong Agreement will be:
<TABLE>
<CAPTION>
License Year Amount (in U.S.D.)
------------ ------------------
<S> <C>
1/1/2000 - 12/31/2000 $5,000,000
1/1/2001 - 12/31/2001 $5,500,000
1/1/2002 - 12/31/2002 $6,000,000
1/1/2003 - 12/31/2003 $6,500,000
1/1/2004 - 12/31/2004 $7,000,000
</TABLE>
7. Earned Royalties will be 7% of net sales under the Agreements.
8. Licensor and Licensee agree to extend the trademark protection under
the Agreements so that Licensor shall have the right to approve the overall
design, marketing and merchandising of and in the shops, but does not include
the day-to-day operation and management of the shops.
9. The above amendments to the Agreements will be conditional upon the
successful completion of Licensee's initial public offering. If such initial
public offering is not successfully completed on or before December 31, 1993,
this letter agreement shall be null and void and of no force or effect.
2
<PAGE>
10. Except as modified above, all of the other terms and conditions of the
Agreements, as previously amended, shall remain in full force and effect.
If the above accurately sets forth your understanding of our mutual
agreements, please sign, date and return the enclosed copy of this letter.
Very truly yours,
PLAYBOY ENTERPRISES, INC.
By /s/ Robert Beleson
-------------------------
Robert Beleson
Chief Marketing Officer
ACCEPTED and AGREED to:
CHAIFA INVESTMENT, LIMITED
By: /s/ John Chan Chun Tung
---------------------------------
JOHN CHAN CHUN TUNG
Title: DIRECTOR & GENERAL MANAGER
------------------------------
Date: 3 SEPTEMBER 1993
------------------------------
3
<PAGE>
Exhibit 10.16(e)
PLAYBOY ENTERPRISES, INC.
January 23, 1996
Mr. John Chan Chun Tung
Chaifa Holdings Ltd.
Unit 1, 17th floor, Westlands Centre
20 Westlands Road, Quarry Bay
Hong Kong
Dear Mr. Chan:
This letter, when the enclosed copy has been signed, dated and returned by
you, will evidence our mutual agreement to further amend the Product License
Agreements between Playboy Enterprises, Inc. ("Licensor") and Chaifa Holdings
Ltd. ("Licensee") dated as of September 26, 1989 (the "Hong Kong Agreement")
and March 4, 1991 (the "PRC Agreement") (collectively referred to as the
"Agreements"). Our agreement is as follows:
1. Effective July 1, 1995, the advertising and promotion pool contribution as
described in Paragraph 2.p.(i) of the PRC Agreement and 2.q.(i) of the Hong
Kong Agreement will be changed to one-half percent (1/2%) in the
Agreements. This rate will remain in effect through December 31, 1999.
2. Except as modified above, all of the other terms and conditions of the
Agreements, as amended, shall remain in full force and effect.
If the above accurately sets forth your understanding of our agreement,
please sign, date and return the enclosed copy of this letter.
ACCEPTED and AGREED to: Very truly yours,
CHAIFA HOLDINGS LTD. PLAYBOY ENTERPRISES, INC.
By: /s/ John Chan Chun Tung By: /s/ Lisa L. Weaver
--------------------------- ----------------------------
Title: CHAIRMAN Lisa L. Weaver
------------------------ Vice President
Date: 29-1-96 International Product Licensing
------------------------
1
680 NORTH LAKE SHORE DRIVE/CHICAGO, ILLINOIS 60611/312/751-8000
<PAGE>
Exhibit 10.17(c)
PLAYBOY ENTERPRISES, INC.
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
LaSalle National Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement dated as of February 10,
1995, as amended by the First Amendment to Credit Agreement dated as of March
31, 1995 (said Credit Agreement as so amended being referred to herein as the
"Credit Agreement") currently in effect by and among, Playboy Enterprises, Inc.,
a Delaware corporation (the "Company"), and you (the "Lenders"). All capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Credit Agreement.
The Company hereby applies to the Lenders to increase the amount of the
Revolving Credit Commitments to $35,000,000, extend the availability of the
Revolving Credit, amend certain of the financial covenants contained therein and
make certain other amendments to the Credit Agreement, and the Lenders are
willing to do so under the terms and conditions set forth in this Amendment.
1. AMENDMENTS.
Upon the satisfaction of the conditions precedent set forth in Section 2
hereof, the Credit Agreement shall be and hereby is amended as follows:
1.01. Loans in Excess of $30,000,000. The third sentence of Section 1.2 of
the Credit Agreement is hereby amended and as so amended shall be restated in
its entirety to read as follows:
"Each advance made by a Lender of its pro rata share of a Loan shall
be made against and evidenced by a Revolving Credit Note of the
Company (individually an "A-Note" and collectively the "A-Notes")
payable to the order of such Lender in the amount of its Revolving
Credit Commitment, with each A-Note to be in the form (with
appropriate insertions) attached hereto as Exhibit A. Notwithstanding
anything herein to the contrary, each advance made by a Lender of its
pro rata share of a Loan, to the extent that after giving effect
thereto the amount of the Revolving Credit Commitments then in use
would then exceed $30,000,000, shall be made against and evidenced by
promissory notes of the Company in the form (with appropriate
insertions) annexed hereto as
<PAGE>
Exhibit A-1 (individually a "B-Note" and collectively the "B-Notes")
(the A-Notes and the B-Notes being hereinafter referred to
collectively as the "Notes" and individually as a "Note")."
1.02. Letter of Credit Sub-Limit. Section 1.3(a) of the Credit Agreement is
hereby amended by deleting the amount "$7,500,000" appearing therein and
substituting therefor the amount "$10,000,000".
1.03. Termination Fee. Section 3.4 of the Credit Agreement is hereby
amended by adding the following sentence immediately at the end thereof:
"If the Company terminates the Revolving Credit Commitments in whole
at any time prior to September 5, 1997, the Company shall pay to the
Administrative Agent, for the ratable benefit of the Lenders, a
termination fee in the amount of $100,000."
1.04. Deletion of Mandatory Partial Termination Requirement. Section 3.5 of
the Credit Agreement is hereby amended by deleting such Section in its entirety.
1.05. Application of Payments. The seventh sentence of the first paragraph
of Section 3.6 of the Credit Agreement is hereby amended and as so amended shall
be restated in its entirety to read as follows:
"Unless the Company otherwise directs, principal payments on the Notes
shall be first applied to the Domestic Rate Portion evidenced by the
B-Notes until payment in full thereof, then to the Domestic Rate
Portion evidenced by the A-Notes until payment in full thereof, with
any balance applied to the LIBOR Portions of the Notes in the order in
which their Interest Periods expire."
1.06. Collateral Generally. Section 4.1 of the Credit Agreement is hereby
amended by adding the following sentence immediately after the first sentence
thereof:
"The foregoing to the contrary notwithstanding and notwithstanding
anything in the Collateral Documents to the contrary, (i) the Company
and its Material Subsidiaries each shall have the right, without the
consent of the Administrative Agent or the Lenders to enter into bona
fide licensing arrangements at arm's length with unaffiliated third
parties for their use of the Collateral consisting of intellectual
property (copies of which shall be promptly provided by the Company to
the Administrative Agent) so long as the Administrative Agent has a
valid and perfected first priority Lien on such Collateral and the
proceeds thereof and the terms of such licensing arrangements
expressly permit such Lien and recognize the Administrative Agent's
right to collect any sums due the Company or such Material Subsidiary,
as the case may be,
-2-
<PAGE>
in accordance with the terms of such arrangements, (ii) whether or
not the Administrative Agent has foreclosed or exercised any other
rights to enforce its Lien on such Collateral, licensees under
licensing arrangements described in the foregoing clause (i) shall
be afforded the use of such Collateral in accordance with the terms
of such licensing arrangements for the duration set forth therein
and (iii) at the request of the Company, the Administrative Agent
shall (with the consent of the Required Lenders, which consent shall
not be unreasonably withheld) execute a nondisturbance agreement in
favor of such licensees to provide for the purposes set forth in the
foregoing clause (ii)."
1.07. Movie Rights. Section 4.2 of the Credit Agreement is hereby amended
and as so amended shall be restated in its entirety to read as follows:
"Section 4.2. Movie Rights. Notwithstanding anything herein or in
any other Loan Document to the contrary, the Collateral shall in no
event include certain film and video-related mediums and related
rights to the extent set forth in that certain Supplement to
Collateral Documents dated as of March 5, 1996 by and among the
Agent, the Company and certain of its Subsidiaries."
The parties hereto agree that the Supplement attached hereto as Exhibit C shall,
when properly completed and executed, constitute the Supplement referred to in
Section 4.2 hereof as amended hereby.
1.08. Changes in Applicable Margins. The definition of "Applicable Margin"
appearing in Section 5.1 of the Credit Agreement is hereby amended and as so
amended shall be restated in its entirety to read as follows:
"'Applicable Margin' means 0% with respect to the Domestic Rate
Portion of the Notes and 2.25% with respect to each LIBOR Portion of
the Notes; provided, however, with respect to each LIBOR Portion of
the Notes, such Applicable Margin shall be decreased to 2.00% on
October 1st of any calendar year (commencing October 1, 1996) if the
Company's Net Income Before Extraordinary Items for the fiscal year
ending on June 30th of such calendar year is equal to or greater
than $1,500,000; provided further, however, that such Applicable
Margin shall return to 2.25% on October 1st of any calendar year
thereafter if the Company's Net Income Before Extraordinary Items
for any fiscal year ending on or after June 30th of such calendar
year is less than $1."
-3-
<PAGE>
1.09. Extension of Termination Date. The definition of "Termination Date
appearing in Section 5.1 of the Credit Agreement is hereby amended and as so
amended shall be restated in its entirety to read as follows:
" 'Termination Date' means March 5, 1999, or such earlier date on
which the Revolving Credit Commitments are terminated in whole
pursuant to Section 3.4, 3.5, 9.2 or 9.3 hereof or such later date
to which the Revolving Credit Commitments are extended pursuant to
Section 11.20 hereof. THE COMPANY ACKNOWLEDGES AND AGREES THAT THE
LENDERS HAVE ABSOLUTELY NO OBLIGATION WHATSOEVER TO EXTEND THE
TERMINATION DATE BEYOND MARCH 5, 1999."
1.10. New Definitions. Section 5.1 of the Credit Agreement is hereby
amended by adding the following new definitions in the appropriate alphabetical
order:
"Deferments" means sums in fixed amounts (other than Participations
or Residuals) payable by the Company or any of its Subsidiaries in
accordance with customary industry practice to a Person who is not
an Affiliate of the Company or any of its Subsidiaries in connection
with such Person's furnishing rights or personal services in
connection with the development or production of any item of
Product, the payment of which is contingent upon (a) the receipt of
revenues from the exploitation of such item of Product, and/or (b)
the occurrence of certain conditions and/or (c) the passage of time;
provided, however, that the term "Deferments" does not include
supplemental market payments or sums included in the budgeted cost
of production for the applicable item of Product.
"EBITDA" means, with reference to any period, Net Income Before
Extraordinary Items for such period plus all amounts deducted in
arriving at such Net Income Before Extraordinary Items amount in
respect of (i) Interest Expense for such period, plus (ii) federal,
state and local income taxes for such period, plus (iii) all amounts
properly charged for depreciation of fixed assets and amortization
of intangible assets (including without limitation the amortization
of investments in entertainment programming) during such period on
the books of the Company and its Subsidiaries.
"Net Income After Extraordinary Items" means, with reference to any
period, the net income (or net loss) of the Company and its
Subsidiaries for such period as computed on a consolidated basis in
accordance with GAAP, and, without limiting the foregoing, after
deduction from gross income of all expenses and reserves,
-4-
<PAGE>
including reserves for all taxes on or measured by income, and in
any event including any extraordinary profits and losses and also in
any event including any taxes on such profits and any tax credits on
account of such losses.
"Net Income Before Extraordinary Items" means, with reference to any
period, the net income (or net loss) of the Company and its
Subsidiaries for such period as computed on a consolidated basis in
accordance with GAAP, and, without limiting the foregoing, after
deduction from gross income of all expenses and reserves, including
reserves for all taxes on or measured by income, but in any event
excluding any extraordinary profits and losses and also in any event
excluding any taxes on such profits and any tax credits on account
of such losses.
"Participation" means all obligations (other than Deferments and
Residuals) payable by the Company or any of its Subsidiaries in
accordance with customary industry practice to Persons other than
Persons who are Affiliates of the Company or any of its Subsidiaries
in connection with the development, acquisition, production,
distribution or exploitation of an item of Product or rights in
Product, the payment of which is contingent upon and payable only to
the extent of the receipt by the obligor of revenues from the
exploitation of such item of Product or rights in Product.
"Product" means any motion pictures, films, video or movies or
similar audio or visual medium of communication in use now or in the
future or any elements thereof in which the Company or any
Subsidiary has any proprietary interest.
"Residuals" means all obligations (other than Participations and
Deferments) payable by the Company or any of its Subsidiaries in
accordance with customary industry practice pursuant to guild
agreements or collective bargaining agreements in connection with
the development, acquisition, production, distribution or
exploitation of an item of Product or rights in Product."
1.11. Unnecessary Definitions. Section 5.1 of the Credit Agreement is
hereby further amended by deleting from such Section the definition of the term
"Rights Offering" appearing therein.
1.12. Net Worth Requirement. Section 8.7 of the Credit Agreement is
hereby amended and as so amended shall be restated in its entirety to read as
follows:
"Section 8.7. Net Worth. The Company will at all times maintain Net
Worth of not less than the sum of (i) $43,000,000 and
-5-
<PAGE>
(ii) 50% of Net Income After Extraordinary Items for the immediately
preceding fiscal year (only if positive for such year), commencing
with the fiscal year ending June 30, 1996."
1.13. EBITDA Requirement. Section 8.9 of the Credit Agreement is hereby
amended and as so amended shall be restated in its entirety to read as follows:
"Section 8.9. EBITDA. The Company will, as of the last day of each
fiscal quarter ending during each of the periods specified below,
maintain EBITDA for the four fiscal quarters then ended of not less
than:
<TABLE>
<CAPTION>
From and To and EBITDA shall
Including Including not be less than
--------- --------- ----------------
<S> <C> <C>
The date hereof 9/30/96 $23,500,000
10/1/96 3/31/97 $26,000,000
4/1/97 9/30/97 $28,500,000
10/1/97 3/31/98 $30,750,000
4/1/98 all times thereafter $33,000,000
</TABLE>
1.14. Additional Permitted Liens. Section 8.11 of the Credit Agreement is
hereby amended by adding the following new subsections (g), (h), (i), (j) and
(k) immediately after subsection (f) thereof:
"(g) Liens on items of Product and rights in Product to the
extent securing Residuals, Deferments and Participations owed by the
Company and its Subsidiaries relating exclusively to such Product;
(h) rights of licensees which are not Affiliates of the
Company or any of its Subsidiaries under access agreements pursuant
to which such licensees have access to duplicating material for the
purpose of making prints or other copies of items of Product
licensed to them, and rights of distributors, exhibitors, licensees
and other Persons which are not Affiliates of the Company or any of
its Subsidiaries in items of Product created in connection with the
distribution and exploitation of such items of Product in the
ordinary course of business pursuant to arms-length agreements in
accordance with customary industry practice;
(i) Liens on any asset relating to any item of Product or
rights in Product acquired by the Company or any of its Subsidiaries
granted in accordance with customary industry practice in favor of
any lender financing the production costs of such item of Product,
provided such Lien is and will remain confined to the same Products
or rights in Product so acquired;
-6-
<PAGE>
(j) Liens granted in accordance with customary industry
practice to distributors or licensees which are not Affiliates of
the Company or any of its Subsidiaries to secure the exploitation
rights in items of Product licensed or leased to such distributors
or licensees, provided that the collateral subject to any such Lien
shall be limited to the exploitation rights licensed or leased to
such distributor or licensee, the Product and proceeds of such
exploitation rights and a non-exclusive right of access to necessary
duplicating materials to exercise such exploitation rights; and
(k) Liens of film laboratories and sound studios which are
not Affiliates of the Company or any of its Subsidiaries incurred in
the ordinary course of business for sums not yet due or being
contested in good faith."
1.15. Various Investments. Subsections (e), (g), (i) and (k) of Section
8.12 of the Credit Agreement are each hereby amended and as so amended shall be
restated in their entirety to read, respectively, as follows:
"(e) investments outstanding as of March 5, 1996 in present
Subsidiaries;"
"(g) the currently existing guaranty by the Company of the 10%
Subordinated Note of Lifestyle Brands, Ltd. dated June 28, 1993
payable to Seaward & Co. (the "Sarah Coventry Note") provided the
aggregate principal amount so guaranteed does not at any time exceed
$750,000;"
"(i) investments in Playboy Gaming Greece, Ltd. provided the
amount so invested aggregates not more than $2,100,000 at any one
time outstanding;"
"(k) investments, loans, advances and guaranties not otherwise
permitted by this Section 8.12 provided the aggregate amount of such
investments, loans, advances and guaranties made in each fiscal year
of the Company does not exceed $6,000,000 and no single such
investment, loan, advance or guaranty (with a series of related
investments, loans, advances or guaranties comprising a single
transaction to be deemed a single investment, loan, advance or
guaranty, as the case may be, for the purposes of this Section) is
in an amount greater than $1,500,000."
1.16. Extension of Revolving Credit Commitments. Section 11 of the Credit
Agreement is hereby amended by inserting the following new Section 11.20
immediately after Section 11.19 thereof:
-7-
<PAGE>
"Section 11.20. Extensions of the Revolving Credit Commitments. Not
less than thirty (30) or more than ninety (90) days prior to the
date occurring two years prior to the Termination Date (as the same
may have been extended pursuant to this Section 11.20), the Company
may advise the Administrative Agent in writing of its desire to
extend the Termination Date for an additional twelve (12) months and
the Administrative Agent shall promptly notify the Lenders of each
such request. In the event that the Lenders are agreeable to such
extension (it being understood that the Lenders may accept or
decline such a request in their sole discretion), the Administrative
Agent shall so notify the Company and the Company and the Lenders
shall enter into such documents as the Administrative Agent may
reasonably deem necessary or appropriate to reflect such extension
and to assure that all extensions of credit pursuant to the
Revolving Credit Commitments as so extended are secured by the liens
of the Collateral Documents and the Administrative Agent may call
for financing statement searches or endorsements to its mortgagee's
policy of title insurance to assure that such is the case, all costs
and expenses incurred by the Administrative Agent in connection
therewith to be paid by the Company."
1.17. Increase in Revolving Credit Commitments. The amount of each
Lender's Revolving Credit Commitment set forth opposite its name on its
signature page to the Credit Agreement shall be amended and as so amended shall
be restated as follows:
AMOUNT OF REVOLVING
LENDER CREDIT COMMITMENT
Harris Trust and Savings Bank $17,500,000
LaSalle National Bank $17,500,000
1.18. Exhibit A-1. The Credit Agreement shall be amended by adding thereto
an Exhibit A-1 in the form annexed to this Amendment as Exhibit A-1.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
2.01. The Company, the Agent and the Lenders shall have executed and
delivered this Amendment.
2.02. The Company shall have executed a Second Supplemental Deed of Trust,
Fixture Filing and Security Agreement in the form of Exhibit B hereto (the
"First
-8-
<PAGE>
Supplement") supplementing the California Mortgage so that the same shall secure
the Revolving Credit as extended hereby.
2.03. The Company shall have paid to the Administrative Agent for the
ratable benefit of the Lenders a transaction fee in the amount $155,000.
2.04. No Default or Event of Default shall have occurred and be continuing
as of the date this Amendment would otherwise take effect.
2.05. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lenders and their counsel; and the
Lenders shall have received the favorable written opinion of counsel for the
Company in form and substance satisfactory to the Lenders and their counsel.
3. CALIFORNIA MORTGAGE.
Within fifteen Business Days of the recordation of the Second Supplement,
the Company shall at its expense furnish the Agent with an endorsement to the
Agent's February 16, 1995 title insurance policy issued by Chicago Title
Insurance Company under its number 9428314, the effect of which is to insure the
validity and priority of the California Mortgage as security for the Revolving
Credit as extended hereby, which endorsement shall bring the effective date of
coverage thereunder down to the date of such recordation and show no exceptions
to title or coverage other than those shown on the February 8, 1995 commitment
for such policy (provided that the mortgage identified at Section E of Schedule
B to such commitment shall not show as an exception). The failure to furnish
such endorsement shall constitute an Event of Default.
4. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment, the
Company hereby represents to the Lenders that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that for purposes of this
paragraph, (i) the representations contained in Section 6.3 shall be deemed to
include this Amendment as and when it refers to Loan Documents and (ii) the
representations contained in Section 6.5 shall be deemed to refer to the most
recent financial statements of the Company delivered to the Lenders) and the
Company is in full compliance with all of the terms and conditions of the Credit
Agreement and no Default or Event of Default has occurred and is continuing
under the Credit Agreement or shall result after giving effect to this
Amendment.
5. MISCELLANEOUS.
5.01. The Company acknowledges and agrees that all of the Collateral
Documents to which it is a party remain in full force and effect for the benefit
and security of, among other things, the Revolving Credit as modified hereby.
The Company further acknowledges and agrees that all references in such
Collateral Documents to the Revolving Credit shall be
-9-
<PAGE>
deemed a reference to the Revolving Credit as so modified. The Company further
agrees to execute and deliver any and all instruments or documents as may be
required by the Agent or Required Lenders to confirm any of the foregoing.
5.02. Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
5.03. This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
-10-
<PAGE>
Dated as of March 5, 1996.
PLAYBOY ENTERPRISES INC.
By /s/ Rebecca S. Maskey
--------------------------------
Its Senior V.P.
-----------------------------
Each of the undersigned acknowledges and agrees that while the following is
not required, each confirms that: (i) all of the Collateral Documents to which
it is a party remain in full force and effect for the benefit and security of,
among other things, the Revolving Credit as modified hereby; (ii) all references
in such Collateral Documents to the Credit Agreement shall be deemed a reference
to the Credit Agreement as amended hereby; (iii) each of the undersigned will
continue to execute and deliver any and all instruments or documents as may be
required by the Agent or Required Lenders to confirm any of the foregoing.
PLAYBOY ENTERTAINMENT GROUP, INC.
By /s/ Robert D. Campell
--------------------------------
Its Treasurer
-----------------------------
CRITICS' CHOICE VIDEO, INC.
By /s/ Robert D. Campell
--------------------------------
Its Treasurer
-----------------------------
LIFESTYLE BRANDS, LTD.
By /s/ Robert D. Campell
--------------------------------
Its Treasurer
-----------------------------
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ R.L. Dell'Artino
--------------------------------
Its Vice President
LASALLE NATIONAL BANK
By /s/ Robert Kastenholz
--------------------------------
Its Senior Vice President
-----------------------------
-11-
<PAGE>
EXHIBIT A-1
B-NOTE
Chicago, Illinois
$2,500,000 March 5, 1996
On the Termination Date, for value received, the undersigned, PLAYBOY
ENTERPRISES, INC., a Delaware corporation (the "Company"), hereby promises to
pay to the order of Harris Trust and Savings Bank (the "Lender"), at the
principal office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of (i) Two Million Five Hundred Thousand and no/100 Dollars
($2,500,000), or (ii) such lesser amount as may at the time of the maturity
hereof, whether by acceleration or otherwise, be the aggregate unpaid principal
amount of all Loans owing from the Company to the Lender under the Revolving
Credit provided for in the Credit Agreement hereinafter mentioned.
This Note evidences loans constituting part of a "Domestic Rate Portion"
and "LIBOR Portions" as such terms are defined in that certain Credit Agreement
dated as of February 10, 1995, as amended, between the Company, Harris Trust and
Savings Bank, individually and as Administrative Agent thereunder, and the other
Lenders which are now or may from time to time hereafter become parties thereto
(said Credit Agreement, as the same may be amended, modified or restated from
time to time, being referred to herein as the "Credit Agreement") made and to be
made to the Company by the Lender under the Revolving Credit provided for under
the Credit Agreement, and the Company hereby promises to pay interest at the
office described above on each loan evidenced hereby at the rates and at the
times and in the manner specified therefor in the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of the
Domestic Rate Portion or a LIBOR Portion and, in the case of any LIBOR Portion,
the interest rate and Interest Period applicable thereto shall be endorsed by
the holder hereof on a schedule to this Note or recorded on the books and
records of the holder hereof (provided that such entries shall be endorsed on a
schedule to this Note prior to any negotiation hereof). The Company agrees that
in any action or proceeding instituted to collect or enforce collection of this
Note, the entries so endorsed on a schedule to this Note or recorded on the
books and records of the holder hereof shall be prima facie evidence of the
unpaid principal balance of this Note, the status of each such loan from time to
time as part of the Domestic Rate Portion or a LIBOR Portion, and, in the case
of any LIBOR Portion, the interest rate and Interest Period applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary
<PAGE>
prepayments may be made hereon, and certain prepayments are required to be made
hereon, all in the events, on the terms and with the effects provided in the
Credit Agreement. All capitalized terms used herein without definition shall
have the same meanings herein as such terms are defined in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS.
The Company hereby promises to pay all costs and expenses (including
reasonable attorneys' fees) suffered or incurred by the holder hereof in
collecting this Note or enforcing any rights in any collateral therefor. The
Company hereby waives presentment for payment and demand.
PLAYBOY ENTERPRISES, INC.
/s/ Rebecca S. Maskey
By --------------------------------------
Rebecca S. Maskey
Name: --------------------------------
Senior V. P.
Title: -------------------------------
-2-
<PAGE>
B-NOTE
Chicago, Illinois
$2,500,000 March 5, 1996
On the Termination Date, for value received, the undersigned, PLAYBOY
ENTERPRISES, INC., a Delaware corporation (the "Company"), hereby promises to
pay to the order of LaSalle National Bank (the "Lender"), at the principal
office of Harris Trust and Savings Bank in Chicago, Illinois, the principal sum
of (i) Two Million Five Hundred Thousand and no/100 Dollars ($2,500,000), or
(ii) such lesser amount as may at the time of the maturity hereof, whether by
acceleration or otherwise, be the aggregate unpaid principal amount of all Loans
owing from the Company to the Lender under the Revolving Credit provided for in
the Credit Agreement hereinafter mentioned.
This Note evidences loans constituting part of a "Domestic Rate Portion"
and "LIBOR Portions" as such terms are defined in that certain Credit Agreement
dated as of February 10, 1995, as amended, between the Company, Harris Trust and
Savings Bank, individually and as Administrative Agent thereunder, and the other
Lenders which are now or may from time to time hereafter become parties thereto
(said Credit Agreement, as the same may be amended, modified or restated from
time to time, being referred to herein as the "Credit Agreement") made and to
be made to the Company by the Lender under the Revolving Credit provided for
under the Credit Agreement, and the Company hereby promises to pay interest at
the office described above on each loan evidenced hereby at the rates and at
the times and in the manner specified therefor in the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of the
Domestic Rate Portion or a LIBOR Portion and, in the case of any LIBOR Portion,
the interest rate and Interest Period applicable thereto shall be endorsed by
the holder hereof on a schedule to this Note or recorded on the books and
records of the holder hereof (provided that such entries shall be endorsed on a
schedule to this Note prior to any negotiation hereof). The Company agrees that
in any action or proceeding instituted to collect or enforce collection of this
Note, the entries so endorsed on a schedule to this Note or recorded on the
books and records of the holder hereof shall be prima facie evidence of the
unpaid principal balance of this Note, the status of each such loan from time to
time as part of the Domestic Rate Portion or a LIBOR Portion, and, in the case
of any LIBOR Portion, the interest rate and Interest Period applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary
<PAGE>
prepayments may be made hereon, and certain prepayments are required to be made
hereon, all in the events, on the terms and with the effects provided in the
Credit Agreement. All capitalized terms used herein without definition shall
have the same meanings herein as such terms are defined in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS.
The Company hereby promises to pay all costs and expenses (including
reasonable attorneys' fees) suffered or incurred by the holder hereof in
collecting this Note or enforcing any rights in any collateral therefor. The
Company hereby waives presentment for payment and demand.
PLAYBOY ENTERPRISES, INC.
By /s/ Rebecca S. Maskey
--------------------------------------
Rebecca S. Maskey
Name: --------------------------------
Senior V. P.
Title: -------------------------------
-2-
<PAGE>
EXHIBIT B
|
Recording Requested By: | COPY of Document Recorded
James E. Basta | .........................
| Mar 07 1996
When Recorded Mail To: | Has not been compared with
James E. Basta | original. Original will be
Chapman and Cutler | returned when processing
111 West Monroe Street | has been completed.
Chicago, Illinois 60603 | LOS ANGELES COUNTY REGISTRAR-
| RECORDER
|
|SPACE ABOVE THIS LINE RESERVED FOR
|RECORDER'S USE ONLY
- ---------------------------------------------------------------------------
SECOND SUPPLEMENT TO
DEED OF TRUST, FIXTURE FILING AND SECURITY AGREEMENT
WITH ASSIGNMENT OF RENTS
Dated as of
March 5, 1996
FROM
PLAYBOY ENTERPRISES, INC.
("Grantor")
to
CHICAGO TITLE INSURANCE COMPANY, AS TRUSTEE
("Trustee")
in Trust for the Benefit of
HARRIS TRUST AND SAVINGS BANK,
AS ADMINISTRATIVE AGENT
FOR THE LENDERS
("Beneficiary")
- ---------------------------------------------------------------------------
THE OBLIGATION THE PERFORMANCE OF WHICH IS SECURED BY THIS SUPPLEMENTAL DEED
OF TRUST PROVIDES FOR A VARIABLE INTEREST RATE AND A REVOLVING LINE OF CREDIT.
<PAGE>
PLAYBOY ENTERPRISES, INC.
SECOND SUPPLEMENT TO DEED OF TRUST,
FIXTURE FILING AND SECURITY AGREEMENT
WITH ASSIGNMENT OF RENTS
This Second Supplement to Deed of Trust, Fixture Filing and Security Agreement
with Assignment of Rents dated as of March 5, 1996 (the "Supplement") from
PLAYBOY ENTERPRISES, INC., a Delaware corporation 680 North Lake Shore Drive,
Chicago, Illinois 60611 (the "Grantor" ), to CHICAGO TITLE INSURANCE COMPANY, a
Missouri corporation, as Trustee, having an office at 700 South Flower, Suite
900, Los Angeles, California 90017 (the "Trustee"), and in trust for the benefit
of HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation whose post
office address is 111 West Monroe Street, Chicago, Illinois 60690 (hereinafter
referred to individually as "Harris"), as Administrative Agent hereunder for the
Lenders hereinafter defined (Harris acting as such agent and any successor or
successors to Harris in such capacity being hereinafter referred to as the
"Beneficiary");
WITNESSETH THAT:
WHEREAS, the Grantor did heretofore execute and deliver to the Beneficiary
that certain Deed of Trust, Fixture Filing and Security Agreement with
Assignment of Rents dated as of February 10, 1995 and recorded in the Recorder's
Office of Los Angeles County, California on February 16, 1995 as Document No.
95-263308, as amended by that certain First Supplement to Deed of Trust, Fixture
Filing and Security Agreement with Assignment of Rents dated as of March 31,
1995 and recorded in the Recorder's Office of Los Angeles County, California on
April 6, 1995 as Document No. 95-483045 (said Deed of Trust, Fixture Filing and
Security Agreement with Assignment of Rents, as so amended, being hereinafter
referred to as the "Deed of Trust") to mortgage, among other things, the real
estate described in Schedule I attached hereto; and
WHEREAS, the Deed of Trust currently secures, among other things, loans (the
"Revolving Loans") and letters of credit (the "Letters of Credit") extended and
to be extended from time to time by the Lenders (as hereinafter defined) on a
revolving basis under a revolving credit facility (the "Revolving Credit") in a
principal amount not to exceed $30,000,000 at any one time outstanding provided
for by that certain Credit Agreement dated as of February 10, 1995, as
heretofore amended, by and among the Grantor, Harris and LaSalle National Bank,
a national banking association (hereinafter referred to individually as
"LaSalle"), individually and as Co-Agent for the Lenders hereinafter defined
(LaSalle acting as such agent and any successor or successors to LaSalle
This Instrument Prepared By:
James E. Basta
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
<PAGE>
in such capacity being hereinafter referred to as "Co-Agent"), and such other
lenders which may from time to time hereafter become parties thereto (Harris,
LaSalle and such other lenders hereafter party to the Credit Agreement being
herein referred to collectively as the "Lenders" and individually a "Lender";
and such Credit Agreement as so amended and as the same may from time to time be
further modified or amended being hereinafter referred to as the "Credit
Agreement"); and
WHEREAS, the Revolving Loans are evidenced by those certain Revolving Credit
Notes of the Grantor dated February 10, 1995 payable to the order of the
respective Lenders in the aggregate face principal amount of $30,000,000 (such
Revolving Credit Notes and any and all notes issued in substitution or
replacement therefor or in extension or renewal thereof in whole or in part,
together with any and all modifications and amendments of any of the foregoing,
being hereinafter referred to collectively as the "Notes"); and
WHEREAS, the Grantor has entered into a Second Amendment to Credit Agreement
with the Lenders bearing even date herewith (the "Second Amendment"), pursuant
to which the Grantor and the Lenders have agreed to, among other things, extend
to March 5, 1999 (the "New Termination Date") (i) the availability of the
Revolving Credit so as to continue through the New Termination Date the
availability to the Grantor under the Revolving Credit on a revolving basis of
new Revolving Loans, Letters of Credit and other financial accommodations, (ii)
the deadline by which Letters of Credit must expire and thus the date by which
drawings thereunder must be made and (iii) the final maturity of the Notes,
Reimbursement Obligations and all other obligations under the Credit Agreement;
and
WHEREAS, as a condition precedent to extending the period of availability of
their respective commitments under the Revolving Credit as provided by the
Second Amendment, the Lenders require the Grantor, and to accommodate that
requirement the Grantor desires by this Supplement, to confirm and assure that
all the real estate and other properties, rights, interests and privileges of
the Grantor which are currently subject to the lien of the Deed of Trust be and
constitute collateral security not only for the indebtedness currently secured
thereby but also for the additional credit which may from time to time be
extended under the Revolving Credit as so modified; and
WHEREAS, the Deed of Trust is to continue to secure all the indebtedness now
secured thereby, and this Supplement is being executed and delivered to confirm
and assure the foregoing;
NOW, THEREFORE, for and in consideration of the execution and delivery by the
Lenders of the Second Amendment and other good and valuable consideration,
receipt whereof is hereby acknowledged, the Deed of Trust shall be and hereby is
supplemented as follows, to wit:
NOW, THEREFORE, to secure (i) the payment of the principal and premium, if
any, of and interest on the Notes (as amended by, without limitation, the Second
Amendment) as and when the same become due and payable (whether by lapse of
time, acceleration or otherwise) and all Revolving Loans now or hereafter
evidenced thereby, (ii) the payment of
-2-
<PAGE>
all sums owing in connection with the Letters of Credit issued under the
Revolving Credit as extended by the Second Amendment (collectively, the
"Reimbursement Obligations") as and when the same become due and payable,
including without limitation the obligation to reimburse the issuer for each
drawing on each Letter of Credit issued by it, (iii) the payment of all sums due
or owing with respect to the Hedging Liability (as defined in the Deed of
Trust), (iv) the obligation of Grantor to pay Beneficiary, Co-Agent and the
Lenders certain fees, costs, expenses, indemnities and other amounts pursuant to
the Credit Agreement (as amended by, without limitation, the Second Amendment)
and the applications and agreements for the Letters of Credit, (v) the payment
of all other indebtedness, obligations and liabilities which the Deed of Trust
as supplemented secures pursuant to any of its terms and (vi) the observance and
performance of all covenants and agreements contained herein or in the Notes,
the Credit Agreement or in any other instrument or document at any time
evidencing or securing any of the foregoing or setting forth terms and
conditions applicable thereto (all of such indebtedness, obligations and
liabilities described in clauses (i), (ii), (iii), (iv), (v) and (vi) above
being hereinafter collectively referred to as the "indebtedness hereby
secured"), GRANTOR DOES HEREBY IRREVOCABLY GRANT, TRANSFER, BARGAIN, SELL,
CONVEY, MORTGAGE, WARRANT, ASSIGN AND PLEDGE UNTO TRUSTEE IN TRUST WITH POWER OF
SALE AND RIGHT OF ENTRY AND POSSESSION, all and singular the properties, rights,
interests and privileges described in Granting Clauses I, II, III, IV, V and VI
below, all of the same being collectively referred to herein as the "Mortgaged
Premises", and does hereby grant to Beneficiary, Beneficiary's successors and
assigns, a security interest in that portion of the Mortgaged Premises
constituting personal property described in Granting Clause II, III, IV and V
below:
GRANTING CLAUSE I
That certain real estate lying and being in Los Angeles, County of Los Angeles
and State of California more particularly described in Schedule I attached
hereto and made a part hereof.
GRANTING CLAUSE II
All buildings and improvements of every kind and description heretofore or
hereafter erected or placed on the property described in Granting Clause I and
all materials intended for construction, reconstruction, alteration and repairs
of the buildings and improvements now or hereafter erected thereon, all of which
materials shall be deemed to be included within the premises immediately upon
the delivery thereof to the said real estate, and all fixtures, machinery,
apparatus, equipment, fittings and articles of personal property of every kind
and nature whatsoever now or hereafter attached to or contained in or used or
useful in connection with said real estate and the buildings and improvements
now or hereafter located thereon and the operation, maintenance and protection
thereof, including but not limited to all machinery, motors, fittings,
radiators, awnings, shades, screens, all gas, coal, steam, electric, oil and
other heating, cooking, power and lighting apparatus and fixtures, all fire
prevention and extinguishing equipment and apparatus, all cooling and
ventilating apparatus and systems, all plumbing, incinerating, and sprinkler
equipment and
-3-
<PAGE>
fixtures, all elevators and escalators, all communication and electronic
monitoring equipment, all window and structural cleaning rigs and all other
machinery and equipment of every nature and fixtures and appurtenances thereto
and all items of furniture, appliances, draperies, carpets, other furnishings,
equipment and personal property used or useful in the operation, maintenance and
protection of the said real estate and the buildings and improvements now or
hereafter located thereon and all renewals or replacements thereof or articles
in substitution therefor, whether or not the same are or shall be attached to
said real estate, buildings or improvements in any manner, and all proceeds of
any of the foregoing; it being mutually agreed, intended and declared that all
the aforesaid property shall, so far as permitted by law, be deemed to form a
part and parcel of the real estate and for the purpose of the Deed of Trust as
supplemented to be real estate and covered by the Deed of Trust as supplemented.
GRANTING CLAUSE III
All right, title and interest of Grantor now owned or hereafter acquired in
and to all and singular the estates, tenements, hereditaments, privileges,
easements, licenses, franchises, appurtenances and royalties, mineral, oil, and
water rights belonging or in any wise appertaining to the property described in
the preceding Granting Clause I and the buildings and improvements now or
hereafter located thereon and the reversions, rents, issues, revenues and
profits thereof, including all interest of Grantor in all rents, issues and
profits of the aforementioned property and all rents, issues, profits, revenues,
royalties, bonuses, rights and benefits due, payable or accruing (including all
deposits of money as advanced rent or for security) under any and all leases or
subleases and renewals thereof of, or under any contracts or options for the
sale of all or any part of, said property (including during any period allowed
by law for the redemption of said property after any foreclosure or other sale),
together with the right, but not the obligation, to collect, receive and receipt
for all such rents and other sums and apply them to the indebtedness hereby
secured and to demand, sue for and recover the same when due or payable;
provided that the assignments made hereby shall not impair or diminish the
obligations of Grantor under the provisions of such leases or other agreements
nor shall such obligations be imposed upon Trustee, Beneficiary, Co-Agent or any
Lender.
GRANTING CLAUSE IV
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the property described in Granting Clause I or any part thereof or any
building or other improvement now or at any time hereafter located thereon or
any easement or other appurtenance thereto under the power of eminent domain, or
any similar power or right (including any award from the United States
Government at any time after the allowance of the claim therefor, the
ascertainment of the amount thereof and the issuance of the warrant for the
payment thereof), whether permanent or temporary, or for any damage (whether
caused by such taking or otherwise) to said property or any part thereof or the
improvements thereon or any part thereof, or to any rights appurtenant thereto,
including severance and consequential
-4-
<PAGE>
damage, and any award for change of grade of streets (collectively,
"Condemnation Awards") and all insurance policies required hereunder and the
proceeds thereof.
GRANTING CLAUSE V
All property and rights, if any, which are by the express provisions of this
instrument required to be subjected to the lien hereof and any additional
property and rights that may from time to time hereafter, by installation or
writing of any kind, be subjected by Grantor or by anyone in Grantor's behalf to
the lien of the Deed of Trust as supplemented.
GRANTING CLAUSE VI
All rights in and to common areas and access roads on adjacent properties
heretofore or hereafter granted to Grantor and any after-acquired title or
reversion in and to the beds of any ways, roads, streets, avenues and alleys
adjoining the property described in Granting Clause I or any part thereof.
TO HAVE AND TO HOLD the Mortgaged Premises and the properties, rights and
privileges hereby granted, transferred, bargained, sold, conveyed, mortgaged,
warranted, assigned and pledged, and in which a security interest is granted, or
intended so to be, unto Trustee, and to Trustee's successors and assigns,
forever.
BUT IN TRUST NEVERTHELESS, upon the terms and trust herein set forth, for the
equal and proportionate benefit, security and protection of all present and
future holders of the Notes and the other indebtedness hereby secured; provided,
however, that this instrument is made by Grantor and accepted by Trustee and
Beneficiary upon the express condition that if the principal of and interest on
the Notes and all sums from time to time advanced thereon shall be paid in full
and all other indebtedness hereby secured shall be fully paid and performed
(including all sums payable under or according to the provisions of the
Applications), all Letters of Credit shall have expired and any commitment
contained in the Credit Agreement as amended by, without limitation, the Second
Amendment to extend credit thereunder shall have terminated, then this
instrument and the estate and rights hereby shall cease, terminate and be void
and this instrument shall be released by Trustee upon written request and at the
expense of Grantor, otherwise to remain in full force and effect.
In order to induce the Lenders to enter the Second Amendment and to induce the
Beneficiary to accept this Supplement, the Grantor hereby further covenants and
agrees with, and represents and warrants to, the Beneficiary as follows:
1. The foregoing Granting Clauses are in addition to and supplemental
of and not in substitution for the granting clauses contained in the Deed of
Trust. Nothing herein contained shall in any manner affect or impair the
priority of the lien of the Deed of Trust as to the indebtedness which would
be secured thereby prior to giving effect to this Supplement.
-5-
<PAGE>
2. Grantor hereby represents and warrants to Beneficiary that as of the
date hereof each of the representations and warranties set forth in the Deed of
Trust as supplemented hereby are true and correct and that no event of default
(as such term is defined in the Deed of Trust), or any other event which with
the lapse of time, the giving of notice, or both, would constitute such an event
of default, has occurred and is continuing or shall result after giving effect
to this Supplement. The Grantor hereby repeats and reaffirms all covenants and
warranties contained in the Deed of Trust, each and all of which shall be
applicable to all of the indebtedness secured by the Deed of Trust as
supplemented hereby. The Grantor repeats and reaffirms its covenant that all the
indebtedness secured by the Deed of Trust as supplemented hereby will be
promptly paid as and when the same becomes due and payable.
3. All capitalized terms used herein without definition shall have the same
meanings herein as they have in the Credit Agreement as amended by, without
limitation, the Second Amendment. The definitions provided herein of any
capitalized terms shall apply to such capitalized terms as the same appear in
the Deed of Trust as supplemented hereby, all to the end that any such
capitalized terms defined herein and used in the Deed of Trust as supplemented
hereby shall now have the meaning given to such capitalized terms herein.
Without limiting the foregoing, all references in the Deed of Trust to the term
"Termination Date" or the date "September 30, 1997" shall be deemed references
to the New Termination Date; all references in the Deed of Trust to the term
"indebtedness hereby secured" shall be deemed references to all the
indebtedness, obligations and liabilities secured by the Deed of Trust as
supplemented hereby; and all references in the Deed of Trust to the Credit
Agreement shall be deemed references to the Credit Agreement as amended by the
Second Amendment and as the same may from time to time be further modified or
amended.
4. All of the provisions, stipulations, powers and covenants contained in
the Deed of Trust shall stand and remain unchanged and in full force and effect
except to the extent specifically modified hereby and shall be applicable to all
of the indebtedness secured by the Deed of Trust as supplemented hereby.
5. The Deed of Trust as hereby supplemented is given to secure, among other
things, loans and letters of credit extended on a revolving basis and shall
secure not only presently existing indebtedness under the Credit Agreement as
amended by the Second Amendment but also future advances, whether such advances
are obligatory or to be made at the option of Beneficiary, or otherwise, as are
made within ten (10) years from the date hereof, to the same extent as if such
future advances were made on the date of the execution of the Deed of Trust,
although there may be no advance made at the time of execution of this
Supplement and although there may be no indebtedness hereby secured outstanding
at the time any advance is made. The lien of the Deed of Trust as hereby
supplemented shall be valid as to all indebtedness hereby secured, including
future advances, from the time of its filing for record in the recorder's or
registrar's office in the county in which the Mortgaged Premises are located.
The total amount of indebtedness hereby secured may increase or decrease from
time to time, but the total unpaid balance of indebtedness secured
-6-
<PAGE>
(including disbursements which Beneficiary may make under the Deed of Trust as
hereby supplemented, the Credit Agreement as amended by the Second Amendment or
any other documents related thereto) at any one time outstanding shall not
exceed a maximum principal amount of Sixty Million Dollars ($60,000,000) plus
interest thereon and any disbursements made for payment of taxes, special
assessments or insurance on the Mortgaged Premises and interest on such
disbursements (all such indebtedness being hereinafter referred to as the
"maximum amount secured hereby"). The Deed of Trust as hereby supplemented shall
be valid and have priority over all subsequent liens and encumbrances, including
statutory liens, excepting solely taxes and assessments levied on the Mortgaged
Premises, to the extent of the maximum amount secured hereby.
6. This Supplement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which to constitute one and the same
instrument.
7. No reference to this Supplement need be made in any note, instrument or
other document making reference to the Deed of Trust, any reference to the Deed
of Trust in any of such to be deemed to be a reference to the Deed of Trust as
supplemented hereby.
8. Wherever herein any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party; and all the
covenants, promises and agreements by or on behalf of the Grantor, or by or on
behalf of the Beneficiary, or by or on behalf of the holder or holders of the
indebtedness hereby secured contained in the Deed of Trust as supplemented
hereby shall bind and inure to the benefit of the respective successors and
assigns of such parties, whether so expressed or not.
-7-
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused these presents to be duly
executed the day and year first above written.
PLAYBOY ENTERPRISES, INC.
By /s/ Rebecca S. Maskey
-----------------------------------------
Its Senior V.P.
----------------------------------------
R. Maskey
----------------------------------------
(Type or Print Name)
Accepted and agreed to in Chicago, Illinois as of the day and date first
above written.
HARRIS TRUST AND SAVINGS BANK, as
Beneficiary and Administrative Agent for
the Lenders as aforesaid
By /s/ R. L. Dell'Artino
-----------------------------------------
Its Vice President
RONALD L. DELL'ARTINO
-----------------------------------------
(Type or Print Name)
-8-
<PAGE>
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
On this 5th day of March, 1996, before me, the undersigned, a Notary Public
of said State, duly commissioned and sworn, personally appeared Rebecca Maskey
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person who executed the within instrument as the Senior Vice President
of Playboy Enterprises, Inc., the corporation therein named, and acknowledged to
me that said corporation executed the within instrument pursuant to its by-laws
or resolution of its board of directors.
WITNESS my hand and official seal.
/s/ Kathleen L. Burde
----------------------------------------
Notary Public
(SEAL)
MY COMMISSION EXPIRES:
11-16-98
- ------------------------------------
<PAGE>
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
On this 5th day of March, 1996, before me, the undersigned, a Notary Public
of said State, duly commissioned and sworn, personally appeared Ronald
Dellartino, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed the within instrument as the Vice
President of Harris Trust and Savings Bank, the banking corporation therein
named, and acknowledged to me that said corporation executed the within
instrument pursuant to its by-laws or resolution of its board of directors.
WITNESS my hand and official seal.
/s/ Kathleen L. Burde
---------------------------------------
Notary Public
(SEAL)
MY COMMISSION EXPIRES:
11-16-98
- ---------------------------------
<PAGE>
SCHEDULE I
LEGAL DESCRIPTION
PARCEL 1:
ALL THAT PORTION OF LOT 33 OF TRACT NO. 9061, IN THE CITY OF LOS ANGELES, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 121 PAGES 64
TO 66 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,
LYING SOUTHEASTERLY OF A LINE PARALLEL WITH AND DISTANT 40 FEET NORTHWESTERLY,
MEASURED AT RIGHT ANGLES FROM THE SOUTHEASTERLY LINE OF SAID LOT 33.
PARCEL 2:
LOT 34 OF TRACT NO. 9061, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 121 PAGES 64, 65 AND 66 OF
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
<PAGE>
EXHIBIT C
PLAYBOY ENTERPRISES, INC.
SUPPLEMENT TO COLLATERAL DOCUMENTS
This Supplement to Collateral Documents dated as of March 5, 1996 by and
among Playboy Enterprises, Inc., a Delaware corporation (the "Company"), Playboy
Entertainment Group, Inc., a Delaware corporation ("PEG"), Critics' Choice
Video, Inc., an Illinois corporation ("Critics' Choice"), and Lifestyle Brands,
Ltd., a Delaware corporation ("Lifestyle") (the Company, PEG, Critics' Choice
and Lifestyle being hereinafter referred to as the "Pledgors"), and Harris Trust
and Savings Bank, an Illinois banking corporation, not in its individual
capacity, but solely in its capacity as agent under the Credit Agreement and
Collateral Documents hereinafter identified and defined (such banking
corporation in such capacity being hereinafter referred to as the "Agent"):
WITNESSETH THAT:
WHEREAS, the Company has entered into a Credit Agreement dated as of
February 10, 1995 with the Agent and the various lenders (such Credit Agreement
as the same has been and may from time to time hereafter be modified or amended
being hereinafter referred to as the "Credit Agreement"), under which the
lenders party thereto have extended and from time to time will extend credit to
the Company;
WHEREAS, the Pledgors have executed and delivered to the Agent various
security agreements, mortgages, assignments, financing statements and other
documents to secure, among other things, the credit extended under the Credit
Agreement (such security agreements, mortgages, assignments, financing
statements and other documents as from time to time amended, modified or
otherwise supplemented being hereinafter referred to as the "Collateral
Documents");
WHEREAS, the Pledgors have requested that the Agent release certain
collateral subject to the Collateral Documents and otherwise confirm that such
collateral is not subject to the Collateral Documents, and the Agent is willing
to do so on the terms and conditions set forth in this Supplement;
NOW, THEREFORE, in consideration of the credit arrangements created and
provided for by the Credit Agreement, the Agent and the Pledgors hereby agree as
follows:
1. The Agent hereby releases from the liens and security interests granted
and provided for by the Collateral Documents, and hereby agrees that such liens
and security interests do not encumber, each motion picture, film, video or
movie or similar audio or visual medium of communication in use now or in the
future in which any Pledgor has any proprietary interest (each such motion
picture, film, video or other medium being hereinafter referred to as a "Playboy
film"), and all rights incident to such Playboy film (such as the right to
distribute and otherwise exploit the same), in each case to the extent
<PAGE>
rights to distribute or otherwise exploit such Playboy film have been contracted
by any Pledgor to an unaffiliated third party in a bona fide, arm's-length
transaction prior to the acceleration pursuant to the terms of the Credit
Agreement or nonpayment at final maturity of the Company's obligations for such
consideration to such Pledgor (such as royalties) which such Pledgor in good
faith deems adequate and the terms of such contractual arrangements either
prohibit the Agent's lien on such Playboy film or require the Agent enter into a
specific non-disturbance agreement with such party to assure such party's use of
such Playboy film; provided, however, that the Agent has and shall at all times
retain a security interest in the Pledgor's right to the consideration due and
to become due to such Pledgor under such contractual arrangements (including the
proceeds of such consideration).
2. All the provisions, stipulations, powers and covenants contained in the
Collateral Documents shall stand and remain unchanged and in full force and
effect except to the extent specifically modified hereby. This Supplement shall
in no way affect or impair the validity or priority of any liens or security
interests on the Collateral not specifically released hereby. All references in
any instrument or document delivered in connection with the Credit Agreement to
any Collateral Document shall be deemed a reference to such Collateral Document
as modified hereby.
3. Notwithstanding anything to the contrary contained in the Credit
Agreement or any Collateral Document, the terms and conditions of this
Supplement shall control the subject matter hereof in the event of any conflict
with the Credit Agreement or any Collateral Document.
4. This Supplement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed to be an original but all of which are to constitute one and the same
instrument. Except as specifically modified hereby, all of the terms and
conditions of the Collateral Documents shall stand and remain unchanged and in
full force and effect. No reference to this Supplement need be made in any note,
instrument or other document taking reference to any Collateral Document, any
reference to a Collateral Document in any of such to be deemed to be a reference
to such Collateral Document as modified hereby. This instrument shall be
construed and governed by and in accordance with the laws of the State of
Illinois.
<PAGE>
Dated as of the date first above written
HARRIS TRUST AND SAVINGS BANK, as Agent
By: /s/ R. L. Dell'Artino
------------------------------------
Its: Vice President
---------------------------------
PLAYBOY ENTERPRISES, INC.
By: /s/ Rebecca S. Maskey
------------------------------------
Its: Senior V.P.
---------------------------------
PLAYBOY ENTERTAINMENT GROUP, INC.
By: /s/ Robert D. Campell
------------------------------------
Its: Treasurer
---------------------------------
CRITIC'S CHOICE VIDEO, INC.
By: /s/ Robert D. Campell
------------------------------------
Its: Treasurer
---------------------------------
LIFESTYLE BRANDS, LTD.
By /s/ Robert D. Campell
------------------------------------
Its: Treasurer
---------------------------------
<PAGE>
Exhibit 10.19(b)
PLAYBOY ENTERPRISES, INC.
June 26, 1996
VIA FAX 310/271-4597
Mr. Ross Gilbert
Beverly Mercedes Place
9242 Beverly Boulevard
Beverly Hills, California 90210
Dear Mr. Gilbert:
As we discussed, to give us all more time and to determine Capella's needs for
the 1st floor vacant space, we would like to extend our expansion option on the
1,241.8 rentable square feet on the 2nd floor from June 30, 1996 until September
15, 1996 on the same terms and conditions as covered under Paragraph 76(a) of
our lease dated July 25, 1991.
If this meets with your approval, please sign below and fax back to me at 312/
751-2818 prior to June 30, 1996.
We really do appreciate your cooperation in this matter.
Best regards,
PLAYBOY ENTERPRISES, INC.
/s/ Sue Shoemaker
- ------------------------------------------
Sue Shoemaker
Director-Corporate Administrative Services
Accepted And Agreed To
/s/ Ross Gilbert
- -----------------------------------------
Ross Gilbert
Beverly Mercedes Place, Ltd.
a California Limited Partnership
6-26-96
- ------------------------------------------
Date
680 NORTH LAKE SHORE DRIVE / CHICAGO, ILLINOIS 60611 / 312 751-6000
<PAGE>
Exhibit 10.19(c)
FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is made and
entered into as of the 12th day of September, 1996, by and between Beverly
Mercedes Place, Ltd., a California Limited Partnership ("Landlord"), and Playboy
Enterprises, Inc., a Delaware corporation ("Tenant").
R E C I T A L S
---------------
A. Landlord and Tenant have executed that certain Office Lease dated
July 25, 1991 ("Lease").
B. Tenant and Landlord desire to modify the Lease in accordance with
the terms and conditions contained in this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Option to Expand.
----------------
(a) The phrase "not later than nine (9) months prior to the end of
the sixtieth (60th) month of the Lease Term" in the 12th and 13th lines of
Paragraph 76(a) of the Lease is hereby deleted and the following phrase is
inserted in its place "not later than June 30, 2000".
(b) Paragraph 76(b)(v) of the Lease is hereby deleted.
(c) Paragraph 76(d) is hereby inserted into the Lease:
"(d) In the event that the Expansion Space becomes available
prior to June 30, 2000, then the Expansion Option shall terminate and,
in lieu thereof, Landlord hereby grants Tenant the right ("Expansion
First Right") to Lease the Expansion Space upon the terms and
conditions set forth in Paragraphs 76(a) and 76(b). Landlord shall
give Tenant written notice of the Expansion Space becoming available.
Within thirty (30) days after receipt of such notice, Tenant must give
Landlord written notice pursuant to which Tenant shall elect to: (i)
lease the Expansion Space upon the terms and conditions set forth in
Paragraphs 76(a) and 76(b); or (ii) refuse to lease the Expansion
Space. In the event that Tenant does not so respond in writing to
Landlord's notice within said period, Tenant shall be deemed to have
elected clause (ii) above. Notwithstanding anything to the contrary
contained herein, upon a refusal by Tenant to lease the Expansion
Space offered to Tenant as provided for above, Tenant shall no longer
have any right to lease the Expansion Space."
2. Definitions. Except as otherwise set forth herein, all defined
terms shall have the same meaning as set forth in the Lease.
<PAGE>
3. No Other Modification. Except as expressly stated herein, the
Lease, together with any and all exhibits thereto, shall remain unmodified and
in full force and effect.
The parties hereto have executed this First Amendment and made it
effective as of the day and year first above written.
Landlord:
--------
Beverly Mercedes Place, Ltd., a California
Limited Partnership
By: Silver Star, Inc., a California
corporation
By: /s/ Ross S. Gilbert
---------------------
Title: President
-------------------
Tenant:
------
Playboy Enterprise, Inc., a Delaware
corporation
By: /s/ Howard Shapiro
---------------------
Title: Executive V.P.
------------------
-2-
<PAGE>
[PLAT OF CONSOLIDATION APPEARS HERE]
<PAGE>
[BLUEPRINT OF FIRST FLOOR PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
Exhibit 10.20(e)
FOURTH AMENDMENT TO LEASE
-------------------------
THIS FOURTH AMENDMENT TO LEASE (this "Amendment") entered into in Chicago,
Illinois, as of the 6th day of August, 1996, by and between AMERICAN NATIONAL
BANK AND TRUST COMPANY OF CHICAGO, not personally, but solely as Trustee under a
Trust Agreement dated May 2, 1989, and known as Trust No. 108237-06 ("Lessor"),
and PLAYBOY ENTERPRISES, INC., a Delaware corporation ("Lessee").
WITNESSETH:
----------
A. LaSalle National Bank, not personally, but solely as Trustee under a
Trust Agreement dated December 21, 1987, and known as Trust No. 112912
("LaSalle"), and Lessee have heretofore entered into that certain Office Lease
dated as of April 7, 1988 (the "Original Lease"), whereby LaSalle leased to
Lessee certain premises (the "Original Premises") known as Suites 1500 and 1600,
consisting of 95,523.05 rentable square feet and comprising the entire 15th and
16th floors of the "Office Area" (as defined in the Original Lease) of that
certain building (the "Building") located at 680 North Lake Shore Drive,
Chicago, Illinois, for a lease term expiring on August 31, 2004.
B. LaSalle has heretofore assigned its interest under the Lease to
Lessor's predecessor in interest.
C. Lessor and Lessee have heretofore entered into that certain Amendment
to Lease dated as of October 26, 1989 (the "First Amendment"), which amended
certain provisions of the Original Lease, including the leasing to Lessee of
certain additional space in the basement of the Building (the "Additional
Premises; the Original Premises and the Additional Premises are collectively
referred to herein as the "Premises").
D. Lessor and Lessee have heretofore entered into that certain Second
Amendment to Lease dated as of June 1, 1992 (the "Second Amendment"), which
clarified certain provisions of the Lease relating to Taxes and Expenses payable
by Lessee.
E. Lessor and Lessee have heretofore entered into that certain Third
Amendment to Lease ("Third Amendment") dated as of August 30, 1993, which
granted to Lessee certain additional expansion rights in the Building and
amended certain other provisions contained in the Original Lease. The Original
Lease, the First Amendment, the Second Amendment and the Third Amendment are
collectively referred to herein as the "Lease".
F. Lessor and Lessee now desire to amend the Lease to grant to Lessee
certain additional expansion rights in the Building and amend certain other
provisions contained in the Lease, all upon the terms and provisions hereinafter
set forth.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, Lessor and Lessee hereby
agree as follows:
1. Definitions. Each capitalized term used in this Amendment shall have
the same meaning as is ascribed to such capitalized term in the Lease, unless
otherwise provided for herein.
2. Extension of Term. The Term of the Lease is hereby extended to and
including August 31, 2007 (the "Expiration Date").
3. Base Rent.
(a) Premises. Section 1 of the Lease notwithstanding, effective as of
September 1, 1999, Base Rent per rentable square foot for the Premises other
than for any Primary ROFR Space, Secondary ROFR Space and/or ROFR Space #3 (all
as hereinafter defined and, collectively, sometimes referred to herein as "ROFR
Space") leased by Lessee pursuant to this Fourth Amendment and other than for
the Additional Premises, but including any and all Option Space (as hereinafter
defined) leased by Lessee pursuant to this Fourth Amendment, shall be as set
forth below during the remainder of the Term as extended by this Fourth
Amendment:
<TABLE>
<CAPTION>
Period Base Rent Per Rentable Square Foot
------ ----------------------------------
<S> <C>
9/1/99 - 8/31/00 $12.75
9/1/00 - 8/31/01 $13.01
9/1/01 - 8/31/02 $13.27
9/1/02 - 8/31/03 $13.53
9/1/03 - 8/31/04 $13.80
9/1/04 - 8/31/05 $14.08
9/1/05 - 8/31/06 $14.36
9/1/06 - 8/31/07 $14.65
</TABLE>
(b) ROFR Space. Base Rent for any ROFR Space leased by Lessee pursuant to
this Fourth Amendment shall be calculated as hereinafter provided in this Fourth
Amendment.
(c) Additional Premises. Paragraph 3 of the First Amendment
notwithstanding, effective as of September 1, 1999, Base Rent for the Additional
Premises shall be as follows:
<TABLE>
<CAPTION>
Period Monthly Base Rent
------ -----------------
<S> <C>
9/1/99 - 8/31/00 $728.15
9/1/00 - 8/31/01 $742.71
9/1/01 - 8/31/02 $757.56
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
9/1/02 - 8/31/03 $772.71
9/1/03 - 8/31/04 $788.17
9/1/04 - 8/31/05 $803.93
9/1/05 - 8/31/06 $820.01
9/1/06 - 8/31/07 $836.41
</TABLE>
4. Expansion Option. Section 2 of the Third Amendment is hereby deleted
in its entirety and the following is substituted in its place and stead:
(a) For purposes of this Section 4, "Expansion Option" shall mean either
Option #1 (as hereinafter defined) or Option #2 (as hereinafter defined) as the
case may be or the context requires and "Option Space" shall mean either Option
Space #1 (as hereinafter defined) or Option Space #2 (as hereinafter defined) as
the case may be or the context requires.
(b) Option #1. Lessee shall have an option ("Option #1") to lease all (but
not less than all) of that certain office space on the fourteenth (14th) floor
of the Building ("Option Space #1") consisting of approximately 7,765 rentable
square feet and designated as "Option #1" on Exhibit A attached hereto and by
this reference made a part hereof. Option #1 may be exercised at any time on or
before March 31, 1998, by written notice from Lessee to Lessor ("Lessee's
Notice"). If Option #1 is exercised on or before December 31, 1997, the lease
term for Option Space #1 shall commence on the earlier to occur of (1) the date
Lessee first occupies all or any portion of Option Space #1 for any use or
purpose other than Lessee's construction of leasehold improvements therein, (2)
one hundred twenty (120) days after the date Lessor delivers possession of
Option Space #1 to Lessee, unless Lessee's Notice specifies an earlier date, or
(3) April 1, 1998, and Lessor shall deliver possession of Option Space #1 to
Lessee, for the purpose of Lessee's construction of leasehold improvements
therein, on the later to occur of (x) one hundred twenty (120) days after the
date Lessee's Notice is delivered to Lessor (but in no event later than April 1,
1998) or (y) one hundred twenty (120) days prior to the date specified in
Lessee's Notice, if any, as the commencement date for the lease term for Option
Space #1, or if no such date is specified, December 1, 1997. If Option #1 is
exercised after December 31, 1997, the lease term for Option Space #1 shall
commence on the earlier to occur of (i) the date Lessee first occupies all or
any portion of Option Space #1 for any use or purpose other than Lessee's
construction of leasehold improvements therein, (ii) the date of commencement of
such term as specified in Lessee's Notice or (iii) April 1, 1999.
(c) Option #2. If (but only if) Lessee exercises Option #1 on or before
December 31, 1997, Lessee shall have an option ("Option #2") to lease all (but
not less than all) of that certain office space ("Option Space #2") on the
fourteenth (14th) floor of the Building consisting of approximately 8,428
rentable square feet and designated as "Option #2" on Exhibit A hereto. Option
#2 may be exercised at any time on or before March 31, 1998, by Lessee
delivering Lessee's Notice to Lessor. If Option #2 is exercised as aforesaid,
the lease term for Option Space #2 shall commence on the earlier to occur of (i)
the date Lessee first occupies all
3
<PAGE>
or any portion of Option Space #2 for any use or purpose other than Lessee's
construction of leasehold improvements therein, (ii) the date of commencement
of such term as specified in Lessee's Notice or (iii) April 1, 1999.
(d) Any Option Space as to which Lessee fails to timely exercise an
Expansion Option as provided herein shall be deemed to be Primary ROFR Space (as
hereinafter defined in Section 5(a)), effective on the day after the last date
upon which such Expansion Option could be timely exercised by Lessee hereunder.
If Lessee does not exercise Option #1 on or before December 31, 1997, Option
Space #2 shall be deemed to be Primary ROFR Space effective on January 1, 1998.
(e) Lessee's right to exercise an Expansion Option shall be contingent
upon Lessee not being in Default under the Lease, as amended hereby, either on
the date that Lessee exercises such Expansion Option or, unless waived in
writing by Lessor for purposes of the Expansion Option, on the date that
otherwise would have been the commencement date of the lease term for the
applicable Option Space. If Lessee is not in Default under the Lease, as amended
hereby, on the date Lessee exercises such Expansion Option but is so in Default
on the date that otherwise would have been the commencement date of the lease
term for the applicable Option Space and Lessor does not waive in writing such
Default for purposes of the Expansion Option, then, notwithstanding Lessee's
timely exercise of the Expansion Option, Lessee shall have no right to lease
such Option Space as a result of Lessee's exercise of such Expansion Option.
(f) If Lessee exercises an Expansion Option, the following terms and
provisions shall apply:
(i) For purposes of this Section 4(f), "Option Space" shall mean the
space as to which an Expansion Option has been exercised;
(ii) The lease term for the Option Space shall expire on the last day
of the term of the Lease, as amended hereby;
(iii) The annual rate of Base Rent per rentable square foot payable
for the Option Space shall at all times during the lease term for the
Option Space be equal to the annual rate of Base Rent per rentable square
foot then payable for the Original Premises under the Lease, as amended by
Section 3(a) of this Fourth Amendment. Lessee shall pay the Rent Adjustment
for the Option Space, as provided in Section 2B of the Original Lease,
commencing immediately upon the commencement date of the lease term for the
Option Space, and "Lessee's Proportionate Share" as used in clause (iii) of
Section 2A of the Original Lease shall mean the percentage determined by
dividing the aggregate rentable area of the entire Premises (excluding the
Additional Premises) including the Option Space by 424,052.32 rentable
square feet. For purposes of this Section 4, the
4
<PAGE>
rentable area of the Option Space shall be as determined by Lessor or, at
Lessor's option, Lessor's architect, in accordance with Lessor's then current
space measurement standards for comparable space in the Building;
(iv) Lessee shall not be entitled to any rental abatement for the
Option Space;
(v) Lessee shall accept the Option Space in an "as-is", "where-is"
physical condition from Lessor, without any agreement, representation, credit or
allowance from Lessor with respect to the improvement or condition thereof
except as set forth in this Section 4(f)(v). Lessee shall pay for any and all
costs or expenses associated with any leasehold improvement work in the Option
Space, which work shall be performed by Lessee in accordance with the terms of
Section 13 of the Original Lease, except that upon completion of such work and
Lessee's delivery of contractors affidavits and full and final waivers of lien
and receipted bills covering all labor and materials expended and used for such
work, Lessor shall pay to Lessee, as Lessor's contribution toward the payment of
the cost and expense of improving the Option Space ("Lessor's Option Space
Contribution"), a sum equal to the dollar amount per rentable square foot of the
Option Space, as set forth in the column entitled "Adjusted Allowance Per
Square Foot" on the schedule attached hereto as Exhibit C and made a part hereof
("Lessor's Contribution Schedule") corresponding to the calendar month in which
Lessee first occupies the Option Space, multiplied by the number of rentable
square feet contained in the Option Space. In the event that Lessee has
satisfied all conditions and requirements as set forth herein and in the Lease
for the payment of Lessor's Option Space Contribution and Lessor fails to pay
Lessor's Option Space Contribution to Lessee within ninety (90) days after
Lessee notifies Lessor in writing that all such conditions and requirements have
been satisfied and that such payment is due and owing to Lessee hereunder, and
further provided that Lessee is not then in breach or default under the Lease,
as amended hereby, Lessee shall, upon the expiration of said ninety (90) day
period, be entitled to offset the amount of Lessor's Option Space Contribution
from the then next due installments of Base Rent thereafter payable by Lessee
under the Lease, as amended hereby, until the full amount of Lessor's Option
Space Contribution has been paid or offset as provided herein; and
(vi) All of the terms and provisions of the Lease, as hereby amended,
shall apply with respect to the Option Space, except as otherwise provided in
this Section 4 or except as same may be inconsistent with the provisions of this
Section 4, and the Option Space shall be deemed to be a part of the Premises
effective as of the first day of the lease term for such Option Space.
5
<PAGE>
(g) If Lessee exercises an Expansion Option, Lessor and Lessee shall
execute and deliver an amendment to the Lease reflecting the lease by Lessor to
Lessee of the Option Space on the terms provided above, which amendment shall be
executed and delivered promptly after Lessee delivers Lessee's Notice to Lessor.
(h) Each Expansion Option shall automatically terminate and become null
and void and of no force or effect upon the earlier to occur of (1) the
expiration or termination of the Lease, (2) the termination of Lessee's right to
possession of the Premises, (3) the assignment of the Lease by Lessee, in whole
or in part, which is not in accordance with Section 14 of the Original Lease, or
which is to a party (or any affiliate thereof) who is then, or was within the
preceding six (6) months, a tenant in, or otherwise an occupant of, the
Building, (4) the sublease of the Premises, or any part thereof, which is not in
accordance with Section 14 of the original Lease, or which is to a party (or any
affiliate thereof) who is then, or was within the preceding six (6) months, a
tenant in, or otherwise an occupant of, the Building, or (5) the failure of
Lessee to timely or properly exercise such Expansion Option. Without limiting
the foregoing, no Expansion Option shall be assignable by Lessee separately from
the Lease nor shall any Expansion Option be exercisable by any party other than
Lessee except for Lessee's assignee pursuant to an assignment of the Lease in
accordance with Section 14 of the Original Lease which assignee (or any
affiliate thereof) is not, at the effective date of the assignment, or was not
for the six (6) months preceding the effective date of the assignment, a tenant
in, or otherwise an occupant of, the Building. For purposes of this Fourth
Amendment, an "affiliate" of a party or assignee shall mean any one or more
partners, principals or shareholders of any such party or assignee, or any other
person or entity which controls, is controlled by or is under common control
with such party or assignee.
5. RIGHT OF FIRST REFUSAL - PRIMARY ROFR SPACE. Section 3 of the Third
Amendment is hereby deleted in its entirety and the following is substituted in
its place and stead.
(a) For purposes of this Lease, the term "Primary ROFR Space" shall mean
all leasable space located on the 14th floor of the Building within the area
designated as "Primary ROFR Space" on Exhibit A-1 attached hereto and made a
part hereof, excluding therefrom (i) Option Space (except as provided in Section
4(d) above) and (ii) any space leased to a third (3rd) party as of the date of
execution of this Amendment, including any subsequent renewals or extensions
thereof, until such time as such lease expires or is terminated.
(b) With respect to any lease for all or any portion of the Primary ROFR
Space which Lessor hereafter intends to enter into with a third (3rd) party,
Lessor shall deliver written notice of such intent to Lessee ("Lessor's Primary
ROFR Notice") prior to Lessor entering into any such lease. Lessor's Primary
ROFR Notice shall state (i) the location and rentable area of the portion of the
Primary ROFR Space which Lessor desires to lease, (ii) the proposed lease term
for such portion of the Primary ROFR Space, (iii) the date upon which such
portion of the Primary ROFR Space shall be available for occupancy, (iv) the
annual rate of Base Rent per
6
<PAGE>
square foot of rentable area which Lessor desires to charge for such portion of
the Primary ROFR Space, (v) the amount of all rent adjustments which Lessor
desires to charge for such portion of the Primary ROFR Space including, without
limitation, all fixed and/or indexed adjustments to such rate and rent
adjustments for operating expenses and real estate taxes for the Building and
(vi) all of the tenant concessions (e.g., without limitation, rent abatements
and tenant improvement allowances), if any, which Lessor would be willing to
provide to lease such Primary ROFR Space (all of which concessions, other than
tenant improvement allowances, are hereinafter referred to as "Tenant
Concessions"). Lessee shall thereupon have a right of first refusal (a "Primary
ROFR Refusal Right") to lease all (but not less than all) of the portion of the
Primary ROFR Space described in said Lessor's Primary ROFR Notice, subject to
the following terms and conditions:
(i) Lessee shall deliver a written notice of such intent to Lessor
exercising the Primary ROFR Refusal Right ("Lessee's Primary ROFR Exercise
Notice") within ten (10) business days after Lessor delivers Lessor's
Primary ROFR Notice for such Primary ROFR Refusal Right to Lessee. For
purposes of this Fourth Amendment, "business day" shall mean any day other
than a Saturday, a Sunday or any state or federal holiday on which the
United States Postal Service does not make regularly scheduled delivery of
first class mail; and
(ii) Lessee's right to exercise the Primary ROFR Refusal Right
shall be contingent upon Lessee not being in Default under the Lease, as
hereby amended, either on the date Lessee exercises such Primary ROFR
Refusal Right or, unless waived in writing by Lessor for purposes of such
Primary ROFR Refusal Right, on the availability date specified in the
applicable Lessor's Primary ROFR Notice for such portion of the Primary
ROFR Space. If Lessee is not in Default under the Lease, as amended hereby,
on the date Lessee exercises such Primary ROFR Refusal Right but is so in
Default on the availability date specified in the applicable Lessor's
Primary ROFR Notice and Lessor does not waive in writing such Default for
purposes of such Primary ROFR Refusal Right, then, notwithstanding Lessee's
exercise of such Primary ROFR Refusal Right, Lessee shall have no right to
lease the Primary ROFR Space as a result of Lessee's exercise of such
Primary ROFR Right.
In the event that Lessee does not timely or properly exercise a Primary ROFR
Refusal Right, Lessor may at any time thereafter lease the applicable portion of
the Primary ROFR Space to any third (3rd) party tenant on substantially the same
economic terms as set forth in Lessor's Primary ROFR Notice applicable thereto
without any further rights of Lessee to lease such space, provided that Lessee's
failure to timely or properly exercise such Primary ROFR Refusal Right shall
not act as a waiver of or otherwise affect the Expansion Options granted to
Lessee pursuant to Section 4 hereof nor act as a waiver of or otherwise affect
any Primary ROFR Refusal Right as to any other portion of the Primary ROFR
Space, any Secondary ROFR Refusal
7
<PAGE>
Right (as hereinafter defined) or any ROFR Space #3 Refusal Right (as
hereinafter defined) and further provided that in the event that Lessor
thereafter intends to enter into a lease with a third (3rd) party for the
applicable portion of the Primary ROFR Space upon economic terms materially more
favorable to such tenant than those set forth in the most recent Lessor's
Primary ROFR Notice applicable thereto, such Primary ROFR Space shall again
become subject to Lessee's Primary ROFR Refusal Right as set forth in this
Section 5.
(c) If Lessee exercises a Primary ROFR Refusal Right, the following
terms and provisions shall apply:
(i) Notwithstanding the location of any Primary ROFR Space for
which a Primary ROFR Refusal Right has been exercised as heretofore
provided in this Section, in the event Lessee exercises a Primary ROFR
Refusal Right as aforesaid, the Primary ROFR Space actually to be leased to
Lessee shall consist of the space within the area comprising the Primary
ROFR Space and any Option Space which is subject to an unexercised
Expansion Option which is located closest to the west end of the Building
and is not then leased to a third (3rd) party, under option to be leased to
a third (3rd) party, subject to a right of first refusal to a third (3rd)
party or otherwise committed to be leased or occupied by a third (3rd)
party (the "Available Primary ROFR Space"). In the event any Primary ROFR
Space is relocated as aforesaid, then (1) Landlord shall have the right, in
its sole discretion and upon notice to Lessee, to increase or decrease the
size of such relocated Primary ROFR Space by an amount not to exceed ten
percent (10%) of the rentable area thereof as set forth in Lessor's Primary
ROFR Notice, to the reasonably minimal extent necessary to accommodate the
actual configuration of the Available Primary ROFR Space and Lessor's then
current space demising and measurement standards for comparable space in
the Building, in which event all terms contained in Lessor's Primary ROFR
Notice for such Primary ROFR Space (including, without limitation, any
Tenant Concessions) and the rent payable therefor shall be deemed
automatically adjusted pro rata to such increase or decrease and (2) any
Option Space which remains subject to a valid and existing but unexercised
Expansion Option shall be automatically relocated to the next most westerly
Available Primary ROFR Space which is contiguous to the relocated Primary
ROFR Space in which event Landlord shall have the right, in its sole
discretion and upon notice to Lessee, to increase or decrease the size of
such relocated Option Space by an amount not to exceed ten percent (10%) of
the rentable area thereof prior to such relocation, to the reasonably
minimal extent necessary to accommodate the actual configuration of the
Available Primary ROFR Space and Lessor's then current space demising and
measurement standards for comparable space in the Building;
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(ii) The lease term for such Primary ROFR Space shall commence on the
availability date specified in the applicable Lessor's Primary ROFR Notice and
shall expire on the last day of the term of the Lease, as amended hereby;
(iii) The Base Rent and rental adjustments payable for such Primary ROFR
Space shall be as set forth in the applicable Lessor's Primary ROFR Notice (as
the same may be adjusted in the manner provided in Section 5(c)(i) above) and
Lessee shall be entitled to receive, with respect to such Primary ROFR Space,
any and all Tenant Concessions set forth in such Notice (as the same may be
adjusted in the manner provided in Section 5(c)(i) above), except that the
amount of each such Tenant Concession shall be further adjusted by multiplying
such amount by a fraction (the "Primary ROFR Term Adjustment") whose numerator
is the number of calendar months in the period commencing with the calendar
month in which Lessee first occupies such Primary ROFR Space and continuing to
and including the calendar month in which the Expiration Date occurs, and whose
denominator is the number of calendar months contained in the proposed lease
term as set forth in such Lessor's Primary ROFR Notice;
(iv) For purposes of paying the rental adjustments set forth in Section
5(c)(iii) above with respect to any Primary ROFR Space actually leased by
Lessee, Lessee's Proportionate Share shall be increased effective as of the
commencement date of the lease term for such Primary ROFR Space by adding to
such then effective Lessee's Proportionate Share the percentage determined by
dividing the rentable area of such Primary ROFR Space by 424,052.32 rentable
square feet. For purposes of this Section 5, the rentable area of any Primary
ROFR Space actually leased by Lessee (whether or not relocated) shall be as
determined by Lessor or, at Lessor's option, Lessor's architect, in accordance
with Lessor's then current space measurement standards for comparable space in
the Building;
(v) Lessee shall not be entitled to any rental abatement for any
portion of the Primary ROFR Space except as provided in Section 5(c)(iii) above;
(vi) Lessee shall accept the applicable portion of the Primary ROFR
Space in an "as-is", "where-is" physical condition from Lessor, without any
agreement, representation, credit or allowance from Lessor with respect to the
improvement or condition thereof except as set forth in this Section 5(c)(vi).
Lessee shall pay for any and all costs or expenses associated with any leasehold
improvement work in such Primary ROFR Space, which work shall be performed by
Lessee in accordance with the terms of Section 13 of the Original Lease, except
that upon completion of such work and Lessee's delivery of contractors
affidavits and full and final waivers of lien and receipted bills covering all
labor and materials expended and used for such work, Lessor shall pay to Lessee,
as
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Lessor's contribution toward the payment of the cost and expense of
improving such Primary ROFR Space ("Lessor's Primary ROFR Space
Contribution"), a sum equal to the dollar amount of tenant improvement
allowance per rentable square foot of the original Primary ROFR Space, as
set forth in the applicable Lessor's Primary ROFR Notice, multiplied by the
number of rentable square feet contained in the Primary ROFR Space which is
actually leased to Lessee, and, and further multiplied by the Primary ROFR
Term Adjustment. In the event that Lessee has satisfied all conditions and
requirements as set forth herein and in the Lease for the payment of
Lessor's Primary ROFR Space Contribution and Lessor fails to pay in full
Lessor's Primary ROFR Space Contribution to Lessee within ninety (90) days
after Lessee notifies Lessor in writing that all such conditions and
requirements have been satisfied and that such payment is due and owing to
Lessee hereunder, and further provided that Lessee is not then in breach or
default under the Lease, as amended hereby, Lessee shall, upon the
expiration of said ninety (90) day period, be entitled to offset the unpaid
amount of Lessor's Primary ROFR Space Contribution from the then next due
installments of Base Rent thereafter payable by Lessee under the Lease, as
amended hereby, until the full amount of Lessor's Primary ROFR Space
Contribution has been paid or offset as provided herein; and
(vii) All of the terms and provisions of the Lease, as hereby amended,
shall apply with respect to the applicable portion of the Primary ROFR
Space, except as otherwise provided in this Section 5 or except as same may
be inconsistent with the provisions of this Section 5, and such portion of
the Primary ROFR Space shall be deemed to be a part of the Premises
effective as of the first day of the lease term for such space.
(d) If Lessee exercises a Primary ROFR Refusal Right, Lessor and Lessee
shall execute and deliver an amendment of the Lease reflecting the lease of the
applicable portion of the Primary ROFR Space by Lessor to Lessee on the terms
and provisions set forth in this Section 5, which amendment shall be executed
and delivered within thirty (30) days after Lessee exercises the Primary ROFR
Refusal Right.
(e) The Primary ROFR Refusal Right shall automatically terminate and
become null and void upon the earlier to occur of (1) the expiration or
termination of the Lease, (2) the termination of Lessee's right to possession of
the Premises, (3) the assignment of the Lease by Lessee, in whole or in part,
which is not in accordance with Section 14 of the Original Lease, or which is to
a party (or any affiliate thereof) who is then, or was within the preceding six
(6) months, a tenant in, or otherwise an occupant of, the Building, (4) the
sublease by Lessee of the Premises, or any part thereof, which is not in
accordance with Section 14 of the Original Lease, or which is to a party (or an
affiliate thereof) who is then, or was within the preceding six (6) months, a
tenant in, or otherwise an occupant of, the Building, or (5) the failure of
Lessee to timely or properly exercise a primary ROFR Refusal Right. Without
limiting the foregoing, no
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Primary ROFR Refusal Right shall be assignable by Lessee separately from the
Lease nor shall any Primary ROFR Refusal Right be exercisable by any party
other than Lessee except for Lessee's assignee pursuant to an assignment of the
Lease in accordance with Section 14 of the Original Lease which assignee (or any
affiliate thereof) is not, at the effective date of the assignment, or was not
for the six (6) months preceding the effective date of the assignment, a tenant
in, or otherwise an occupant of, the Building.
6. RIGHT OF FIRST REFUSAL - SECONDARY ROFR SPACE.
---------------------------------------------
(a) For purposes of this Lease, the term "Secondary ROFR Space" shall mean
all leasable space located on the fourteenth (14th) floor of the Building within
the area designated as "Secondary ROFR Space" on Exhibit A-1 attached hereto and
made a part hereof, excluding therefrom (i) the space denoted as "ROFR #3" on
Exhibit A attached hereto and (ii) any space leased to a third (3rd) party as of
the date of execution of this Amendment, including any subsequent renewals or
extensions thereof, until such time as such lease expires or is terminated.
(b) With respect to any lease for all or any portion of the Secondary ROFR
Space which Lessor hereafter intends to enter into with a third (3rd) party,
Lessor shall deliver written notice of such intent to Lessee ("Lessor's
Secondary ROFR Notice") prior to Lessor entering into any such lease. Lessor's
Secondary ROFR Notice shall state (i) the location and rentable area of the
portion of the Secondary ROFR Space which Lessor desires to lease, (ii) the
proposed lease term for such portion of the Secondary ROFR Space, (iii) the date
upon which such portion of the Secondary ROFR Space shall be available for
occupancy, (iv) the annual rate of Base Rent per square foot of rentable area
which Lessor desires to charge for such portion of the Secondary ROFR Space, (v)
the amount of all rent adjustments which Lessor desires to charge for such
portion of the Secondary ROFR Space including, without limitation, all fixed
and/or indexed adjustments to such rate and rent adjustments for operating
expenses and real estate taxes for the Building and (vi) the tenant improvement
allowances and Tenant Concessions, if any, which Lessor would be willing to
provide to lease such Secondary ROFR Space. Lessee shall thereupon have a right
of first refusal (a "Secondary ROFR Refusal Right") to lease all (but not less
than all) of the portion of the Secondary ROFR Space described in said Lessor's
Secondary ROFR Notice, subject to the following terms and conditions:
(i) Lessee shall deliver a written notice of such intent to Lessor
exercising the Secondary ROFR Refusal Right ("Lessee's Secondary ROFR
Exercise Notice") within ten (10) business days after Lessor delivers
Lessor's Secondary ROFR Notice for such Secondary ROFR Refusal Right to
Lessee; and
(ii) Lessee's right to exercise the Secondary ROFR Refusal Right shall
be contingent upon Lessee not being in Default under the Lease, as hereby
amended, either on the date Lessee exercises such Secondary ROFR Refusal
Right or, unless waived in writing by Lessor for purposes of such Secondary
ROFR Refusal Right, on the availability date specified in the applicable
Lessor's
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Secondary ROFR Notice for such portion of the Secondary ROFR Space. If
Lessee is not in Default under the Lease, as amended hereby, on the date
Lessee exercises such Secondary ROFR Refusal Right but is so in Default on
the availability date specified in the applicable Lessor's Secondary ROFR
Notice and Lessor does not waive in writing such Default for purposes of
such Secondary ROFR Right, then, notwithstanding Lessee's exercise of such
Secondary ROFR Right, Lessee shall have no right to lease the Secondary
ROFR Space as a result of Lessee's exercise of such Secondary ROFR Refusal
Right.
In the event that Lessee does not timely or properly exercise a Secondary ROFR
Refusal Right, Lessor may at any time thereafter lease the applicable portion
of the Secondary ROFR Space to any third (3rd) party tenant on substantially the
same economic terms as set forth in Lessor's Secondary ROFR Notice applicable
thereto without any further rights of Lessee to lease such space, provided that
Lessee's failure to timely or properly exercise such Secondary ROFR Refusal
Right shall not act as a waiver of or otherwise affect the Expansion Options
granted to Lessee pursuant to Section 4 hereof nor act as a waiver of or
otherwise affect any Secondary ROFR Refusal Right as to any other portion of the
Secondary ROFR Space, any Primary ROFR Refusal Right or any ROFR Space #3
Refusal Right and further provided that in the event that Lessor thereafter
intends to enter into a lease with a third (3rd) party for the applicable
portion of the Secondary ROFR Space upon economic terms materially more
favorable to such tenant than those set forth in the most recent Lessor's
Secondary ROFR Notice applicable thereto, such Secondary ROFR Space shall again
become subject to Lessee's Secondary ROFR Refusal Right as set forth in this
Section 6.
(c) If Lessee exercises a Secondary ROFR Refusal Right, the following
terms and provisions shall apply:
(i) The lease term for such Secondary ROFR Space shall commence on
the availability date specified in the applicable Lessor's Secondary ROFR
Notice and shall expire on the last day of the term of the Lease, as
amended hereby;
(ii) The Base Rent and rental adjustments payable for such Secondary
ROFR Space shall be as set forth in the applicable Lessor's Secondary ROFR
Notice and Lessee shall be entitled to receive, with respect to such
Secondary ROFR Space, any and all Tenant Concessions set forth in such
notice, except that the amount of each such Tenant Concession shall be
adjusted by multiplying such amount by a fraction (the "Secondary ROFR Term
Adjustment") whose numerator is the number of calendar months in the period
commencing in the calendar month in which Lessee first occupies such
Secondary ROFR Space and continuing to and including the calendar month in
which the Expiration Date occurs, and whose denominator is the number of
calendar months contained in the proposed lease term as set forth in such
Lessor's Secondary ROFR Notice;
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(iii) For purposes of paying the rental adjustments set forth in
Section 6(c)(ii) above with respect to such Secondary ROFR Space, Lessee's
Proportionate Share shall be increased effective as of the commencement
date of the lease term for such Secondary ROFR Space by adding to such then
effective Lessee's Proportionate Share the percentage determined by
dividing the rentable area of such Secondary ROFR Space by 424,052.32
rentable square feet. For purposes of this Section 6, the rentable area of
any Secondary ROFR Space actually leased by Lessee shall be as determined
by Lessor or, at Lessor's option, Lessor's architect, in accordance with
Lessor's then current space measurement standards for comparable space in
the Building;
(iv) Lessee shall not be entitled to any rental abatement for any
portion of the Secondary ROFR Space except as provided in Section 6(c)(ii)
above;
(v) Lessee shall accept the applicable portion of the Secondary ROFR
Space in an "as-is", "where-is" physical condition from Lessor, without any
agreement, representation, credit or allowance from Lessor with respect to
the improvement or condition thereof except as otherwise set forth in the
applicable Lessor's Secondary ROFR Notice adjusted by multiplying such
amount by the Secondary ROFR Term Adjustment ("Lessor's Secondary ROFR
Space Contribution"). Lessee shall pay for any and all costs or expenses
associated with any leasehold improvement work in such Secondary ROFR
Space, which work shall be performed by Lessee in accordance with the terms
of Section 13 of the Original Lease, except that upon completion of such
work and Lessee's delivery of contractors affidavits and full and final
waivers of lien and receipted bills covering all labor and materials
expended and used for such work, Lessor shall pay to Lessee, as Lessor's
contribution toward the payment of the cost and expense of improving such
Secondary ROFR Space, the amount of Lessor's Secondary ROFR Space
Contribution, if any. In the event that Lessee has satisfied all conditions
and requirements as set forth herein and in the Lease for the payment of
Lessor's Secondary ROFR Space Contribution, if any, and Lessor fails to pay
in full Lessor's Secondary ROFR Space Contribution to Lessee within ninety
(90) days after Lessee notifies Lessor in writing that all such conditions
and requirements have been satisfied and that such payment is due and owing
to Lessee hereunder, and further provided that Lessee is not then in breach
or default under the Lease, as amended hereby, Lessee shall, upon the
expiration of said ninety (90) day period, be entitled to offset the unpaid
amount of Lessor's Secondary ROFR Space Contribution from the then next due
installments of Base Rent thereafter payable by Lessee under the Lease, as
amended hereby, until the full amount of Lessor's Secondary ROFR Space
Contribution has been paid or offset as provided herein; and
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(vi) All of the terms and provisions of the Lease, as hereby amended,
shall apply with respect to the applicable portion of the Secondary ROFR
Space, except as otherwise provided in this Section 6 or except as same may
be inconsistent with the provisions of this Section 6, and such portion of
the Secondary ROFR Space shall be deemed to be a part of the Premises
effective as of the first day of the lease term for such space.
(d) If Lessee exercises a Secondary ROFR Refusal Right, Lessor and Lessee
shall execute and deliver an amendment of the Lease reflecting the lease of the
applicable portion of the Secondary ROFR Space by Lessor to Lessee on the terms
and provisions set forth in this Section 6, which amendment shall be executed
and delivered within thirty (30) days after Lessee exercises the Secondary ROFR
Refusal Right.
(e) The Secondary ROFR Refusal Right shall automatically terminate and
become null and void upon the earlier to occur of (1) the expiration or
termination of the Lease, (2) the termination of Lessee's right to possession
of the Premises, (3) the assignment of the Lease by Lessee, in whole or in
part, which is not in accordance with Section 14 of the Original Lease, or which
is to a party (or any affiliate thereof) who is then, or was within the
preceding six (6) months, a tenant in, or otherwise an occupant of, the
Building, (4) the sublease by Lessee of the Premises, or any part thereof, which
is not in accordance with Section 14 of the Original Lease, or which is to a
party (or any affiliate thereof) who is then, or was within the preceding six
(6) months, a tenant in, or otherwise an occupant of, the Building, or (5) the
failure of Lessee to timely or properly exercise a Secondary ROFR Refusal Right.
Without limiting the foregoing, no Secondary ROFR Refusal Right shall be
assignable by Lessee separately from the Lease nor shall any Secondary ROFR
Refusal Right be exercisable by any party other than Lessee except for Lessee's
assignee pursuant to an assignment of the Lease in accordance with Section 14 of
the Original Lease which assignee (or any affiliate thereof) is not, at the
effective date of the assignment, or was not for the six (6) months preceding
the effective date of the assignment, a tenant in, or otherwise an occupant of,
the Building.
7. RIGHT OF FIRST REFUSAL - ROFR SPACE #3.
--------------------------------------
(a) For purposes of this Lease, the term "ROFR Space #3" shall mean that
portion of the space denoted as "ROFR #3" on Exhibit A attached hereto, if any,
that has not been leased to a third (3rd) party on or before December 31, 1997.
This Amendment does not grant to Lessee any rights of first refusal to lease (i)
all or any portion of the space so denoted as "ROFR Space #3" on said Exhibit A
prior to January 1, 1998, or (ii) all or any portion of such space which is
subject to a lease to a third (3rd) party as of December 31, 1997.
(b) Commencing effective January 1, 1998, with respect to any lease for
all or any portion of ROFR Space #3 which Lessor hereafter intends to enter into
with a third (3rd) party, Lessor shall deliver written notice of such intent to
Lessee ("Lessor's ROFR Space #3 Notice") prior to Lessor entering into any such
lease. Lessor's ROFR Space #3 Notice shall state (i) the
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location and rentable area of the portion of ROFR Space #3 which Lessor desires
to lease, (ii) the proposed lease term for such portion of ROFR Space #3, (iii)
the date upon which such portion of ROFR Space #3 shall be available for
occupancy, (iv) the annual rate of Base Rent per square foot of rentable area
which Lessor desires to charge for such portion of ROFR Space #3, (v) the amount
of all rent adjustments which Lessor desires to charge for such portion of ROFR
Space #3 including, without limitation, all fixed and/or indexed adjustments to
such rate and rent adjustments for operating expenses and real estate taxes for
the Building and (vi) the tenant improvement allowances and Tenant Concessions,
if any, which Lessor would be willing to provide to lease such portion of ROFR
Space #3. Lessee shall thereupon have a right of first refusal (a "ROFR Space #3
Refusal Right") to lease all (but not less than all) of the portion of ROFR
Space #3 described in said Lessor's ROFR Space #3 Notice, subject to the
following terms and conditions:
(i) Lessee shall deliver a written notice of such intent to Lessor
exercising the ROFR Space #3 Refusal Right ("Lessee's ROFR Space #3
Exercise Notice") within ten (10) business days after Lessor delivers
Lessor's ROFR Space #3 Notice for such ROFR Space #3 Refusal Right to
Lessee; and
(ii) Lessee's right to exercise the ROFR Space #3 Refusal Right shall
be contingent upon Lessee not being in Default under the Lease, as hereby
amended, either on the date Lessee exercises such ROFR Space #3 Refusal
Right or, unless waived in writing by Lessor for purposes of such ROFR
Space #3 Refusal Right, on the availability date specified in the
applicable Lessor's ROFR Space #3 Notice for such portion of ROFR Space #3.
If Lessee is not in Default under the Lease, as amended hereby, on the date
Lessee exercises such ROFR Space #3 Refusal Right but is so in Default on
the availability date specified in the applicable Lessor's ROFR Space #3
Notice and Lessor does not waive in writing such Default for purposes of
such ROFR Space #3 Refusal Right, then, notwithstanding Lessee's exercise
of such ROFR Space #3 Refusal Right, Lessee shall have no right to lease
the ROFR Space #3 as a result of Lessee's exercise of such ROFR Space #3
Refusal Right.
In the event that Lessee does not timely or properly exercise a ROFR Space #3
Refusal Right, Lessor may at any time thereafter lease the applicable portion
of ROFR Space #3 to any third (3rd) party tenant on substantially the same
economic terms as set forth in Lessor's ROFR Space #3 Notice applicable thereto
without any further rights of Lessee to lease such space, provided that Lessee's
failure to timely or properly exercise such ROFR Space #3 Refusal Right shall
not act as a waiver of or otherwise affect the Expansion Options granted to
Lessee pursuant to Section 4 hereof nor act as a waiver of or otherwise affect
any ROFR Space #3 Refusal Right as to any other portion of ROFR Space #3, any
Primary ROFR Refusal Right or any Secondary ROFR Refusal Right and further
provided that in the event that Lessor thereafter intends to enter into a lease
with a third (3rd) party for the applicable portion of ROFR Space #3 upon
economic terms materially more favorable to such tenant than those set forth in
the most recent Lessor's
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ROFR Space #3 Notice applicable thereto, such ROFR Space shall again become
subject to Lessee's ROFR Space #3 Refusal Right as set forth in this Section 7.
(c) If Lessee exercises a ROFR Space #3 Refusal Right, then at Lessee's
option, exercised by notice to Lessor contained in Lessee's ROFR Space #3
Exercise Notice with respect to ROFR Space #3, the space actually to be leased
to Lessee pursuant to Lessee's exercise of its ROFR Space #3 Refusal Right shall
be relocated to Available Primary ROFR Space (as defined in Section 5(c)(i)
above) located closest to the west end of the Building.
(d) If Lessee's exercises a ROFR Space #3 Refusal Right and elects, as
provided in Section 7(c) above, that the space actually to be leased to Lessee
pursuant to Lessee's exercise of its ROFR #3 Refusal Right shall consist of the
Available Primary ROFR Space located closest to the west end of the Building,
then, in such event, the following terms and provisions shall apply:
(i) Lessee's ROFR Space #3 Refusal Right as to the actual ROFR Space
#3 itself, on the terms stated in the applicable Lessor's ROFR Space #3
Notice, shall be deemed waived and Lessor may at any time thereafter lease
all or any portion of ROFR Space #3 to any third (3rd) party tenant on
substantially the same economic terms as set forth in such Lessor's ROFR
Space #3 Notice without any further rights of Lessee to lease ROFR Space
#3, provided that in the event that Lessor thereafter intends to enter into
a lease with a third (3rd) party tenant for all or any portion of ROFR
Space #3 upon economic terms materially more favorable to such tenant than
those set forth in such Lessor's ROFR Space #3 Notice, ROFR Space #3 shall
again become subject to Lessee's ROFR Space #3 Refusal Right as set forth
in this Section 7;
(ii) Lessor shall have the right, in its sole discretion and upon
notice to Lessee, to increase or decrease the size of such relocated ROFR
Space #3 by an amount not to exceed ten percent (10%) of the rentable area
thereof as set forth in Lessor's ROFR Space #3 Notice, to the reasonably
minimal extent necessary to accommodate the actual configuration of the
Available Primary ROFR Space and Lessor's then current space demising
standards for comparable space in the Building, in which event all terms
contained in Lessor's ROFR Space #3 Notice (including, without limitation,
any Tenant Concessions) and the rent payable therefor shall be deemed
automatically adjusted pro rata to such increase or decrease (except that
Lessor's contribution toward the cost and expense of improving such
relocated ROFR Space #3 shall be determined in accordance with Section
7(d)(vii) below) and any Option Space which remains subject to a valid and
existing but unexercised Expansion Option shall be automatically relocated
to the next most westerly Available Primary ROFR Space which is contiguous
to the relocated ROFR Space #3. In the event that any Option Space is
relocated as aforesaid, then Lessor shall have the right, in its sole
discretion and upon
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notice to Lessee, to increase or decrease the size of such relocated Option
Space by an amount not to exceed ten percent (10%) of the rentable area
thereof, to the reasonably minimal extent necessary to accommodate the
actual configuration of the Available Primary ROFR Space and Lessor's then
current space demising and measurement standards for comparable space in
the Building;
(iii) The lease term for such applicable portion of ROFR Space #3 (as
relocated to Primary ROFR Space) shall commence on the availability date
specified in the applicable Lessor's ROFR Space #3 Notice and shall expire
on the last day of the term of the Lease, as hereby amended;
(iv) The Base Rent and rental adjustments payable for such Primary
ROFR Space shall be determined by Lessor in its sole discretion to be at
rates equal to either (A) the Base Rent and rental adjustments payable for
ROFR Space #3 as set forth in the applicable Lessor's ROFR Space #3 Notice
or (B) the Base Rent and rental adjustments payable under the Lease for the
Original Premises for the corresponding portion of the Term. In the case
where the Base Rent and rental adjustments payable for such Primary ROFR
Space are determined to be as set forth in the applicable Lessor's ROFR
Space #3 Notice as provided in clause (A) above, Lessee shall be entitled
to receive, with respect to such Primary ROFR Space, any and all Tenant
Concessions set forth in such Lessor's ROFR Space #3 Notice, except that
the amount of each such Tenant Concession shall be adjusted to a sum equal
to the dollar amount of such Tenant Concession per rentable square foot of
ROFR Space #3, as set forth in such Lessor's ROFR Space #3 Notice,
multiplied by the number of rentable square feet contained in such Primary
ROFR Space, and further multiplied by a fraction (the "ROFR Space #3 Term
Adjustment") whose numerator is the number of calendar months in the period
commencing with the calendar month in which Lessee first occupies such
Primary ROFR Space and continuing to and including the calendar month in
which the Expiration Date of Term of the Lease, as amended hereby, occurs,
and whose denominator is the number of calendar months contained in the
proposed lease term as set forth in such Lessor's ROFR Space #3 Notice. In
the case where Base Rent and rental adjustments payable for such Primary
ROFR Space are determined to be as payable under the Lease for the Original
Premises for the corresponding portion of the Term as provided in clause
(B) above, Lessee shall not be entitled to receive any Tenant Concessions
including, without limitation, any Tenant Concessions set forth in such
Lessor's ROFR Space #3 Notice;
(v) For purposes of paying the rental adjustments set forth in
Section 7(d)(iv) above as to any ROFR Space actually leased by Lessee
pursuant to this Section 7(d), Lessee's Proportionate Share shall be
increased effective as of the commencement date of the lease term for such
ROFR Space by adding to such
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<PAGE>
then effective Lessee's Proportionate Share the percentage determined by
dividing the rentable area of such ROFR Space by 424,052.32 rentable square
feet. For purposes of this Section 7(d), the rentable area of any ROFR
Space actually leased by Lessee shall be as determined by Lessor or, at
Lessor's option, Lessor's architect, in accordance with Lessor's then
current space measurement standards for comparable space in the Building;
(vi) Lessee shall not be entitled to any rental abatement for any
portion of the relocated ROFR Space #3 except in the case where the Base
Rent and rental adjustments payable for such relocated ROFR Space #3 are to
be the same as set forth in the applicable Lessor's ROFR Space #3 Notice
pursuant to Section 7(d)(iv)(A) above in which event Lessee shall be
entitled to the rental abatement, if any, set forth in such Lessor's ROFR
Space #3 Notice;
(vii) Lessee shall accept the applicable portion of ROFR Space #3, as
relocated, in an "as-is", "where-is" physical condition from Lessor,
without any agreement, representation, credit or allowance from Lessor with
respect to the improvement or condition thereof, except as set forth below
in this Section 7(d)(vii). Lessee shall pay for any and all costs or
expenses associated with any leasehold improvement work in such ROFR Space
which shall be performed by Lessee in accordance with the terms of Section
13 of the Original Lease and upon completion of such work and Lessee's
delivery of contractors affidavits and full and final waivers of lien and
receipted bills covering all labor and materials expended and used for such
work, Lessor shall pay to Lessee, as Lessor's contribution toward the
payment of the cost and expense of improving such ROFR Space ("Lessor's
ROFR Space #3 Contribution"), an amount which shall be determined as
follows:
A. in the case where the Base Rent and rental adjustments
payable for such Primary ROFR Space pursuant to Section 7(d)(iv)(A)
above are to be the same as set forth in the applicable Lessor's ROFR
Space #3 Notice, Lessor's ROFR Space #3 Contribution shall be a sum
equal to the dollar amount of tenant improvement allowance per
rentable square foot of ROFR Space #3, as set forth in such Lessor's
ROFR Space #3 Notice, multiplied by the number of rentable square feet
contained in such Primary ROFR Space, and further multiplied by the
ROFR Space #3 Term Adjustment; or
B. in the case where the Base Rent and rental adjustments
payable for such Primary ROFR Space pursuant to Section 7(d)(iv)(B)
above are to be the same as for the Original Premises for the
corresponding portion of the Term, Lessor's ROFR Space #3 Contribution
shall be a sum equal to the dollar amount per rentable square foot of
such
18
<PAGE>
Primary ROFR Space, as set forth in the column entitled "Adjusted
Allowance Per Square Foot" on Lessor's Contribution Schedule
corresponding to the calendar month in which Lessee first occupies
such Primary ROFR Space, multiplied by the number of rentable square
feet contained in such Primary ROFR Space; or
In the event that Lessee has satisfied all conditions and requirements as
set forth herein and in the Lease for the payment of Lessor's ROFR Space #3
Contribution and Lessor fails to pay in full Lessor's ROFR Space #3
Contribution to Lessee within ninety (90) days after Lessee notifies Lessor
in writing that all such conditions and requirements have been satisfied
and that such payment is due and owing to Lessee hereunder, and further
provided that Lessee is not then in breach or default under the Lease, as
amended hereby, Lessee shall, upon the expiration of said ninety (90) day
period, be entitled to offset the unpaid amount of Lessor's ROFR Space #3
Contribution from the then next due installments of Base Rent thereafter
payable by Lessee under the Lease, as amended hereby, until the full amount
of Lessor's ROFR Space #3 Contribution has been paid or offset as provided
herein; and
(viii) All of the terms and provisions of the Lease, as amended
hereby, shall apply with respect to the applicable portion of ROFR Space
#3, except as otherwise provided in this Section 7 or except as same may be
inconsistent with the provisions of this Section 7, and such portion of
ROFR Space #3 shall be deemed to be a part of the Premises effective as of
the first day of the lease term for such space.
(e) If Lessee exercises a ROFR Space #3 Refusal Right and Lessee does not
elect, as provided in Section 7(c) above, that the space actually to be leased
to Lessee pursuant to Lessee's exercise of its ROFR Space #3 Refusal Right shall
consist of the Available Primary ROFR Space located closest to the west end of
the Building, then, in such event, the following terms and provisions shall
apply:
(i) The lease term for such applicable portion of ROFR Space #3 shall
commence on the availability date specified in the applicable Lessor's ROFR
Space #3 Notice and shall expire on the last day of the term of the Lease,
as amended hereby;
(ii) The Base Rent and rental adjustments payable for the applicable
portion of ROFR Space #3 shall be equal to the Base Rent and rental
adjustments payable for ROFR Space #3 as set forth in the applicable
Lessor's ROFR Space #3 Notice and Lessee shall be entitled to receive, with
respect to such portion of ROFR Space #3, any and all Tenant Concessions
set forth in such Lessor's ROFR Space #3 Notice except that the amount of
each such Tenant Concession shall be
19
<PAGE>
adjusted by a sum equal to the dollar amount of such Tenant Concession set
forth in such Lessor's ROFR Space #3 Notice multiplied by the ROFR Space #3
Term Adjustment (as defined in Section 7(d)(iv) above);
(iii) For purposes of paying the rental adjustments set forth in
Section 7(e)(ii) above with respect to any ROFR Space actually leased by
Lessee pursuant to this Section 7(e), Lessee's Proportionate Share shall be
increased effective as of the commencement date of the lease term for such
ROFR Space by adding to such then effective Lessee's Proportionate Share
the percentage determined by dividing the rentable area of such ROFR Space
by 424,052.32 rentable square feet. For purposes of this Section 7(e), the
rentable area of any ROFR Space actually leased by Lessee shall be as
determined by Lessor or, at Lessor's option, Lessor's architect, in
accordance with Lessor's then current space measurement standards for
comparable space in the Building;
(iv) Lessee shall not be entitled to any rental abatement for any
portion of ROFR Space #3 except as otherwise set forth in the applicable
Lessor's ROFR Space #3 Notice;
(v) Lessee shall accept the applicable portion of ROFR Space #3 in an
"as-is", "where-is" physical condition from Lessor, without any agreement,
representation, credit or allowance from Lessor with respect to the
improvement or condition thereof, except as otherwise set forth in the
applicable Lessor's ROFR Space #3 Notice. Lessee shall pay for any and all
costs or expenses associated with any leasehold improvement work in such
ROFR Space which shall be performed by Lessee in accordance with the terms
of Section 13 of the Original Lease and upon completion of such work and
Lessee's delivery of contractors affidavits and full and final waivers of
lien and receipted bills covering all labor and materials expended and used
for such work, Lessor shall pay to Lessee, as Lessor's contribution toward
the payment of the cost and expense of improving such ROFR Space ("Lessor's
ROFR Space #3 Contribution"), a sum equal to the dollar amount of tenant
improvement allowance per rentable square foot of ROFR Space #3, as set
forth in the applicable Lessor's ROFR Space #3 Notice, multiplied by the
number of rentable square feet contained in such ROFR Space #3, and further
multiplied by the ROFR Space #3 Term Adjustment. In the event that Lessee
has satisfied all conditions and requirements as set forth herein and in
the Lease for the payment of Lessor's ROFR Space #3 Contribution and Lessor
fails to pay in full Lessor's ROFR Space #3 Contribution to Lessee within
ninety (90) days after Lessee notifies Lessor in writing that all such
conditions and requirements have been satisfied and that such payment is
due and owing to Lessee hereunder, and further provided that Lessee is not
then in breach or default under the Lease, as amended hereby, Lessee shall,
upon the expiration of said ninety (90) day period, be
20
<PAGE>
entitled to offset the unpaid amount of Lessor's ROFR Space #3 Contribution
from the then next due installments of Base Rent thereafter payable by
Lessee under the Lease, as amended hereby, until the full amount of
Lessor's ROFR Space #3 Contribution has been paid or offset as provided
herein; and
(vi) All of the terms and provisions of the Lease, as amended hereby,
shall apply with respect to the applicable portion of ROFR Space #3, except
as otherwise provided in this Section 7 or except as same may be
inconsistent with the provisions of this Section 7, and such portion of
ROFR Space #3 shall be deemed to be a part of the Premises effective as of
the first day of the lease term for such space.
(f) If Lessee exercises a ROFR Space #3 Refusal Right, Lessor and Lessee
shall execute and deliver an amendment of the Lease reflecting the lease of the
applicable portion of ROFR Space #3 by Lessor to Lessee on the terms and
provisions set forth in this Section, which amendment shall be executed and
delivered within thirty (30) days after Lessee exercises the ROFR Space #3
Refusal Right.
(g) The ROFR Space #3 Refusal Right shall automatically terminate and
become null and void upon the earlier to occur of (1) the expiration or
termination of the Lease, (2) the termination of Lessee's right to possession
of the Premises, (3) the assignment of the Lease by Lessee, in whole or in part,
which is not in accordance with Section 14 of the Original Lease, or which is to
a party (or any affiliate thereof) who is then, or was within the preceding six
(6) months, a tenant in, or otherwise an occupant of, the Building, (4) the
sublease by Lessee of the Premises, or any part thereof, which is not in
accordance with Section 14 of the Original Lease, or which is to a party (or any
affiliate thereof) who is then, or was within the preceding six (6) months, a
tenant in, or otherwise an occupant of, the Building, or (5) the failure of
Lessee to timely or properly exercise a ROFR Space #3 Refusal Right. Without
limiting the foregoing, no ROFR Space #3 Refusal Right shall be assignable by
Lessee separately from the Lease nor shall any ROFR Space #3 Refusal Right be
exercisable by any party other than Lessee except for Lessee's assignee pursuant
to an assignment of the Lease in accordance with Section 14 of the Original
Lease which assignee (or any affiliate thereof) is not, at the effective date of
the assignment, or was not for the six (6) months preceding the effective date
of the assignment, a tenant in, or otherwise an occupant of, the Building.
8. Extension Option. Section 37 of the Lease is hereby deleted in its
entirety and the following is substituted in its place and stead:
(a) Subject to the terms, conditions and limitations set forth in this
Section 8, Lessee is hereby granted the option to extend (the "Option to
Extend") the Term of the Lease for one (1) renewal term of five (5) years
commencing September 1, 2007 (the "Extension Term Commencement Date"), and
expiring August 31, 2012 (the "Extension Term"), on the same terms and
conditions as are contained in the Lease, as amended hereby, except as follows:
21
<PAGE>
(i) Lessor shall be under no obligation to make or pay for any further
improvements to the Premises;
(ii) Lessee shall have no further rights under this Section 8; and
(iii) Commencing as of the first day of the Extension Term, Base Rent and
Rent Adjustments for the first Lease Year of the Extension Term shall be equal
to the greater of:
A. Ninety percent (90%) of the then current Fair Market Base Rental
(as hereinafter defined) plus Lessee's Proportionate Share of Taxes and
Expenses allocable to the Premises; or
B. the then current escalated Base Rent plus Lessee's Proportionate
Share of Taxes and Expenses allocable to the Premises.
If the Base Rent for the first Lease Year of the Extension Term is determined to
be equal to ninety percent (90%) of the then current Fair Market Base Rental
pursuant to Section 8(a)(iii)A above, then such Base Rent shall be increased by
the Fair Market Escalation Rate (as hereinafter defined), compounded, on each
September 1 thereafter during the remainder of the Extension Term. If the Base
Rent for the first Lease Year of the Extension Term is determined to be equal to
the then current escalated Base Rent pursuant to Section 8(a)(iii)B above, then
the Base Rent shall be increased by two percent (2%), compounded, on each
September 1 thereafter during the remainder of the Extension Term. For the
purposes of this Section 8(a), "Fair Market Base Rental" shall be deemed to mean
the market base rental, net of all concessions, tax and expense "stops",
construction or other allowances or abatements, for comparable office space in
comparable first-class office buildings in the North Michigan Avenue market of
Chicago, Illinois, for lease terms equivalent to the Extension Term, in effect
on the Extension Term Commencement Date, as reasonably determined by Lessor; the
"Fair Market Base Rental Escalation Rate" shall be deemed to mean the annual
compounded escalation percentage rate being applied to such Fair Market Base
Rental for comparable office space in comparable first-class offices buildings
in the North Michigan Avenue market of Chicago, Illinois, for lease terms
equivalent to the Extension Term, in effect on the Extension Term Commencement
Date, as reasonably determined by Lessor; and the "North Michigan Avenue market
of Chicago, Illinois" shall be deemed to mean the area bounded by Lake Shore
Drive to the east, the Chicago River to the south, State Street to the west and
Oak Street to the north, together with the area bounded by Columbus Drive to the
east, Randolph Street to the south, Michigan Avenue to the west and the Chicago
River to the north. In the event that a dispute arises as to the reasonableness
of Lessor's determination of Fair Market Base Rental or Fair Market Base Rental
Escalation Rate, or both, (which, for purposes of ascertaining whether Lessor's
determination was reasonable, shall be deemed to have been made on the date
Lessor
22
<PAGE>
delivered notice of such determination to Lessee) and such dispute is not
resolved, either by agreement of the parties or by the issuance of a final,
unappealable order of a court of competent jurisdiction, prior to the
Extension Term Commencement Date, then for the period commencing on the
Extension Term Commencement Date and continuing to and including the date
such dispute is resolved, either by agreement of the parties or by the
issuance of a final, unappealable order of a court of competent
jurisdiction, the Base Rent and the annual increases thereof payable by
Lessee during such period shall be as determined by Lessor as provided
above. In the event such resolution of such dispute results in an agreement
by the parties or a determination in such court order that the Fair Market
Base Rental or the Fair Market Base Rental Escalation Rate, or both, are
lower than as determined by Lessor as provided above, such lower rate or
rates shall be used to determine the Base Rent and the annual increases
thereof payable by Lessee during the Extension Term as provided above,
retroactive to the Extension Term Commencement Date, and, provided that
Lessee is not then in Default under the Lease, as amended hereby, Lessee
shall be entitled to offset the amount of any Base Rent overpaid by Lessee
during such period against the then next due installments of Base Rent
payable by Lessee hereunder until the full amount of such overpayment has
been offset as provided herein. In the event such resolution of such
dispute results in an agreement by the parties or a determination in such
court order that neither the Fair Market Base Rental nor the Fair Market
Base Rental Escalation Rate are lower than as determined by Lessor as
provided above, the Base Rent and the annual increases thereof payable by
Lessee during the Extension Term shall be as determined by Lessor as
provided above.
(b) Notwithstanding anything to the contrary contained in this Section 8,
Lessee's right to exercise the Option to Extend shall be contingent upon Lessee
not being in Default under the Lease, as amended hereby, either on the date
that Lessee exercises the Option to Extend or, unless waived in writing by
Lessor for purposes of the Option to Extend, on the Extension Term Commencement
Date. If Lessee is not in Default under the Lease, as amended hereby on the date
that Lessee exercises the Option to Extend but is so in Default on the Extension
Term Commencement Date and Lessor does not waive in writing such Default for
purposes of the Option to Extend, then, notwithstanding Lessee's exercise of the
Option to Extend, the Option to Extend shall be deemed to be terminated and of
no force and effect and the Term of the Lease shall expire or be terminated in
accordance with terms of the Lease as if Lessee had not been granted the Option
to Extend pursuant to this Section 8.
(c) In order to exercise the Option to Extend, Lessee shall deliver to
Lessor written notice of such exercise ("Lessee's Extension Option Exercise
Notice") prior to March 1, 2006 (the "Extension Option Deadline"), and otherwise
satisfy the terms and conditions of this Section 8, or the Option to Extend
shall lapse and be of no further force or effect.
(d) Lessee may, by notice given to Lessor not later than December 1, 2005,
request Lessor to provide Lessee with an estimate of the Fair Market Base Rental
and Fair Market Base Rental Escalation Rate that Lessor then believes in good
faith is likely to be in effect on the
23
<PAGE>
Extension Term Commencement Date and, in such case, (i) Lessor shall provide
Lessee with such estimate on or before February 15, 2006, and (ii) except as
otherwise expressly provided herein, such estimate shall be deemed to be the
then current Fair Market Base Rental and Fair Market Base Rental Escalation Rate
for purposes of determining Base Rent and the annual increases thereof during
the Extension Term pursuant to Section 8(a)(iii)A above.
(e) The provisions of this Section shall apply to the entire Premises
leased by Tenant hereunder as of the day immediately preceding the Extension
Term Commencement Date including, without limitation, any and all Option Space,
Primary ROFR Space, Secondary ROFR Space and ROFR Space #3 actually leased by
Lessee pursuant to the Fourth Amendment.
(f) In consideration of Lessor agreeing to provide that the lease term for
any and all ROFR Space leased pursuant to Lessee's exercise of any Primary ROFR
Refusal Right, any Secondary ROFR Refusal Right and/or any ROFR Space #3 Refusal
Right (individually and collectively, any "Refusal Right") shall expire on the
last day of the Term of the Lease, as amended hereby, it is agreed that in the
event that (i) Lessee shall have actually leased any ROFR Space as a result of
exercising any such Refusal Right, (ii) the Term of the Lease, as amended
hereby, is terminated prior to the Expiration Date or is not extended pursuant
to the Option to Extend and (iii) the expiration date of the lease term for such
ROFR Space as set forth in the applicable Lessor's Notice exercising such
Refusal Right was later than the last day of the Term of the Lease, as amended
hereby, Lessee shall pay to Lessee a sum (the "Termination Fee") equal to the
aggregate amount of Base Rent and the Rent Adjustment due and payable under the
Lease, as amended hereby, for the last twelve (12) full calendar months
immediately preceding the Expiration Date with respect to any and all such
leased ROFR Space for which the applicable Lessor's Notice specified a
termination date later than the last day of the Term of the Lease, as amended
hereby, but not with respect to any other portion of the Premises, provided that
for purposes of calculating the Termination Fee in the event the Lease is
terminated prior to the Expiration Date, the aggregate amount of Base Rent and
Rent Adjustment due and payable for such twelve (12) month period shall be
determined as if the Lease had not been so terminated. If the Lease is not
extended pursuant to the Extension Option because Lessee does not properly
exercise the Option to Extend prior to the Extension Option Deadline, the
Termination Fee, if any, shall be due and payable on or before April 1, 2006. If
the Term of the Lease is not extended pursuant to the Extension Option as a
result of a Default being in existence on the Extension Term Commencement Date
or if the Lease is terminated prior to the Expiration Date as a result of the
existence of a Default, the Termination Fee, if any, shall be due and payable
within seven (7) days after Lessee receives notice from Lessor of the
termination of either the Extension Option or the Lease, as the case may be. The
Termination Fee, if any, payable by Lessee pursuant to this Section 8(f) shall
be in addition to, and not in lieu of, any other amounts payable by Lessee under
the Lease, as amended hereby, including, without limitation, Base Rent, Rent
Adjustment and damages (liquidated or otherwise) payable by reason of Lessor's
exercise of its remedies upon Default by Lessee.
24
<PAGE>
9. TERMINATION OPTION. Any and all rights of Lessee to terminate the
Lease as set forth in Section 43 of the Original Lease, Section 6 of the First
Amendment and Section 5 of the Third Amendment are hereby deleted and shall be
of no further force and effect.
10. TENANT IMPROVEMENT ALLOWANCE. In consideration for entering into this
Fourth Amendment, and subject to the terms, conditions and limitation set forth
in this Section 10, Lessor shall make a contribution in the amount of Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) ("Lessor's
Contribution") toward payment of the cost and expense of Lessee refurbishing the
Premises (or any portion thereof) within ninety (90) days after Lessee's written
request for such contribution is delivered to Lessor, provided such request is
delivered not earlier than September 1, 1999, and not later than August 31,
2001. Lessee's right to receive payment of Lessor's Contribution shall be
contingent upon (a) Lessee not being in default or breach under the Lease, as
amended hereby, at the time Lessee so requests payment and (b) Lessee, at such
time, having completed the work for which Lessor's Contribution is being so
requested in accordance with the terms of Section 13 of the Original Lease and
having submitted to Lessor contractors affidavits and full and final waivers of
lien and receipted bills for labor and materials expended and used for such
work. In the event that Lessee has satisfied all conditions and requirements as
set forth herein and in the Lease for the payment of Lessor's Contribution and
Lessor fails to pay in full Lessor's Contribution to Lessee within ninety (90)
days after Lessee's request therefor as aforesaid and provided that Lessee is
not then in breach or default under the Lease, as amended hereby, Lessee shall,
upon the expiration of said ninety (90) day period, be entitled to offset the
unpaid amount of Lessor's Contribution from the then next due installments of
Base Rent thereafter payable by Lessee under the Lease, as amended hereby,
until the full amount of Lessor's Contribution has been paid or offset as
provided herein. In the event Lessee fails to deliver such request for Lessor's
Contribution as required hereby on or before August 31, 2001, Lessee's right to
request Lessor's Contribution shall be deemed waived and of no further force and
effect and Lessor shall be relieved of any obligation to make Lessor's
Contribution.
11. BROKER. Lessee represents to Lessor that Lessee has not dealt with any
real estate broker, salesperson or finder in connection with this Amendment
other than Golub & Company (the "Broker"), and no other such person initiated or
participated in the negotiation of this Amendment or is entitled to any
commission in connection herewith. Lessee hereby agrees to indemnify, defend and
hold Lessor, its property manager and their respective employees harmless from
and against any and all liabilities, claims, demands, actions, damages, costs
and expenses (including attorneys' fees) arising from a claim for a fee or
commission made by any broker (other than the Broker), claiming to have acted by
or on behalf of Lessee in connection with this Amendment.
12. SUBMISSION. Submission of this Amendment by Lessor or Lessor's agent,
or their respective agents or representatives, to Lessee for examination and/or
execution shall not in any manner bind Lessor and no obligations on Lessor shall
arise under this Amendment unless and
25
<PAGE>
until this Amendment is fully signed and delivered by Lessor and Lessee;
provided, however, the execution and delivery by Lessee of this Amendment to
Lessor or Lessor's agent, or their respective agents or representatives, shall
constitute an irrevocable offer by Lessee on the terms and conditions herein
contained, which offer may not be revoked for fifteen (15) days after such
delivery.
13. EFFECT OF AMENDMENT. As amended by this Amendment, the Lease shall
remain in full force and effect.
14. EXCULPATORY PROVISIONS. It is expressly understood and agreed by and
between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertakings
and agreements herein made on the part of Lessor while in form purporting to be
the representations, warranties, covenants, undertakings and agreements of
Lessor are nevertheless each and every one of them made and intended, not as
personal representations, warranties, covenants, undertakings and agreements by
Lessor or for the purpose of or with the intention of binding Lessor personally,
but are made and intended for the purpose only of subjecting Lessor's interest
in the Office Area and the Premises to the terms of this Amendment and for no
other purposes whatsoever, and in case of default hereunder by Lessor (or
default through, under or by any of its beneficiaries, or agents or
representatives of said beneficiaries), Lessee shall look solely to the interest
of Lessor in said Office Area, and this Amendment is executed and delivered by
Lessor not in its own right, but solely in the exercise of the powers conferred
upon it as such Trustee; that the Lessor shall have no personal liability to pay
any indebtedness accruing hereunder or to perform any covenant, either express
or implied, herein contained and no liability or duty shall rest upon Lessor to
sequester the trust estate or the rent, issues and profits arising therefrom, or
the proceeds arising from any sale or other responsibility of any sort is
assumed by, nor shall at any time be asserted or enforceable against, said
Lessor, American National Bank and Trust Company of Chicago, a national banking
association, individually or personally, but only as Trustee under the
provisions of a Trust Agreement dated May 2, 1989 and known as Trust No. 108237-
06, on account of this Amendment or on account of any representation, warranty,
covenant, undertaking or agreement of Lessor in this Amendment contained, either
express or implied, all such personal liability, if any, being expressly waived
and released by Lessee and by all persons claiming by, through or under Lessee.
15. RECORDING. The parties will expeditiously execute and record the
Memorandum of Amendment in the form attached hereto as Exhibit B and made a part
hereof.
16. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT. Lessor shall
cause to be executed and delivered to Lessee, a subordination, nondisturbance
and attornment agreement from the current holder of the First Mortgage, in the
form attached hereto as Exhibit D and made a part hereof, and Lessee agrees to
execute and deliver such agreement to such holder. It is agreed by Lessor and
Lessee that in the event of a conflict between the provisions
26
<PAGE>
of the second (2nd) sentence of the first (lst) paragraph of Section 19 of the
Original Lease and the provisions of the third (3rd) paragraph of said Section
19, the provisions of said third (3rd) paragraph shall prevail and control.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year
aforesaid.
LESSEE: LESSOR:
- ------ ------
PLAYBOY ENTERPRISES, INC., AMERICAN NATIONAL BANK AND
a Delaware corporation TRUST COMPANY OF CHICAGO,
not personally, but solely as
Trustee under as aforesaid
By: /s/ Howard Shapiro By: /s/ Gregory S. Kasprzyk
-------------------------------- --------------------------------
Title: Executive V.P. Title: Assistant Vice President
------------------------- --------------------------
27
<PAGE>
EXHIBIT A
---------
FLOOR PLAN OF 14TH FLOOR
------------------------
SHOWING OPTION SPACE AND ROFR SPACE #3
--------------------------------------
A-1
<PAGE>
[FLOOR PLAN OF LAKE SHORE PLACE]
[LOGO OF GOLUB]
<PAGE>
EXHIBIT A-1
-----------
FLOOR PLAN OF 14TH FLOOR
------------------------
SHOWING PRIMARY AND SECONDARY ROFR SPACE
----------------------------------------
A-1-1
<PAGE>
PRIMARY ROFR SPACE
(HATCHED AREA)
[FLOOR PLAN OF LAKE SHORE PLACE]
[LOGO OF GOLUB]
<PAGE>
SECONDARY ROFR SPACE
(HATCHED AREA)
[FLOOR PLAN OF LAKE SHORE PLACE]
[LOGO OF GOLUB]
<PAGE>
This space reserved for Recorder's use only.
--------------------------------------------------
MEMORANDUM OF FOURTH AMENDMENT
------------------------------
THIS MEMORANDUM OF FOURTH AMENDMENT ("Memorandum") is made as of this 6th
day of August, 1996, between AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, not individually, but solely as Trustee under Trust Agreement dated May
2, 1989 and known as Trust No. 108237-06 (herein called the "Lessor") and
PLAYBOY ENTERPRISES, INC., a Delaware corporation (herein called the "Lessee").
Capitalized terms used herein shall have the same meaning as set forth in the
Lease (defined below) unless expressly defined herein or the context clearly
indicates to the contrary.
W I T N E S S E T H:
- - - - - - - - - -
Lessor is the owner of a certain mixed used building located in Cook
County, Illinois, of which one or more of four components as are legally
described in Exhibit A attached hereto, as may be affected by this Memorandum.
The components are defined in Exhibit A as the Office Parcel, the Lot 1 Parcel,
the Skylight Parcel and the Garage Parcel.
The building containing the four components is now commonly known as 680
North Lake Shore Drive, Chicago, Illinois.
Lessor has leased to Lessee a portion of the Office Parcel consisting of
the entire fifteenth (15th) and sixteenth (16th) floors (the "Premises")
together with certain rights and privileges with respect to the Skylight Parcel,
the Garage Parcel and the Lot 1 Parcel for the Term and upon and subject to the
covenants, provisions and conditions contained in that certain Office Lease
dated as of April 7, 1988 entered into between the parties hereto, or their
predecessors-in-interest, (the "Lease") and as such document has been amended by
those certain Amendments dated October 26, 1989, June 1, 1992, August 30, 1993
and August 6, 1996 (the "Amendments") between Lessor and Lessee. The Amendments
and all of their respective covenants, provisions and conditions are by this
reference expressly incorporated herein and made a part of this Memorandum of
Amendment and all shall take notice thereof whether or not
<PAGE>
hereinafter more particularly described. The Amendments' covenants and
provisions affecting all Parcels are binding on the Lessor and its successors
and assigns as owners of any said Parcels.
Without limitation, it is hereby disclosed that the Fourth Amendment
includes terms and provisions which (among other things) (a) provided that
Lessor grants to Lessee certain expansion rights and rights of first refusal on
certain office space on the 14th floor of the Building, and (b) contemplate
that the existence of this Fourth Amendment be disclosed and reference made to
its terms and provisions by means of this Memorandum.
Lessee hereby appoints Lessor as its attorney-in-fact to record a Release
of this Memorandum executed by Lessor for itself and on Lessee's behalf, upon
the occurrence of any one of the following:
I. Expiration of the Lease at either August 31, 2007, or August 31,
2012, or otherwise according to its terms; or
II. Termination of the Lease; or
III. Issuance of a nonappealable final order of any court with
jurisdiction over the Premises granting possession of the Premises to
Lessor; or
IV. Ninety (90) days after written notice from Lessor to Lessee that
Lessor intends to record such Release, because Lessee has voluntarily
abandoned the Premises, it being acknowledged that, for the purposes of
this paragraph "abandoned" does not include an approved subletting or
assignment.
In addition, Lessee hereby appoints Lessor as its attorney-in-fact to
record a Release of this Memorandum as to the Garage Parcel in the event Lessor
or its successors or assigns exercises its option under the Lease to purchase
such parking rights from Lessee.
This Memorandum and the Fourth Amendment are expressly subject to an
subordinate to the Easements (as defined in the Lease) and to any and all
mortgages now or hereafter encumbering the Office Parcel, and Lot 1 Parcel, the
Garage Parcel or the Skylight Parcel.
Lessor and Lessee have entered into this Memorandum of Fourth Amendment-in
order that third parties may have notice of the existence of the Amendment and
some of its specific provisions. This Memorandum of Amendment is not intended
to amend, modify or otherwise change the terms and conditions of the
Lease or the Fourth Amendment nor shall provisions of this Memorandum of Fourth
Amendment be used in interpreting the provisions of the Lease or the Fourth
Amendment. In the event of a conflict between this Memorandum of Fourth
Amendment and the Fourth Amendment, the Fourth Amendment shall control.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Memorandum of Fourth
Amendment as of the date and year first above written.
AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO,
not individually, but solely as
Trustee as aforesaid
Attest: /s/ Gregory S. Kasprzyk By: /s/ Michael Whelan
------------------------- ---------------------------
Name: Gregory S. Kasprzyk Name: Michael Whelan
------------------------ -------------------------
Title: Assistant Secretary Title: VP
------------------------ ------------------------
PLAYBOY ENTERPRISES, INC.,
a Delaware corporation
Attest: /s/ Robert D. Campbell By: /s/ Howard Shapiro
------------------------- ---------------------------
Name: Robert D. Campbell Name: Howard Shapiro
------------------------ -------------------------
Title: Asst. Secretary Title: Exec. V.P.
------------------------ ------------------------
THIS DOCUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Elizabeth H. Belkin, Esq.
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Box 416
This instrument is executed by the undersigned Land Trustee, not personally but
solely as Trustee in the exercise of the power and authority conferred upon and
vested in it as such Trustee. It is expressly understood and agreed that all
the warranties, indemnities, representations, covenants, undertakings and
agreements herein made on the part of the Trustee are undertaken by it solely in
its capacity as Trustee and not personally. No personal liability or personal
responsibility is assumed by or shall at any time be asserted or enforceable
against the Trustee on account of any warranty, indemnity, representation,
covenant, undertaking or agreement of the Trustee in this instrument.
B-3
<PAGE>
STATE OF ILLINOIS)
) ss.
COUNTY OF COOK )
I, JENIFER Y. CHESSE, a Notary Public in and for said County in the State
aforesaid, do hereby certify that GREGORY S. KASPRZYK, the ASSISTANT SECRETARY
of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking
association, as Trustee as aforesaid, MICHAEL WHELAN the VICE PRESIDENT of said
Bank, who are personally known to me to be the same persons whose names are
subscribed to the foregoing instrument as such respective officers appeared
before me this day in person and acknowledged that they signed and delivered the
said instrument as their own free and voluntary act and as the free and
voluntary act of said Bank, as Trustee, for the uses and purposes therein set
forth; and the said ______________ then and there did acknowledge that (s)he,
as custodian of the seal of sale Bank, did affix the seal of said Bank to said
instrument as his/her free and voluntary act and as the free and voluntary act
of said Bank, as Trustee, for the uses and purposes therein set forth.
Given under my hand and notarial seal this LAND TRUST day of AUGUST on the 8th
1996.
OFFICIAL SEAL
JENIFER Y. CHESSE
NOTARY PUBLIC STATE OF ILLINOIS /s/ Jenifer Y. Chesse
My Commission Expires 11/01/99 ----------------------------------
Notary Public
My Commission Expires:
- ---------------------------
B-4
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
I, Sue Ann Dickey, a Notary Public in and for said County, in the State
aforesaid, do hereby certify that Howard Shapiro and Robert D. Campbell,
Assistant Secretary of PLAYBOY ENTERPRISES, INC., a Delaware corporation, both
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument as such respective officer, appeared before me this day in
person and acknowledged that they signed and delivered the said instrument as
their own free and voluntary act and as the free and voluntary act of said
corporation, for the uses and purposes therein set forth therein; and the latter
office also then and there did acknowledge that (s)he, as custodian of the
corporate seal of said corporation, affixed the same to the foregoing
instrument as his/her free and voluntary act and as the free and voluntary act
of said corporation, for the uses and purposes set forth therein.
Given under my hand and notarial seal this 7th day of August, 1996.
/s/ Sue Ann Dickey
-------------------------------------
Notary Public
"OFFICIAL SEAL"
Sue Ann Dickey
My Commission Expires: Notary Public, State of Illinois
November 1, 1996 My Commission Expires 11/1/96
- --------------------------------
B-5
<PAGE>
EXHIBIT A TO MEMORANDUM OF FOURTH AMENDMENT
-------------------------------------------
LEGAL DESCRIPTION
-----------------
THE "OFFICE PARCEL"
- ------------------
LOTS 5, 10, 12, 13, 14, 16 AND 17 IN PAUL'S SUBDIVISION OF THE LAND, PROPERTY
AND SPACE IN PART OF LOTS 5 AND 6 AND THE TRACT MARKED ALLEY LYING BETWEEN SAID
LOTS 5 AND 6 OF COUNTY CLERK'S DIVISION OF THE UNSUBDIVIDED ACCRETIONS LYING
EAST OF AND ADJOINING THE SUBDIVIDED PARTS OF BLOCKS 43, 44 AND 54 WITH OTHER
LANDS IN KINZIE'S ADDITION TO CHICAGO IN THE NORTH 1/2 OF SECTION 10, TOWNSHIP
39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN (EXCEPTING FROM LOT 12
THAT PART TAKEN FOR 666 PRIVATE GARAGE CONDOMINIUM RECORDED AS DOCUMENT 26827972
IN COOK COUNTY, ILLINOIS).
PIN 17-10-202-064
THE "LOT 1 PARCEL"
- -----------------
LOT 1 IN PAUL'S SUBDIVISION OF THE LAND, PROPERTY AND SPACE IN PART OF LOTS 5
AND 6 AND THE TRACT MARKED ALLEY LYING BETWEEN SAID LOTS 5 AND 6 OF COUNTY
CLERK'S DIVISION OF THE UNSUBDIVIDED ACCRETIONS LYING EAST OF AND ADJOINING THE
SUBDIVIDED PARTS OF BLOCKS 43, 44 AND 54 WITH OTHER LANDS IN KINZIE'S ADDITION
TO CHICAGO IN THE NORTH 1/2 OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14, EAST OF
THE THIRD PRINCIPAL MERIDIAN (EXCEPTING FROM THE ABOVE DESCRIBED THAT PART OF
LOT 1 DESCRIBED ON EXHIBIT C TO THE FIRST AMENDMENT TO THE GRANT, DECLARATION
AND RESERVATION OF EASEMENTS RECORDED NOVEMBER 10, 1982 AS DOCUMENT 26407240).
PIN: 17-10-202-060
THE "SKYLIGHT PARCEL"
- --------------------
THAT PORTION OF LOT 22 IN PAUL'S SUBDIVISION OF THE LAND, PROPERTY AND SPACE IN
PART OF LOTS 5 AND 6 AND THE TRACT MARKED ALLEY LYING BETWEEN SAID LOTS 5 AND 6
OF COUNTY CLERK'S DIVISION OF THE UNSUBDIVIDED ACCRETIONS LYING EAST OF AND
ADJOINING THE SUBDIVIDED PARTS OF BLOCKS 43, 44 AND 54 WITH OTHER LANDS IN
KINZIE'S ADDITION TO CHICAGO IN THE NORTH 1/2 OF SECTION 10, TOWNSHIP 39 NORTH,
RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN, DEPICTED AS THE "RESTRICTED
ZONE", ON SHEET 17 OF THE PLAT OF SUBDIVISION OF SUCH LOT 22.
PART OF PIN: 17-10-202-081
B-A-1
<PAGE>
THE "GARAGE PARCEL"
- -------------------
LOT 6 IN PAUL'S SUBDIVISION OF THE LAND, PROPERTY AND SPACE IN PART OF LOTS 5
AND 6 AND THE TRACT MARKED ALLEY LYING BETWEEN SAID LOTS 5 AND 6 OF COUNTY
CLERK'S DIVISION OF THE UNSUBDIVIDED ACCRETIONS LYING EAST OF AND ADJOINING THE
SUBDIVIDED PARTS OF BLOCKS 43, 44 AND 54 WITH OTHER LANDS IN KINZIE'S
ADDITION TO CHICAGO IN THE NORTH 1/2 OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14,
EAST OF THE THIRD PRINCIPAL MERIDIAN, AND EXCEPTING FROM LOT 6 THAT PART TAKEN
FOR 666 PRIVATE GARAGE CONDOMINIUM RECORDED AS DOCUMENT 26827972, IN COOK
COUNTY, ILLINOIS.
PIN: 17-10-202-084
COMMONLY KNOWN AS 680 NORTH LAKE SHORE DRIVE, CHICAGO, ILLINOIS.
B-A-2
<PAGE>
EXHIBIT C
---------
SCHEDULE OF LESSOR'S CONTRIBUTION (PER SOUARE FOOT)
---------------------------------------------------
TOWARD IMPROVEMENTS TO OPTION AND ROFR SPACE
-----------------------------------------------
C-1
<PAGE>
<TABLE>
<CAPTION>
PERIOD ADJUSTED PERIOD ADJUSTED
ALLOWANCE ALLOWANCE
PER SQUARE FOOT PER SQUARE FOOT
<S> <C> <C> <C> <S> <C> <C> <C>
SEPTEMBER 1996 $ 40.00
OCTOBER 1996 $ 40.00
NOVEMBER 1996 $ 40.00
DECEMBER 1996 $ 40.00
JANUARY 1997 $ 40.80 JANUARY 2002 $ 27.11
FEBRUARY 1997 $ 40.80 FEBRUARY 2002 $ 26.71
MARCH 1997 $ 40.80 MARCH 2002 $ 26.31
APRIL 1997 $ 40.80 APRIL 2002 $ 25.91
MAY 1997 $ 40.80 MAY 2002 $ 25.51
JUNE 1997 $ 40.80 JUNE 2002 $ 25.11
JULY 1997 $ 40.80 JULY 2002 $ 24.72
AUGUST 1997 $ 40.80 AUGUST 2002 $ 24.32
SEPTEMBER 1997 $ 40.80 SEPTEMBER 2002 $ 23.92
OCTOBER 1997 $ 40.80 OCTOBER 2002 $ 23.52
NOVEMBER 1997 $ 40.80 NOVEMBER 2002 $ 23.12
DECEMBER 1997 $ 40.80 DECEMBER 2002 $ 22.72
JANUARY 1998 $ 41.62 JANUARY 2003 $ 22.77
FEBRUARY 1998 $ 41.62 FEBRUARY 2003 $ 22.36
MARCH 1998 $ 41.62 MARCH 2003 $ 21.96
APRIL 1998 $ 41.62 APRIL 2003 $ 21.55
MAY 1998 $ 41.25 MAY 2003 $ 21.14
JUNE 1998 $ 40.88 JUNE 2003 $ 20.74
JULY 1998 $ 40.51 JULY 2003 $ 20.33
AUGUST 1998 $ 40.14 AUGUST 2003 $ 19.92
SEPTEMBER 1998 $ 39.77 SEPTEMBER 2003 $ 19.52
OCTOBER 1998 $ 39.41 OCTOBER 2003 $ 19.11
NOVEMBER 1998 $ 39.04 NOVEMBER 2003 $ 18.70
DECEMBER 1998 $ 38.67 DECEMBER 2003 $ 18.30
JANUARY 1999 $ 39.07 JANUARY 2004 $ 18.25
FEBRUARY 1999 $ 38.69 FEBRUARY 2004 $ 17.83
MARCH 1999 $ 38.32 MARCH 2004 $ 17.42
APRIL 1999 $ 37.94 APRIL 2004 $ 17.00
MAY 1999 $ 37.56 MAY 2004 $ 16.59
JUNE 1999 $ 37.19 JUNE 2004 $ 16.18
JULY 1999 $ 36.81 JULY 2004 $ 15.76
AUGUST 1999 $ 36.44 AUGUST 2004 $ 15.35
SEPTEMBER 1999 $ 36.06 SEPTEMBER 2004 $ 14.93
OCTOBER 1999 $ 35.63 OCTOBER 2004 $ 14.52
NOVEMBER 1999 $ 35.31 NOVEMBER 2004 $ 14.10
DECEMBER 1999 $ 34.94 DECEMBER 2004 $ 13.69
JANUARY 2000 $ 35.25 JANUARY 2005 $ 13.54
FEBRUARY 2000 $ 34.87 FEBRUARY 2005 $ 13.11
MARCH 2000 $ 34.48 MARCH 2005 $ 12.69
APRIL 2000 $ 34.10 APRIL 2005 $ 12.27
MAY 2000 $ 33.72 MAY 2005 $ 11.85
JUNE 2000 $ 33.34 JUNE 2005 $ 11.42
JULY 2000 $ 32.95 JULY 2005 $ 11.00
AUGUST 2000 $ 32.57 AUGUST 2005 $ 10.58
SEPTEMBER 2000 $ 32.19 SEPTEMBER 2005 $ 10.15
OCTOBER 2000 $ 31.80 OCTOBER 2005 $ 9.73
NOVEMBER 2000 $ 31.42 NOVEMBER 2005 $ 9.31
DECEMBER 2000 $ 31.04 DECEMBER 2005 $ 8.88
JANUARY 2001 $ 31.27 JANUARY 2006 $ 8.63
FEBRUARY 2001 $ 30.88 FEBRUARY 2006 $ 8.20
MARCH 2001 $ 30.48 MARCH 2006 $ 7.77
APRIL 2001 $ 30.09 APRIL 2006 $ 7.34
MAY 2001 $ 29.70 MAY 2006 $ 6.90
JUNE 2001 $ 29.31 JUNE 2006 $ 6.47
JULY 2001 $ 28.92 JULY 20O6 $ 6.04
AUGUST 2001 $ 28.53 AUGUST 2006 $ 5.61
SEPTEMBER 2001 $ 28.14 SEPTEMBER 2006 $ 5.18
OCTOBER 2001 $ 27.75 OCTOBER 2006 $ 4.76
NOVEMBER 2001 $ 27.36 NOVEMBER 2006 $ 4.32
DECEMBER 2001 $ 26.97 DECEMBER 2006 $ 3.88
JANUARY 2007 $ 3.52
FEBRUARY 2007 $ 3.08
MARCH 2007 $ 2.64
APRIL 2007 $ 2.20
MAY 2007 $ 1.76
JUNE 2007 $ 1.32
JULY 2007 $ 0.88
AUGUST 2007 $ 0.44
</TABLE>
<PAGE>
EXHIBIT D
---------
FORM OF SUBORDINATION, NON-DISTURBANCE
--------------------------------------
AND ATTORNMENT AGREEMENT
------------------------
D-1
<PAGE>
July 29, 1996 11:26am
ANBCORE.SUB
PREPARED BY:
STEPHEN H. MALATO, ESQ. Address:
Hinshaw & Culbertson --------------------------
222 North LaSalle Street --------------------------
Chicago, Illinois 60601 --------------------------
SUBORDINATION, NON-DISTURBANCE AND
----------------------------------
ATTORNMENT AGREEMENT
--------------------
THIS Subordination, Non-Disturbance and Attornment Agreement made this ___
day of ____________, 19__ between AMERICAN NATIONAL BANK & TRUST COMPANY OF
CHICAGO, a national banking association ("Mortgagee") and ______________________
_______________, a ______________________ Corporation ("Tenant").
RECITALS
--------
A. Pursuant to the terms and conditions of lease agreement dated _________,
19__ between _______________, as landlord ("Landlord") and Tenant, as tenant,
("Lease Agreement"), Tenant leased from Landlord the premises legally described
on Exhibit "A" attached hereto and made a part hereof ("Leased Premises").
B. To evidence a loan made by Mortgagee to ________________________________
("Mortagor") in the principal amount of ______________________ DOLLARS ($______)
("Loan"), Mortgagor executed its note dated ______________, 19__, payable to the
order of Mortgagee, and as security, its mortgage encumbering the premises
legally described on Exhibit "B" attached hereto and made a part hereof
("Mortgaged Premises"), in favor of Mortgagee, recorded in the Office of the
Recorder of Deeds of _______ County, Illinois as Document Number ___________
("Mortgage"). The Leased Premises is a part of the Mortgaged Premises.
C. It is a condition of the documents which evidence and secure the Loan
("Loan Documents") that all leases and other occupancy agreements for space in
the Mortgaged Premises are and shall be subordinated to the lien of the
Mortgage.
D. Tenant has requested that Mortgagee agree that upon Tenant's performance
of all of the terms, covenants, conditions and agreements required of it
pursuant to the Lease Agreement, Tenant's possession of the Leased Premises will
not be disturbed.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises herein contained, the sufficiency of which is hereby acknowledged, IT
IS HEREBY AGREED AS FOLLOWS:
1. The Lease Agreement is and shall continue hereafter to be subject and
subordinate to the lien of the Mortgage and the other Loan Documents, subject,
however, to the provisions of this agreement.
2. In the event that Mortgagee or its successors, assigns, nominees or any
other party claiming by, through or under Mortgagee (collectively "Successors")
shall take possession of the Leased Premises by foreclosure, deed in lieu of
foreclosure or otherwise and Tenant is not then in default (beyond any grace
period set forth in the Lease Agreement for curing the same) of any covenant or
condition of the Lease Agreement to be performed by Tenant, Tenant shall
peaceably hold and enjoy the Leased Premises for the remainder of the unexpired
term (including any extensions thereof), which possession shall be without
hinderance or interruption.
3. Tenant shall not be joined as a party-defendant in any action or
proceeding which may be instituted or taken by Mortgagee by reason of any
default under the Loan Document.
4. In the event Mortgagee or Successors shall succeed to the rights of
Landlord pursuant to the Lease Agreement:
a). Tenant will attorn to Mortgagee or Successors and will perform,
for the benefit of Mortgagee or Successors, all of the terms,
covenants and conditions contained in the Lease Agreement to be
kept and performed by it and shall, at the request of Mortgagee
or Successors, execute and deliver a written agreement of
attornment; and
b). Mortgagee or Successors shall not be (i) liable for any act or
omission of any prior landlord (including Landlord); (ii) subject
to any offsets or defenses which Tenant may have against Landlord
or any prior landlord; (iii) bound by any prepayment of rent or
additional rent which Tenant may have paid for more than the
current month to Landlord or any prior landlord, or (iv), bound
by any amendment or change in any material term of the Lease
Agreement or by any waiver of any material obligation under the
Lease Agreement unless the Mortgagee has, by written instrument,
agreed to such amendment or change of waiver.
5. The term "Mortgagee" shall mean the holder of Mortgagee (as the same may
be assigned from time to time) and the term "Mortgage" shall mean Mortgage (as
the same may be renewed, modified, replaced, extended or consolidated with
mortgages placed on Entire Premises, dated subsequent to the date of Lease
Agreement).
<PAGE>
6. Any and all notices to be given pursuant hereto shall be sufficient if
in writing and delivered personally or mailed by United States certified or
registered mail, postage prepaid, addressed to Mortgagee and Tenant as follows:
If to Mortgagee, at: 33 North LaSalle Street, Chicago, Illinois
60602, with a copy to Hinshaw & Culberton, 222 North LaSalle
Street, Chicago, Illinois 60601, Attention: Stephen A. Malato;
and
If to Tenant, at: _________________________________, with a copy
thereof to ___________________________.
All notices served by mail shall be deemed to have been received three (3) days
following the postmark dates thereof.
7. This agreement and the covenants conditions and promises herein
contained shall inure to the benefit of and be binding Mortgagee and Tenant, and
their respective successors, assigns, grantees and legal representatives.
IN WITNESS WHEREOF, Mortgagee and Tenant have caused this agreement to be
executed by their duly authorized officers and their respective corporate seals
to be affixed hereto, as of the day and year first above written.
Mortgagee:
- ---------
AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHICAGO, a national banking
association
By____________________________________
Title:
ATTEST:
_____________________________
Title:
Tenant:
- ------ ________________________
By:_____________________
Title:
<PAGE>
STATE OF _______________ )
) SS.
COUNTY OF ______________ )
The undersigned, a Notary Public in and for said County, in the State
aforesaid, DOES HEREBY CERTIFY that ____________________, of AMERICAN NATIONAL
BANK & TRUST COMPANY OF CHICAGO, a national banking association ("Mortgagee"),
personally known to me to be the same person whose name is subscribed to the
foregoing instrument respectively, appeared before me this day in person and
acknowledged that he signed and delivered the said instrument as his own free
and voluntary act, and as the free and voluntary act of Mortgagee, for the uses
and purposes therein set forth.
GIVEN under my hand and Notarial Seal this _____ day of ____________, 1991.
---------------------------------------
NOTARY PUBLIC
My Commission Expires_______________.
<PAGE>
STATE OF _______________ )
) SS.
COUNTY OF ______________ )
The undersigned, a Notary Public in and for said County, in the State
aforesaid, DOES HEREBY CERTIFY that ______________, of ________________________
("Tenant"), personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person and
acknowledged that he signed and delivered the said instrument as his own free
and voluntary act, and as the free and voluntary act of Tenant, for the uses and
purposes therein set forth.
GIVEN under my hand and Notarial Seal this _____ day of ____________, 1991.
---------------------------------------
NOTARY PUBLIC
My Commission Expires_______________.
<PAGE>
DESCRIPTION OF LEASED PREMISES
EXHIBIT "A"
<PAGE>
LEGAL DESCRIPTION OF ENTIRE PREMISES
EXHIBIT "B"
<PAGE>
Exhibit 10.23
INDUSTRIAL BUILDING LEASE
LANDLORD:
CENTERPOINT PROPERTIES CORPORATION,
a Maryland corporation
TENANT:
PLAYBOY ENTERPRISES, INC.
a Delaware corporation
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C> <C>
ARTICLE I Lease Terms............................................... 1
Section 1.1. Definitions............................................... 1
Section 1.2. Significance of Definitions............................... 4
Section 1.3. Enumeration of Exhibits................................... 4
ARTICLE II Premises.................................................. 4
Section 2.1. Lease..................................................... 4
Section 2.2. Common Areas.............................................. 4
ARTICLE III Term...................................................... 5
Section 3.1. Term...................................................... 5
Section 3.2. Memorandum of Lease Term.................................. 5
ARTICLE IV Construction of Improvements.............................. 5
Section 4.1. Landlord's Construction Obligation........................ 5
Section 4.2. Plans Approval............................................ 5
Section 4.3. Completion................................................ 6
Section 4.4. Tenant's Inspection Rights................................ 6
Section 4.5. Changes................................................... 6
Section 4.6. Punchlist................................................. 7
Section 4.7. Representatives........................................... 7
Section 4.8. Warranty.................................................. 7
Section 4.9. Damages for Late Completion............................... 8
ARTICLE V Rent...................................................... 8
Section 5.1. Base Rent................................................. 8
Section 5.2. Base Rent Adjustment...................................... 8
Section 5.3. Interest and Late Charges on Late Payments................ 11
ARTICLE VI Utilities................................................. 11
Section 6.1. Utilities................................................. 11
ARTICLE VII Use....................................................... 11
Section 7.1. Use....................................................... 11
Section 7.2. Prohibited Uses........................................... 12
Section 7.3. No Implied Permission..................................... 12
Section 7.4. Rules and Regulations..................................... 12
ARTICLE VIII Maintenance of Premises................................... 12
Section 8.1. Maintenance............................................... 12
Section 8.2. Governmental Requirements................................. 13
Section 8.3. Tenant's Responsibilities................................. 13
ARTICLE IX Insurance................................................. 13
Section 9.1. Coverage Required......................................... 13
Section 9.2. Policies.................................................. 14
Section 9.3. Subrogation............................................... 15
Section 9.4. Miscellaneous Insurance Provisions........................ 15
Section 9.5. Landlord's Insurance...................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE X Damage or Destruction.................................... 17
Section 10.1. Total Destruction........................................ 17
Section 10.2. Partial Destruction...................................... 17
Section 10.3. Lease Termination........................................ 17
ARTICLE XI Liens.................................................... 17
Section 11.1. Lien Claims.............................................. 17
Section 11.2. Landlord's Right to Cure................................. 18
ARTICLE XII Tenant Alterations....................................... 18
Section 12.1. Alterations.............................................. 18
Section 12.2. Ownership of Alterations................................. 19
Section 12.3. Tenant Signs............................................. 19
Section 12.4. Environmental Impact..................................... 19
ARTICLE XIII Condemnation............................................. 19
Section 13.1. Taking: Lease to Terminate............................... 19
Section 13.2. Taking: Lease to Continue................................ 19
Section 13.3. Tenant's Claim........................................... 20
ARTICLE XIV Assignment - Subletting by Tenant........................ 20
Section 14.1. No Assignment, Subletting or Other Transfer.............. 20
Section 14.2. Operation of Law......................................... 20
Section 14.3. Excess Rental............................................ 20
Section 14.4. Merger or Consolidation.................................. 20
Section 14.5. Unpermitted Transaction.................................. 21
ARTICLE XV Financial Statements..................................... 21
Section 15.1. Financial Statements..................................... 21
ARTICLE XVI Indemnity for Litigation................................. 21
Section 16.1. Indemnity for Litigation................................. 21
Section 16.2. Landlord's Indemnity..................................... 22
ARTICLE XVII Estoppel Certificates.................................... 22
Section 17.1. Estoppel Certificate..................................... 22
ARTICLE XVIII Inspection of Premises................................... 22
Section 18.1. Inspections.............................................. 22
Section 18.2. Landlord Signs........................................... 22
ARTICLE XIX Fixtures................................................. 22
Section 19.1. Building Fixtures........................................ 22
Section 19.2. Tenant's Equipment....................................... 23
Section 19.3. Removal of Tenant's Equipment............................ 23
ARTICLE XX Default.................................................. 23
Section 20.1. Event of Default......................................... 23
Section 20.2. Bankruptcy............................................... 25
Section 20.3. Re-entry................................................. 26
ARTICLE XXI Landlord's Performance of Tenant's Covenants............. 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 21.1. Landlord's Right to Perform Tenant's Obligations......... 26
ARTICLE XXII Exercise of Remedies..................................... 26
Section 22.1. Cumulative Remedies...................................... 26
Section 22.2. No Waiver................................................ 26
Section 22.3. Equitable Relief......................................... 26
ARTICLE XXIII Subordination to Mortgages............................... 27
Section 23.1. Subordination............................................ 27
Section 23.2. Mortgage Protection...................................... 27
ARTICLE XXIV Indemnity and Waiver..................................... 28
Section 24.1. Tenant Indemnity......................................... 28
Section 24.2. Waiver of Claims......................................... 29
Section 24.3. Landlord's Indemnity..................................... 29
ARTICLE XXV Surrender................................................ 29
Section 25.1. Condition................................................ 29
Section 25.2. Removal of Tenant's Equipment............................ 30
Section 25.3. Holdover................................................. 30
ARTICLE XXVI Covenant of Quiet Enjoyment.............................. 30
Section 26.1. Covenant of Quiet Enjoyment.............................. 30
ARTICLE XXVII No Recording............................................. 30
Section 27.1. No Recording............................................. 30
ARTICLE XXVIII Notices.................................................. 31
Section 28.1. Notices.................................................. 31
ARTICLE XXIX Covenants Run with Land.................................. 31
Section 29.1. Covenants................................................ 31
Section 29.2. Release of Landlord...................................... 31
ARTICLE XXX Environmental Matters.................................... 32
Section 30.1. Defined Terms............................................ 32
Section 30.2. Tenant's Covenants with Respect to Environmental Matters. 33
Section 30.3. Conduct of Tenant........................................ 33
Section 30.4. Exacerbation............................................. 34
Section 30.5. Rights of Inspection..................................... 34
Section 30.6. Copies of Notices........................................ 34
Section 30.7. Tests and Reports........................................ 35
Section 30.8. Indemnification.......................................... 35
Section 30.9. Tenant Representations with respect to Environmental
Matters................................................ 36
ARTICLE XXXI Expansion Option for Expansion Space..................... 37
Section 31.1. Expansion Option......................................... 37
ARTICLE XXXII Right of First Offer for Expansion Space................. 37
Section 32.1. Right of First Offer..................................... 37
ARTICLE XXXIII Renewal Option........................................... 38
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
Section 33.1. Renewal Option........................................... 38
Section 33.2. "As Is" Condition........................................ 39
Section 33.3. Amendment................................................ 39
Section 33.4. Termination.............................................. 39
Section 33.5. No Commissions........................................... 39
ARTICLE XXXIV Security Deposit......................................... 39
Section 34.1. Security Deposit......................................... 39
ARTICLE XXXV Miscellaneous............................................ 40
Section 35.1. Captions................................................. 40
Section 35.2. Severability............................................. 40
Section 35.3. Applicable Law........................................... 40
Section 35.4. Amendments in Writing.................................... 40
Section 35.5. Relationship of Parties.................................. 40
Section 35.6. Brokerage................................................ 40
Section 35.7. No Accord and Satisfaction............................... 41
Section 35.8. Joint Effort............................................. 41
Section 35.9. Waiver of Jury Trial..................................... 41
Section 35.10. Time..................................................... 41
Section 35.11. Landlord's Consent....................................... 41
Section 35.12. No Partnership........................................... 41
Section 35.13. Landlord's Liability..................................... 41
Section 35.14. Landlord Rights.......................................... 41
Section 35.15. Rent Absolute............................................ 41
Section 35.16. Tenant Authority......................................... 42
Section 35.17. Purchase Contingency..................................... 42
</TABLE>
iv
<PAGE>
INDUSTRIAL BUILDING LEASE
-------------------------
THIS LEASE, made as of this 6th day of September, 1996 between CENTERPOINT
PROPERTIES CORPORATION, a Maryland corporation (hereinafter referred to as
"LANDLORD"), and PLAYBOY ENTERPRISES, INC., a Delaware corporation (hereinafter
referred to as "TENANT").
ARTICLE I
---------
LEASE TERMS
-----------
Section 1.1. Definitions. In addition to the other terms, which are
elsewhere defined in this Lease, the following terms and phrases, whenever used
in this Lease shall have the meanings set forth in this Subsection, and only
such meanings, unless such meanings are expressly contradicted, limited or
expanded elsewhere herein.
A. Area of the Building: 128,867 square feet of space.
B. Area of the Premises: 106,038 square feet of space.
C. Area of the Warehouse within the Premises: 70,908 square feet of space.
D. Base Rent Schedule:
Period Annual Base Rent
------ ----------------
Commencing on the Warehouse
Commencement Date and ending
on the day preceding the Office
Commencement Date $403,466.52
Commencing on the Office
Commencement Date and ending
on the last day of Lease Year 5 $698,790.48
Commencing on the first day of
Lease Year 6 and ending on the
last day of Lease Year 10 $802,707.72
E. Estimated Office Commencement Date: December 1, 1997.
F. Estimated Warehouse Commencement Date: June 1, 1997.
G. Estimated Termination Date: November 30, 2007.
H. Force Majeure: any event or circumstance which is beyond the control
of Landlord including, without limitation, acts of God or the public
enemy, governmental restrictions or actions, fire or other casualty,
accidents, unavailability of fuel, power, supplies or
materials, unusually adverse weather conditions, or the passage or
application of any
<PAGE>
Legal Requirements or moratorium of any Governmental Authority which is not
now in effect which has the effect of preventing or delaying progress on
the Initial Improvements and Tenant Delay.
I. Force Majeure Delay: any interruption or delay in the progress of the
Initial Improvements which is the result of Force Majeure. Any delay which
is the result of Force Majeure shall be deemed to be a Force Majeure Delay
notwithstanding that Landlord or its contractor with respect to the time
period for which the Force Majeure Delay is being claimed is concurrently
delayed by events within its control.
J. Governmental Authority: any federal, regional, state, county or municipal
government (including, without limitation, any agency, authority,
subdivision, department or bureau thereof.
K. Initial Improvements: collectively, the improvements contemplated in the
Plans, consisting of (i) the portion of the Building containing
approximately 106,038 square feet of space, of which approximately 35,130
square feet will be office space, and (ii) a parking lot providing for the
parking of not less than 275 automobiles, to be constructed on the Land
approximately as depicted on the site plan attached hereto as Exhibit "A"
and by this reference incorporated herein.
L. Initial Monthly Rent Adjustment Deposit: $1,200.00 or such amount as
determined by expense review prior to Warehouse Commencement Date.
M. Initial Term: The period commencing as of the Office Commencement Date and
ending on the last day of the tenth (10th) Lease Year thereafter.
N. Landlord's Broker: None.
O. Landlord's Mailing Address:
c/o 401 North Michigan Avenue
Chicago, Illinois 60611
Attn: Mr. Michael M. Mullen
P. Legal Requirements: (i) any and all laws, codes, ordinances, requirements,
standards, plats, plans, criteria, orders, directives, rules and
regulations of any Governmental Authority affecting the improvement,
alteration, use, maintenance, operation, occupancy, security, health,
safety and environmental condition of the Project or any part thereof (or
any occupants therein, as the context requires) including, without
limitation any Environmental Laws (as hereinafter defined), and (ii) any
and all covenants, restrictions, conditions, easements and other agreements
of record affecting the Project and the Reciprocal Easement Agreement, as
amended from time to time, and any documents, rules, regulations, standards
or criteria set forth or referenced therein or promulgated by the Landlord
or any governing body or entity exercising jurisdiction over the Project,
in any case, whether in force at the Commencement Date or passed, enacted
or imposed at some time in the future, and shall include all permits,
licenses, certificates, authorizations and approvals required in connection
with any of the foregoing.
Q. Plans: the plans and specifications to be prepared by the Project Architect
for the construction of the Building.
R. Preliminary Plans: the plans and specifications described on Exhibit "C"
attached hereto and by this reference made a part hereof.
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S Project Architect: Cornerstone Architects, Inc.
T. Reciprocal Easement Agreement: such easements over, upon and across
the Project as are reasonably required to provide for ingress, egress,
drainage, detention, access to utilities and services, maintenance of
secured common elements and services and the sharing of expenses
thereof, existence of immaterial encroachment and similar rights
customary among several parcels comprising a single commercial
development.
U. Security Deposit: one monthly Rent payment.
V. Substantial Completion or Substantial Completion Date: the earlier to
occur of (i) the date on which Landlord receives a permanent,
temporary or conditional certificate of occupancy from the Village to
occupy the warehouse portion of the Premises or the warehouse and
office portion of the Premises, as applicable; provided, however, if
such certificate is not issued due to the failure to complete any work
expressly excluded in the Plans or not required by any Governmental
Authority as of the time the building permit is issued, such
certificate shall be deemed to have issued, (ii) the date the Project
Architect states in writing that the Initial Improvements are
substantially completed in accordance with the Plans (as such Plans
may be revised from time to time in accordance with the terms of this
Lease), or (iii) the date on which Tenant occupies the Premises or any
portion thereof. In the event there is a dispute as to Substantial
Completion, the Project Architect shall determine, in the exercise of
its reasonable judgment, whether or not the Initial Improvements are
substantially completed as required herein, and the parties hereto
agree to be bound by such decision.
W. Tenant Delay: any interruption or delay in the progress of the Initial
Improvements which is the result of: (i) the failure of Tenant to
approve the Plans or any portion thereof; (ii) changes in construction
requested by Tenant or any member of the Tenant Group; (iii) the
performance or non-performance of any work at, or services with
respect to, the Premises by Tenant or any member of the Tenant Group;
or (iv) any other act or omission of Tenant, any member of the Tenant
Group or any person, firm or entity claiming by, through or under any
of them.
X. Tenant Group: any or all of Tenant's agent, employees,
representatives, contractors, workmen, mechanics, suppliers,
customers, guests, licensees, invitees, sublessees, assignees and all
of their respective successors and assigns or any party claiming by,
through or under any of them.
Y. Tenant's Broker: Paine/Wetzel Associates, Inc.
Z. Tenant's Mailing Address:
680 North Lake Shore Drive
Chicago, Illinois 60611
Attention: General Counsel
AA. Tenant's Proportion or Proportionate Share: The percentage obtained by
dividing the Area of the Warehouse within the Premises by the Area of
the Building until the Office Commencement Date, and from and after
the Office Commencement Date, the percentage obtained by dividing the
Area of the Premises by the Area of the Building.
AB. Term: The Initial Term as same may be extended or sooner terminated.
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AC. Use: Any use permitted by all Legal Requirements.
AD. Village: Village of Itasca.
Section 1.2. Significance of Definitions. Each reference in this Lease to
any of the Definitions contained in Section 1.1 of this Article shall be deemed
and construed to incorporate all of the terms provided under each such
Definition.
Section 1.3. Enumeration of Exhibits. The exhibits in this Section and
attached to this Lease are incorporated in this Lease by this reference and are
to be construed as a part of this Lease.
Exhibit "A" - Site Plan
Exhibit "B" - Legal Description of Land
Exhibit "C" - Preliminary Plans and Specifications
Exhibit "D" - Form of Estoppel Certificate
ARTICLE II
----------
Premises
--------
Section 2.1. Lease. Landlord, for and in consideration of the rents herein
reserved and of the covenants and agreements herein contained on the part of
Tenant to be kept, observed and performed, does by these presents, lease to
Tenant, and Tenant hereby leases from Landlord, the demised premises
("Premises"), being depicted in the site plan attached hereto as Exhibit "A" in
the building to be constructed on Old Thorndale Road in the Village of Itasca,
DuPage County, Illinois (hereinafter referred to as the "Building"), on a
portion of the real estate legally described on Exhibit "B" attached hereto and
by this reference incorporated herein (all of said real estate is hereinafter
referred to as the "Land"). The Premises shall consist of the portion thereof
designated on the site plan as warehouse space ("Warehouse Space") and the
portion thereof designated on the site plan as office space ("Office Space").
The demise of the Premises is subject to the Legal Requirements. The Land,
Common Areas (defined in Section 2.2 below), Building and other buildings and
improvements now or hereafter constructed on the Land are hereinafter
collectively referred to as the "Project".
Section 2.2. Common Areas.
A. Tenant has the nonexclusive right to use in common with Landlord and
other tenants in the Project, subject to reasonable rules from time to time made
by Landlord of which Tenant is given notice, the following areas now or
hereafter a part of the Project (collectively, "Common Areas"): (i) Building
Common Area. The roof, common stairways, accessways, loading docks, platforms
and passageways thereto, if any; (ii) Floor Common Area. If the Premises
includes less than the entire rentable area of any floor, the common lobbies,
hallways, toilets and other common facilities located on such floor, if any; and
(iii) Land Common Area. Common walkways, sidewalks and driveways necessary for
access to the Building, utilities, landscaping and lawn areas and parking spaces
or areas from time to time maintained on the portion of the Land intended to be
used by the tenants in the Building and not the parking spaces or areas from
time to time maintained on the Land but intended to be used by tenants in other
buildings in the Project.
B. Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use: To install, use, maintain, repair and replace
pipes, ducts, conduits, wires and appurtenant meters and equipment for service
to other parts of the Building and Project above the ceiling surfaces, below the
floor surfaces, within the walls and in the central core areas, and to relocate
any pipe, ducts, conduits, wires and appurtenant meters and equipment included
in the Premises which are so located or located elsewhere outside the Premises;
to change
4
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the boundary lines of the Land; to establish and enforce such reasonable rules
and regulations as Landlord deems necessary or desirable in the operation of the
Project; and to alter, relocate, close or temporarily suspend the use of any
Common Area. Landlord reserves the right to grant easements on the Land, to
allow third parties to use all internal roadways constructed on the Project, to
make boundary adjustments to the Land, to use the Land for such purposes as
Landlord deems necessary or desirable, including, but not limited to the
installation of cellular dishes or other similar communication devices or
towers on any Common Area with the consent of Tenant, which consent shall not be
unreasonably withheld or delayed, except that Tenant's consent shall not be
required if any such dishes, devices or towers are installed or constructed on
the roof (but in no event shall any installation on the roof exceed 20 feet
above the height of the roof), and to dedicate for public use portions of the
Land, including without limitation any public streets or any other improvements,
without Tenant's consent, provided that no such grant or dedication shall
materially interfere with Tenant's use of the Premises or otherwise cause Tenant
to incur any additional cost or expense in excess of $100.00.
ARTICLE III
-----------
Term
----
Section 3.1. Term. The initial Term of this Lease shall commence with
respect to the Warehouse Space on the date (hereinafter referred to as the
"Warehouse Commencement Date") which is the Substantial Completion Date of the
Warehouse Space, which date is estimated to be the Estimated Warehouse
Commencement Date. The Initial Term of this Lease shall commence with respect
to the Office Space on the date (hereinafter referred to as the "Office
Commencement Date") which is the Substantial Completion Date of the Office
Space, which date is estimated to be the Estimated Office Commencement Date. The
Initial Term shall end on the last day of the tenth (10th) Lease Year after the
Office Commencement Date unless sooner terminated as herein set forth. The term
"Lease Year" when used in this Lease shall mean a twelve (12) month period
commencing (i) as to the first Lease Year, on the date (hereinafter referred to
as the "First Lease Year Commencement Date") which is the Office Commencement
Date if same is the first (1st) day of a calendar month or the first (1st) day
of the next full calendar month after the Office Commencement Date if same does
not occur on the first (1st) day of a calendar month, and (ii) as to subsequent
Lease Years, on the annual anniversary date of the First Lease Year Commencement
Date. Concurrent with the actual Office Commencement Date and Warehouse
Commencement Date of this Lease, Tenant shall deliver to Landlord an estoppel
certificate in accordance with Article XVII hereof.
Section 3.2. Memorandum of Lease Term. Landlord and Tenant shall execute
an instrument fixing the actual Commencement Date and termination of the Initial
Term of this Lease at the request of either Landlord or Tenant.
ARTICLE IV
----------
Construction of Improvements
----------------------------
Section 4.1. Landlord's Construction Obligation. Subject to the terms and
conditions of this Article IV, Landlord shall, at its sole cost and expense,
construct or cause to be constructed the Initial Improvements on the Land in
accordance with the Plans. Landlord agrees that all services and work performed
in connection with the Initial Improvements shall be done in a good and
workmanlike manner using only new material, and shall be performed
substantially in accordance with applicable Legal Requirements.
Section 4.2. Plans Approval. Tenant hereby approves the Preliminary Plans.
Landlord shall cause the Project Architect to prepare Plans consistent with the
Preliminary Plans and otherwise acceptable to
5
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Landlord. The Plans are subject to Tenant's approval (which shall not be
unreasonably withheld or delayed), and if Tenant does not approve same, Tenant
shall advise Landlord in reasonable detail of the reasons for such disapproval.
Tenant shall comment on the Plans (or any component thereof submitted to Tenant)
and each revision thereof within five (5) business days after receipt from
Landlord. In the event that Tenant does not disapprove of the Plans (or any
component thereof submitted to Tenant) within said five (5)-day business period,
the Plans (or applicable component thereof) shall be deemed approved. Tenant may
not object to any changes as may be incorporated in the Plans necessary to
obtain the approval of the Village; provided, however, Tenant's review of the
Plans is for the limited purpose of reviewing office layouts, floor plans,
location of electrical and phone outlets and the like. In no event shall
Tenant's review and approval of the Plans be deemed an approval or acceptance of
Landlord's construction specifications. Prior to Tenant's approval for the
Plans, Tenant may change the space plan and Tenant shall not pay the cost of
redrafting the space plan, however any changes resulting in an increase in the
cost of construction shall be paid by Tenant as provided in Section 4.5 below.
Section 4.3. Completion. Landlord shall diligently proceed with the
construction of the Initial Improvements upon approval of Landlord, Tenant and
the Village. Landlord shall use its best efforts to substantially complete the
Warehouse Space and parking for approximately 75 automobiles and deliver
possession thereof to Tenant on or before the Estimated Warehouse Commencement
Date and complete the Office Space and the remaining parking spaces and deliver
possession thereof to Tenant on or before the Estimated Office Commencement
Date: provided, however, with respect to the Warehouse Space and the Office
Space, if construction is delayed because of any Force Majeure Delays, then the
time of completion of such construction shall be extended for the additional
time caused by such Force Majeure Delays without liability on the part of
Landlord, except as set forth in Section 4.9 below.
Section 4.4. Tenant's Inspection Rights. Landlord shall exercise
reasonable efforts to keep Tenant advised with respect to the progress of the
construction of the Initial Improvements and the estimated dated of Substantial
Completion, and Landlord shall notify Tenant in writing as soon as Substantial
Completion occurs as provided herein. During the construction of the Initial
Improvements, Tenant shall have the right to inspect to Premises to monitor the
progress of construction of the Initial Improvements; provided, however, that
such right may not be exercised unless Tenant has: (i) given Landlord at least
one (1) business days' prior written notice of the date and time Tenant intends
to exercise such inspection right; and (ii) Tenant and/or Tenant's architect
are accompanied at all times during the course of said inspection by Landlord
and Landlord's representative or the Project Architect.
Section 4.5. Changes. If any material or equipment specified in the Plans
cannot be obtained, Landlord shall have the right to specify a similar
alternative, subject to Tenant's approval, which approval shall not be
unreasonably withheld or delayed. Tenant may propose one or more changes to the
Plans to Landlord any time before the Substantial Completion Date, subject to
the approval of Landlord (which approval will not be unreasonably withheld or
delayed) and the Village. As promptly as reasonably practicable after the
receipt and approval thereof, Landlord shall provide Tenant with a written
estimate of the Tenant Delay in the Substantial Completion Date and the amount
of the additional cost to complete the Initial Improvements which will result
from such change, which costs shall be: (i) the cost of all materials, supplies
and labor used or supplied in making the proposed change, including general
conditions and any contractor's fees (which general conditions and contractor's
fees shall be fifteen percent (15%) of such costs); (ii) any architect and
engineer fees; (iii) soft costs; and (iv) fees and expenses of architects,
engineers and other third party consultants in connection with review or
approval of changes in Plans. If Tenant fails to approve of the revised Plans
and associated estimate within five (5) business days after delivery of the
same, Tenant shall be deemed to have abandoned its request for such change, and
the Initial Improvements shall be constructed in accordance with the then
existing Plans. If Tenant approves the revised Plans and associated estimate
within said five (5)-day business period by signing and returning a copy of
Landlord's estimate, Landlord shall cause the Initial Improvements to be
constructed in accordance with the Plans as so revised. Tenant shall pay
Landlord the amount of such additional costs within thirty (30) days after
Landlord submits to Tenant a bill for such additional costs as are then due and
payable from time to time. In no event shall Landlord have any obligation to
continue any work relating to such changes unless Tenant has paid Landlord the
amount billed to Tenant in full within said thirty (30) day period. Further, in
the event that the additional costs are not paid within said thirty (30)
6
<PAGE>
day period, Tenant shall be deemed to have abandoned its request for such
changes and the Initial Improvements shall be constructed in accordance with the
then existing Plans, but Tenant shall not be relieved of its obligation to pay
for the portion of the work performed to the date such request is abandoned.
Unless requested in writing by Tenant to the contrary, Landlord shall continue
with construction of the Initial Improvements according to the then existing
Plans during the pendency of any proposed change in the Plans until such change
and cost estimate are approved by Landlord and Tenant as provided above. Any
halt in construction requested in writing by Tenant shall constitute a Tenant
Delay hereunder. If Tenant requests a change to the Plans pursuant to this
Section 4.5, and Tenant does not ultimately approve of the resulting revised
Plans or cost estimates, Tenant shall promptly reimburse Landlord, as Additional
Rent, for any reasonable costs and expenses resulting from such requested
changes incurred by Landlord. Landlord may make changes to the Plans without
Tenant's consent, provided that: (i) such changes (a) will not create any
additional monetary obligation for Tenant under this Lease, (b) are in material
conformity with the Plans (as may have been previously revised by permissible
Tenant and/or Landlord changes thereto), and (c) will not decrease the quality
of any component of the Initial Improvements; or (ii) such changes are required
by any applicable Legal Requirements.
SECTION 4.6. PUNCHLIST. Before Tenant takes occupancy of the Premises but
no later than thirty (30) business days after the Substantial Completion Date,
Landlord, Project Architect and Tenant shall conduct an inspection of the
Premises, and work in good faith to jointly prepare a punchlist (hereinafter
referred to as the "PRE-OCCUPANCY PUNCHLIST"). Within sixty (60) days following
the date Tenant first occupies all or any portion of the Premises, Landlord, the
Project Architect and Tenant shall conduct an additional inspection of the
Premises, and work in good faith to jointly prepare a supplement to the Pre-
Occupancy Punchlist containing such items as may be difficult to discover or
ascertain prior to Tenant's occupancy, but excluding: (i) any items theretofore
corrected by Landlord; and (ii) any damage caused by any act or omission of
Tenant or any member of the Tenant Group or any party claiming by, through or
under any of them (the Pre-Occupancy Punchlist, as so supplemented is
collectively referred to as the "FINAL PUNCHLIST"). Except as otherwise
expressly provided in this Lease, any items not on the Final Punchlist shall be
deemed accepted by Tenant, excluding latent defects with respect to the Initial
Improvements that become definite and ascertainable, and to which landlord is
notified of in writing, within one (1) year following the Substantial Completion
Date. Tenant shall provide reasonable access to Landlord, its employees, agents
and contractors for purposes of the repair and correction of any punchlist
items. Landlord shall complete all Final Punchlist items as soon as is
reasonably practicable after such Final Punchlist items are finally determined,
not to exceed thirty (30) days, subject to extension due to any Force Majeure
Delays; provided, however, in the absence of Force Majeure Delays, with respect
to any Final Punchlist items that are not reasonably capable of being completed
within said thirty (30)-day period, Landlord shall be deemed in compliance with
Section 4.6 as long as Landlord commences the correction of the applicable Final
Punchlist items within said thirty (30)-day period and thereafter diligently
prosecutes such items to completion.
SECTION 4.7. REPRESENTATIVES. Landlord designates Fred Reynolds or Michael
M. Mullen as its representative for all purposes of this Article IV. Tenant
designates Sue Shoemaker and Robert J. Terry as its representative(s) for all
purposes of this Article IV. Wherever the terms of this Article IV require any
notice to be given to or by a party, or any determination or action to be made
or taken by a party, the representative(s) of each party shall act for and on
behalf of such party, and the other party shall be entitled to rely thereon.
Either party may designate one or more substitute representatives for all or a
specified portion of the provisions of this Article IV, subject to notice to the
other party of the identity of such substitute representative(s).
SECTION 4.8. WARRANTY. Landlord represents that it shall obtain (i) a
warranty against defective materials and workmanship with respect to the Initial
Improvements from FCL Builders, Inc., for a period of one (1) year from
Substantial Completion of the Initial Improvements; and (ii) a warranty against
defects in the roof for a period of fifteen (15) years from Substantial
Completion thereof from the roof manufacturer. Subject to Section 4.6 hereof,
Tenant shall notify Landlord in writing of any defective condition occurring
with respect to the Initial Improvements promptly following Tenant's discovery
thereof and Landlord shall request that the party issuing the warranty perform
any remedial work required to be performed under such warranty.
7
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SECTION 4.9. DAMAGES FOR LATE COMPLETION.
---------------------------
A. In the event that the Warehouse Commencement Date does not occur on or
before August 1, 1997, Landlord shall reimburse Tenant for actual damages
incurred by Tenant which damages are hereby agreed by the parties to be (i)
$50,000.00 on August 1, 1997, plus (ii) $8,000.00 per week thereafter until the
Warehouse Commencement Date, and (iii) the amount of rent that Tenant is
required to pay under its existing lease ("EXISTING LEASE") at 800 West
Thorndale, Itasca, Illinois, less the Rent that would have been due under this
Lease commencing on August 1, 1997 and ending on the Warehouse Commencement
Date. The date of August 1, 1997 set forth above shall be extended from time to
time by the number of days of Force Majeure Delays.
B. In the event that the Office Commencement Date does not occur on or
before December 1, 1997, Landlord shall reimburse Tenant for (i) actual damages
incurred by Tenant up to $100,000.00 for each month after December 1, 1997 until
the Office Commencement Date, and (ii) the amount of rent that Tenant is
required to pay under its Existing Lease, less the Rent that would have been due
under this Lease commencing on December 1, 1997 and ending on the Office
Commencement Date. The date of December 1, 1997 set forth above shall be
extended from time to time by the number of days of Force Majeure Delays.
C. In the event that the Office Commencement Date does not occur on or
before June 1, 1998, Tenant may terminate this Lease upon notice to Landlord at
any time prior to the Office Commencement Date.
ARTICLE V
---------
RENT
----
SECTION 5.1. BASE RENT. In consideration of the leasing aforesaid, Tenant
agrees to pay Landlord, without offset or deduction, base rent for the Initial
Term ("BASE RENT") in the amount of the Annual Base Rent set forth in the Base
Rent Schedule. The Annual Base Rent shall be paid in advance, in twelve (12)
equal monthly installments, commencing on the Warehouse Commencement Date
(prorated for any partial month) and continuing on the first (1st) day of each
month thereafter for the balance of the Term of this Lease, and in addition
thereto, Tenant shall pay such charges as are herein described as "ADDITIONAL
RENT". The term "RENT" when used in this Lease shall include all Base Rent
payable under this Section 5.1, as well as the charges herein described as
Additional Rent, and all other sums due from Tenant to Landlord hereunder. All
Rent payable hereunder shall be payable to Landlord at Landlord's Mailing
Address, or as Landlord may otherwise from time to time designate in writing.
SECTION 5.2. BASE RENT ADJUSTMENT. In addition to the Base Rent payable by
Tenant hereunder, Tenant shall pay to Landlord, as Additional Rent, the Rent
Adjustments described in this Section 5.2 commencing on the Commencement Date,
without set off or deduction. Until such time as Tenant receives the first
Adjustment Statement provided for in clause (iii) of this Section 5.2, Tenant
shall, commencing on the Commencement Date and on the first (1st) day of each
and every month thereafter, make the Initial Monthly Rent Adjustment Deposit
specified in Article I hereof.
A. For the purposes of this Lease:
(1) The term "CALENDAR YEAR" shall mean each calendar year or a
portion thereof during the Term.
(2) The term "EXPENSES" shall mean and include all expenses paid or
incurred by Landlord or its beneficiaries for owning, maintaining,
managing, operating, insuring, replacing and repairing the Project or any
portion thereof, and all appurtenances and personal property used in
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conjunction therewith and complying with all Legal Requirements. Expenses
shall not include (i) depreciation charges, (ii) interest and principal
payments on mortgages, (iii) ground rental payments, (iv) costs of roof
maintenance or structural repairs which are Landlord's obligation pursuant
to Section 8.1 B below, (v) costs incurred as a result of the negligent
act or omission of Landlord, (vi) expenses in connection with services
which are not offered to Tenant but are offered to other tenants in the
Building and (vii) real estate brokerage and leasing commissions. If any
building in the Project is not fully occupied during all or a portion of
any Calendar Year, then Landlord may elect to make an appropriate
adjustment of the Expenses which vary due to occupancy for such Calendar
Year employing sound accounting and management principles, to determine the
amount of Expenses that would have been paid or incurred by Landlord had
said building been fully occupied and the amount so determined shall be the
amount of Expenses attributable to such Calendar Year.
(3) The term "RENT ADJUSTMENTS" shall mean all amounts owed by Tenant
as Additional Rent resulting from Expenses and Taxes, or both.
(4) The term "RENT ADJUSTMENT DEPOSIT" shall mean an amount equal to
Landlord's estimate of Rent Adjustments due for any Calendar Year made from
year to year during the Term.
(5) The term "TAXES" shall mean real estate taxes, assessments, sewer
rents, rates and charges, transit taxes, taxes based upon the receipt of
rent, and any other federal, state or local government charge, general,
special, ordinary or extraordinary, which may now or hereafter be assessed
against the Project or any portion thereof in any Calendar Year during the
Term and any tax in substitution of any of the foregoing; provided,
however, in determining the income of Landlord with respect to any such
substituted tax, only the income derived from the Project shall be
included. In case of special taxes or assessments which may be payable in
installments, only the amount of each installment and interest paid thereon
paid during a Calendar Year shall be included in Taxes for that Calendar
Year. Taxes shall also include any personal property taxes (attributable to
the year in which paid) imposed upon the furniture, fixtures, machinery,
equipment, apparatus, systems and appurtenances used in connection with the
operation of the Project. Taxes also include Landlord's reasonable costs
and expenses (including reasonable attorneys' fees) in contesting or
attempting to reduce any taxes provided that the Landlord's efforts result
in a reduction in any such taxes in an amount greater than the fees
incurred in obtaining such reduction. Taxes shall be reduced by any
recovery or refund received of taxes previously paid by the Landlord,
provided such refund relates to taxes paid during the Term of this Lease.
"Taxes" as used hereunder shall exclude (i) franchise, corporate, estate,
inheritance, succession or transfer taxes of Landlord, or any income,
profit or revenue tax upon the collection of Rent except to the extent any
such tax replaces any other tax expressly set forth above and (ii) the
portion of the real estate Taxes attributable to the portion of the Village
of Itasca Old Thorndale Avenue Special Service Area Unlimited ad valorem
property tax bonds, series 1996 relating to the widening of Old Thorndale
Road.
B. Subject to Section 5.2 H below, commencing on the Commencement Date,
Tenant shall pay to the Landlord as Additional Rent the amount equal to Tenant's
Proportion of Expenses and Taxes attributable to each Calendar Year of the Term.
The amount of Taxes attributable to a Calendar Year shall be the amount assessed
for such Calendar Year, even though the assessment for such Taxes may be payable
in the following Calendar Year.
C. As soon as reasonably feasible after the expiration of each Calendar
Year, Landlord will furnish Tenant a statement ("ADJUSTMENT STATEMENT") showing
the following:
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(1) Expenses and Taxes for Calendar Year last ended and the amount of
Expenses and Taxes payable by Tenant for such Calendar Year;
(2) The amount of Rent Adjustments due Landlord for the Calendar
Year last ended, less credits for Rent Adjustment Deposits paid, if any;
and
(3) The Rent Adjustment Deposit due in the current Calendar Year.
D. Within thirty (30) days after Tenant's receipt of each Adjustment
Statement, Tenant shall pay to Landlord:
(1) The amount of Rent Adjustment shown on said statement to be due
Landlord for the Calendar Year last ended; plus
(2) The amount, which when added to the Rent Adjustment Deposit
theretofore paid in the current Calendar Year would provide that Landlord
has then received such portion of the Rent Adjustment Deposit as would
have theretofore been paid to Landlord had Tenant paid one twelfth (1/12)
of the Rent Adjustment Deposit for the current Calendar Year, to Landlord
monthly on the first day of each month of such Calendar Year.
Commencing on the first day of the first month after Tenant's receipt of each
Adjustment Statement, and on the first day of each month thereafter until Tenant
receives a more current Adjustment Statement, Tenant shall pay to Landlord one
twelfth (1/12) of the Rent Adjustment Deposit shown on said statement. During
the last complete Calendar Year, Landlord may include in the Rent Adjustment
Deposit its estimate of the Rent Adjustment which may not be finally determined
until after the expiration of the Term. The Tenant's obligation to pay the Rent
Adjustment shall survive the Term.
E. Tenant's payment of the Rent Adjustment Deposit for each Calendar Year
shall be credited against the Rent Adjustments for such Calendar Year. All Rent
Adjustment Deposits may be co-mingled and no interest shall be paid to Tenant
thereon. If the Rent Adjustment Deposit paid by Tenant for any Calendar Year
exceeds the Rent Adjustments for such Calendar Year, then Landlord shall give a
credit to Tenant in an amount equal to such excess against the Rent Adjustments
due for the next succeeding Calendar Year, except that if any such excess
relates to the last Calendar Year of the Term, then, provided that no default of
Tenant exists hereunder, Landlord shall refund such excess to Tenant.
F. Tenant or its representative shall have the right to examine
Landlord's books and records with respect to the items in the Adjustment
Statement during normal business hours at any time within ninety (90) days
following the furnishing by Landlord to Tenant of such Adjustment Statement.
Unless Tenant shall take written exception to any item within ninety (90) days
after furnishing of the foregoing statement, such statement shall be considered
as final and accepted by Tenant. Any amount due to Landlord as shown on any
such statement, whether or not written exception is taken thereto, shall be paid
by Tenant within thirty (30) days after Landlord shall have submitted the
statement, without prejudice to Tenant's rights to the exception to the
Adjustment Statement as provided above.
G. If the Commencement Date is on any day other than the first day of
January, or if the Termination Date is on any day other than the last day of
December, any Rent Adjustments due Landlord shall be prorated.
H. Notwithstanding the foregoing, Tenant shall not be obligated to pay its
Proportionate Share of real estate Taxes monthly, but shall make such payment to
Landlord within ten (10) business days after the delivery by Landlord to Tenant
of any invoice for Taxes along with a copy of the bill for the applicable real
estate Taxes, or make such payment directly to the DuPage County Treasurer
within said time period
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in the event Tenant's Proportionate Share is one hundred percent (100%) at
any time during the Term. Upon the occurrence of any Event of Default,
Tenant's rights under this Section 5.2 H shall terminate and monthly Tax
Deposits shall be paid as provided above. In the event that Tenant fails to
pay the real estate Taxes when due, Tenant shall pay the full amount due,
including, but not limited to, interest and penalties.
I. In the event that Tenant is not reasonably satisfied with the
landscaping and snow removal service being performed pursuant to this
Lease, Tenant shall, upon notice to Landlord, but subject to any contract
previously entered into between Landlord and the applicable service
provider, cause the landscaping and snow removal service for the Project to
be performed in a manner, by contractors and at a cost reasonably
acceptable to Landlord. Thereafter, Landlord shall have no further
obligation to provide landscaping or snow removal service at the Project.
Section 5.3. Interest and Late Charges on Late Payments. Tenant
acknowledges that its late payment of any Rent will cause Landlord to incur
certain costs and expenses not contemplated under this Lease, the exact amount
of which is extremely difficult or impracticable to fix. Such costs and expenses
will include, without limitation, loss of use of money, administrative and
collection costs and processing and accounting expenses. Therefore, if any
installment of monthly Base Rent is not received by Landlord within ten (10)
days of the date when due or any other sum due hereunder is not paid within ten
(10) days of the date when due, Tenant shall immediately pay to Landlord a late
charge equal to three percent (3%) of the unpaid amount. In the event Tenant
does not pay any sums due hereunder within one (1) month of the due date
thereof, an additional late charge equal to one and one-half percent (1 1/2%) of
the amount due shall be immediately paid to Landlord, and Landlord may charge an
additional one and one-half percent (1 1/2%) of the amount due for each
additional month or fraction thereof, during which any amount due remains
outstanding. Landlord and Tenant agree that this late charge represents a
reasonable estimate of costs and expenses incurred by Landlord from, and is fair
compensation to Landlord for, its loss suffered, by such non-payment by Tenant.
Acceptance of the late charge shall not constitute a waiver of Tenant's default
with respect to such non-payment by Tenant or prevent Landlord from exercising
any other rights and remedies available to Landlord under this Lease. Failure to
pay the late charge shall constitute a default under this Lease.
ARTICLE VI
----------
Utilities
---------
Section 6.1. Utilities. Tenant shall pay, directly to the appropriate
supplier, all costs of natural gas, electricity, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Premises. Landlord shall, at Landlord's sole cost and expense,
separately meter the units in the Building. If, however, at any time, any
services or utilities are not separately metered, Landlord shall make a
reasonable determination of Tenant's share thereof and the cost thereof shall be
included in Expenses. Landlord shall not in any way be liable or responsible to
Tenant for any cost or damage or expense which Tenant may sustain or incur if
either the quality or character of such service is changed or is no longer
available or suitable for Tenant's requirements.
ARTICLE VII
-----------
Use
---
Section 7.1. Use. The Premises shall be used for the Use only, and for no
other purpose.
Section 7.2. Prohibited Uses. Tenant shall not permit the Premises, or any
other portion of the Project, to be used in such manner which impairs Landlord's
right, title or interest in the Project or any portion
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thereof, or in such manner which gives rise to a claim or claims of adverse
possession or of a dedication of the Project or any portion thereof for public
use. Tenant shall not use or occupy the Premises or permit the Project, in whole
or in part, to be used or occupied, or do or permit anything to be done in or on
the Project, in whole or in part, in a manner which would in any way violate any
certificate of occupancy affecting the Project, or make void or voidable any
insurance then in force with respect thereto, or which may make it impossible to
obtain fire or other insurance thereon or which would render the insurance risk
more hazardous, or which will cause or be apt to cause the structural injury to
the Project or any part thereof, or which would cause the value of the Project
or any part thereof to diminish, and shall not use or occupy or permit the
Project to be used or occupied, in whole or in part, in a manner which may
violate and shall comply with any present or future, ordinary or extraordinary,
foreseen or unforeseen, Legal Requirements, whether or not Landlord also is
liable for compliance. Tenant will not do or permit or suffer any public or
private waste, damage, impairment or injury to or upon the Project or any part
thereof.
Section 7.3. No Implied Permission. Except as otherwise expressly provided
herein, nothing in this Lease contained shall authorize Tenant to do or permit
or suffer any act which shall in any way encumber the fee title of Landlord in
and to the Project or any interest therein. The title, interest or estate of
Landlord in the Project shall not be in any way subject to any claim by way of
lien or encumbrance, whether arising by operation of law or by virtue of an
express or implied contract by Tenant. Any claim to a lien or encumbrance upon
the Project arising from any act of omission of Tenant shall accrue only against
the Tenant's leasehold estate and shall in all respects be subject and
subordinate to the paramount title and right of Landlord in and to the Premises
and the Project. Every person furnishing, manufacturing or preparing any
material, fixtures, apparatus or machinery for, or on account of, the Premises
or any other improvements now or hereafter erected, or the appurtenances or
furnishings therein, or performing any labor or services in, upon or about the
Premises, or the improvements or appurtenances, or dealing in any way with
Tenant or anyone claiming by, through or under Tenant shall take and be held
charged with notice of this condition, and shall have and acquire no lien upon
Landlord's estate or interest through the furnishing of such material, fixtures,
apparatus, machinery, labor or services.
Section 7.4. Rules and Regulations. In amplification and not in limitation
of the foregoing provisions of Article VII, Tenant shall not permit any portion
of the Premises to be used by any person or persons or by the public, as such,
at any time or times during the Term in such manner as might reasonably tend to
impair title to the Project or any portion thereof, or in such manner as might
reasonably make possible a claim or claims of adverse use, adverse possession,
prescription, dedication or other similar claims of, in, to or with respect to
the Premises or any part thereof or estate therein. The Landlord may from time
to time impose upon Tenant, such reasonable rules or regulations not
inconsistent with the provisions of this Lease.
ARTICLE VIII
------------
Maintenance of Premises
-----------------------
Section 8.1. Maintenance.
A. Tenant's Maintenance. Except for the Landlord's maintenance
obligations set forth in Section 8.1 B hereof, Tenant agrees, at Tenant's sole
cost and expense, to take good care of the Premises and keep and maintain same
and all parts thereof, including, but not limited to, all floors, floor
coverings, windows, glass, plate glass, ceilings, interior and demising walls,
doors, electrical systems, lighting fixtures and equipment, plumbing systems and
fixtures, sprinkler systems, heating, ventilating and air conditioning systems,
loading docks, areas and doors, rail space areas, fences and signs, and all
other pipes, mains, water, sewer and gas connections and all other fixtures,
machinery, apparatus, equipment and appurtenances now or hereafter belonging to,
connected with or used in conjunction with the Premises together with any and
all alterations and additions thereto, in good order, condition and repair,
suffering no waste or injury. Tenant shall, at its sole cost and expense,
promptly make all necessary repairs and replacements, ordinary as well as
extraordinary, foreseen as well as unforeseen, in and to any equipment
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now or hereafter located in the Premises, including, but not limited to, all
floors, floor coverings, windows, glass, plate glass, ceilings, interior and
demising walls, doors, electrical systems, lighting fixtures and equipment,
plumbing systems and fixture, sprinkler systems, heating, ventilating and air
conditioning systems, loading docks, areas and doors, rail space areas, fences
and signs, connections, pipes, mains, water, sewer and connections, and all
other fixtures, machinery, apparatus equipment and appurtenances now or
hereafter belonging to, connected with or used in conjunction with the Premises.
All such maintenance, repairs and replacements shall be of first class quality
and sufficient for the proper maintenance and operation of the Premises. Tenant
shall keep and maintain the Premises safe, secure and clean, specifically
including, but not by way of limitation, removal of waste and refuse matter.
Tenant shall not permit anything to be done upon the Premises (and shall perform
all maintenance and repairs thereto so as not) to invalidate, in whole or in
part, or prevent the procurement of any insurance policies which may, at any
time, be required under the provisions of this Lease. Tenant shall not obstruct
or permit the obstruction of any parking area, adjoining street or sidewalk.
B. Landlord's Maintenance. Landlord shall make, or cause to be made, all
maintenance, repairs and necessary replacements to the Common Areas. The cost of
such maintenance, repairs and replacements shall be a part of Expenses.
Landlord shall also make, or cause to be made, all repairs and necessary
replacements to the "structural components" (as hereinafter defined) of the
Building. For purposes of this lease, the phrase "structural components" shall
mean the roof, skylights, structural components of the exterior walls (excluding
windows, doors and overhead doors, but including window frames and door frames)
and foundation of the Building. The cost of such repairs and replacements shall
be the sole responsibility of Landlord except to the extent such costs arise as
a result of any act or omission of Tenant or any person, firm or entity claiming
by, through or under any of them, in which event, the cost therefor shall be
paid by Tenant as Additional Rent within thirty (30) days after Landlord bills
Tenant therefor from time to time.
Section 8.2. Governmental Requirements. Tenant at its own cost and expense
also shall promptly comply with any and all requirements of any Governmental
Authority to or affecting the Premises or any part thereof, irrespective of the
nature of the work required to be done, extraordinary as well as ordinary,
whether or not the same involve or require any structural changes or additions
in or to the Building and irrespective of whether or not such changes or
additions be required on account of any particular use to which the Premises or
any part thereof are being put. Included in the obligations set forth above, but
not in limitation thereof, Tenant, at its own cost and expense, shall promptly
comply with OSHA regulations relating to overhead cranes (CFR 1910-179(j)(2) and
184(d), CFR 1910-179(j)(3), CFR 1910-179(e)(1) through (4) and CFR 1910-
179(b)(5)), if applicable. Notwithstanding the foregoing, Landlord shall cause
the Initial Improvements to be constructed in compliance with all applicable
Legal Requirements.
Section 8.3. Tenant's Responsibilities. Except as set forth in Section
8.1.B. hereof, Landlord shall not be required to furnish any services or
facilities whatsoever to the Premises.
ARTICLE IX
----------
Insurance
---------
Section 9.1. Coverage Required. Tenant shall procure and maintain, or
cause to be maintained, at all times during the term of this Lease, at Tenant's
sole cost and expense, and until each and every obligation of Tenant contained
in the Lease has been fully performed, the types of insurance specified below,
with insurance companies authorized to do business in the State of Illinois
covering all operations under this Lease, whether performed by Tenant or by
Contractors hired by Tenant.
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A. IN GENERAL. Upon the Warehouse Commencement Date, tenant shall
procure and maintain the following kinds and amounts of insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE INSURANCE.
Worker's Compensation and Occupational Disease Insurance, in statutory
amounts. Employer's liability coverage with limits of not less than
$100,000 each accident or illness shall be included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND UMBRELLA).
Commercial Liability Insurance or equivalent with limits of not less than
$5,000,000 per occurrence, combined single limit, for bodily injury,
personal injury, and property damage liability. Products/completed
operation, independent contractors, broad form property damage and
contractual liability coverages are to be included. Landlord is to be named
as additional insureds on a primary, non-contributory basis for any
liability, arising directly or indirectly from this Lease.
(iii) CONTENTS INSURANCE. Insurance against fire, sprinkler leakage,
vandalism, and the extended coverage perils for the full insurable value of
all contents of Tenant within the Premises, and of all office furniture,
trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises.
B. CONSTRUCTION. During any construction performed by or at the direction
of Tenant, Tenant shall procure and maintain, or cause to be maintained, the
following kinds and amounts of insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE INSURANCE.
Worker's Compensation and Occupational Disease Insurance, in statutory
amounts. Employer's liability coverage with limits of not less than
$500,000 for each accident or illness shall be included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND UMBRELLA).
Commercial Liability Insurance or equivalent with limits of not less than
$5,000,000 per occurrence, combined single limit, for bodily injury,
personal injury, and property liability. Products/completed operations,
explosion, collapse, underground, independent contractors, broad form
property damage and contractual liability coverages are to be included.
Landlord is to be named as an additional insured on a primary non-
contributory basis for any liability arising directly or indirectly from
the Lease.
(iii) ALL RISK BUILDERS RISK INSURANCE. Tenant shall provide All Risk
Blanket Builder's Risk Insurance to cover the materials, supplies,
equipment, machinery and fixtures that are or will be part of the Project.
Coverage extensions shall include the following: right to partial
occupancy, material stored off-site and in-transit, boiler and machinery,
earthquake, flood (including surface water backup), collapse, water damage,
debris removal, faulty workmanship or materials, testing, mechanical-
electrical breakdown and failure, deletion of freezing and temperature
exclusions, business interruption, extra expense, loss of revenue, loss of
rents and loss of use of property, as applicable, Landlord shall be named
as loss payee.
(iv) PROFESSIONAL LIABILITY. When any architects, engineers, or
consulting firms perform work in connection with this Lease costing in
excess of $25,000.00, Professional Liability Insurance shall be maintained
with limits of $1,000,000. When policies are renewed or replaced, the
policy retroactive date must coincide with, or precede, start of work.
Section 9.2. POLICIES. All insurance policies shall be written with
insurance companies and shall be in form reasonably satisfactory to Landlord.
All insurance policies (except for worker's compensation) shall name Landlord as
an additional insured and loss payee as their respective interests may appear
and shall provide that
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<PAGE>
they may not be terminated or modified without thirty (30) days' advance written
notice to Landlord. All policies shall also contain an endorsement that
Landlord, although named as additional insured, shall nevertheless be entitled
to recover for damages caused by the negligence of Tenant. The minimum limits of
insurance specified in this Section shall in no way limit or diminish Tenant's
liability under this Lease. Tenant shall furnish to Landlord, on or prior to the
Warehouse Commencement Date such insurance required to be carried by Tenant, and
thereafter prior to the expiration of each such policy, true and correct
photocopies of all insurance policies required under this Section, together with
any amendments and endorsements to such policies, certificates of insurance, and
such other evidence of coverages as Landlord may reasonably request, and
evidence of payment of all premiums and other expenses owed in connection
therewith. Upon Tenant's default in obtaining or delivering the policy for any
such insurance or Tenant's failure to pay the charges therefor, Landlord may, at
its option, on or after the tenth (lOth) day after written notice thereof is
given to Tenant, procure or pay the charges for any such policy or policies and
the total cost and expense (including attorneys' fees) thereof shall be
immediately paid by Tenant to Landlord as Additional Rent upon receipt of a bill
therefor.
Section 9.3. Subrogation. Landlord and Tenant agree to have all fire and
extended coverage which may be carried by either of them endorsed with a clause
providing that any release from liability of or waiver of claim for recovery
from the other party or any of the parties named in Section 9.2 above entered
into in writing by the insured thereunder prior to any loss or damage shall not
affect the validity of said policy or the right of the insured to recover
thereunder, and providing further that the insurer waives all rights of
subrogation which such insurer might have against the other party or any of the
parties named in Section 9.2 above. Without limiting any release or waiver of
liability or recovery contained in any other Section of this Lease but rather in
confirmation and furtherance thereof. Landlord and any beneficiaries of Landlord
waive all claims for recovery from Tenant, and Tenant waives all claims for
recovery from Landlord, any beneficiaries of Landlord and the managing agent for
the Project and their respective agents, partners and employees, for any loss or
damage to any of its property insured under valid and collectible insurance
policies to the extent of any recovery collectible under such insurance
policies. Notwithstanding the foregoing or anything contained in this Lease to
the contrary, any release or any waiver of claims shall not be operative, nor
shall the foregoing endorsements be required, in any case where the effect of
such release or waiver is to invalidate insurance coverage or invalidate the
right of the insured to recover thereunder or increase the cost thereof
(provided that in the case of increased cost the other party shall have the
right, within ten (10) days following written notice, to pay such increased
cost, thereby keeping such release or waiver in full force and effect).
Section 9.4 Miscellaneous Insurance Provisions. Landlord and Tenant agree
as follows:
A. Both parties hereto expressly understand and agree that any
insurance coverages furnished by them and the limits of any such insurance
coverage shall in no way limit the liabilities and responsibilities of the
parties specified under the Lease, or contracts executed relating to the
Project, or by law.
B. The failure of either party to obtain evidence of insurance from
the other party shall not be deemed to be a waiver by either party, and
both parties shall remain under their respective continuing obligation to
maintain the insurance coverage required under this Lease.
C. Any and all deductibles on insurance coverages referenced in this
Article IX shall be borne by Tenant. The deductible under Landlord's
property insurance shall in no event exceed $25,000.00.
D. Tenant expressly understands and agrees that any insurance
maintained by Landlord shall apply in excess of and not contribute with
insurance provided by the Tenant under the Lease.
E. If Tenant desires additional coverage, higher limits of liability,
or other modifications for their own protection, Tenant shall be
responsible for the acquisition and cost of such additional protection.
15
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F. Neither party shall violate nor permit to be violated any of the
conditions or provisions of any of their respective insurance policies, and both
parties shall so perform and satisfy or cause to be performed and satisfied the
requirements of the companies writing such policies so that at all times
companies of good standing, and in the case of Tenant's insurance, companies
satisfactory to Landlord shall be willing to write and continue such insurance.
G. Landlord shall not be limited in the proof of any damages which
Landlord may claim against Tenant arising out of or by reason of Tenant's
failure to provide and keep in force insurance, as aforesaid, to the amount of
the insurance premium or premiums not paid or incurred by Tenant and which would
have been payable under such insurance, but Landlord shall also be entitled to
recover as damages for such breach the uninsured amount of any loss, to the
extent of any deficiency in the insurance required by the provisions of this
Lease, and damages, costs and expenses of suit suffered or incurred by
reason of damage to, or destruction of, the Project or the Premises occurring
during any period when Tenant or Contractors shall have failed or neglected to
provide insurance as aforesaid.
H. The insurance required by this Lease, at the option of Landlord or
Tenant with respect to the insurance policies they obtain, may be effected by
blanket or umbrella policies issued covering the Premises and other properties
owned or leased by Landlord or Tenant, as applicable, provided that the policies
otherwise comply with the provisions of this Lease and allocate to the Premises
the specified coverage, without possibility of reduction or coinsurance by
reason of, or damage to, any other premises covered therein.
I. All insurance companies shall have a Best rating of not less than
A/VII, or an equivalent ratio in the event Best ceases to exist or provide a
rating.
J. Tenant shall provide and keep in force such other insurance in such
amounts as may from time to time be reasonably required by Landlord or a holder
of a Mortgage (defined in Section 23.1 hereof) against such other insurable
hazards as at the time are commonly insured against in the case of prudent
owners of properties similar to the Project and the Premises, and in that
connection Landlord may require changes in the forms, types and amounts of
insurance required pursuant to this Section or add to, modify or delete other
requirements; and in any event, if under applicable law, rule, regulation or
ordinance of any governmental authority, state or federal, having jurisdiction
in the Premises, liability may be imposed upon Landlord on account of the use or
operation of the Premises or the Project or other improvements, insurance within
limits reasonably satisfactory to Landlord shall be maintained by Tenant against
any such liability.
K. The required insurance to be carried by Landlord and Tenant hereunder
shall not be limited by any limitations expressed in the indemnification
language herein or any limitation placed on the indemnity therein given as a
matter of law.
Section 9.5. Landlord's Insurance. Landlord shall maintain, at all times
during the term of the Lease, property, rent loss and liability insurance and
such other insurance required of Landlord in the amounts and under the terms
customarily carried by Landlord for similar buildings owned by it in the Chicago
metropolitan area. The cost of all such insurance shall be an Expense. Landlord
shall provide evidence of such insurance to Tenant upon the written request of
Tenant, but in no event on more than one occasion during any calendar year.
16
<PAGE>
ARTICLE X
---------
Damage or Destruction
---------------------
Section 10.1. Total Destruction. In the event that in excess of fifty
percent (50%) of the Premises or Building are made untenantable by fire or other
casualty and Landlord shall decide not to restore or repair same, then, in any
of such events, Landlord shall have the right to terminate this Lease by notice
to Tenant given within thirty (30) days after the date of such fire or other
casualty and the Rent shall be apportioned on a per diem basis and paid to the
date of such fire or other casualty. In the event the Premises are made
untenantable by fire or other casualty and Landlord shall decide to rebuild and
restore the same or, to the extent Section 10.3 is applicable and neither
Landlord nor Tenant elects to terminate this Lease pursuant to said Section
10.3, this Lease shall not terminate and Landlord shall repair and restore the
Premises at Landlord's expense and with due diligence within one hundred eighty
(180) days of the date of the fire or other casualty, subject, however to
extension for Force Majeure Delays. In the event that the repair or restoration
is not substantially complete within the required time period, Tenant may
terminate this Lease upon notice to Landlord within five (5) business days after
the expiration of said required time period.
Section 10.2. Partial Destruction. In the event that fifty percent (50%)
or less of the Premises or Building are damaged by fire or other casualty, then
Landlord shall proceed with all due diligence to repair and restore the Premises
within one hundred eighty (180) days of the date of the fire or other casualty,
subject, however, to extension for Force Majeure Delays. In such event, Rent
shall abate in proportion to the non-useability of the Premises during the
period while repairs are in progress unless such partial damages are due to the
fault or neglect of Tenant. If the partial damage is the result of the fault or
neglect of Tenant, Rent shall not abate during said period.
Section 10.3. Lease Termination. If in excess of fifty percent (50%) of
the Premises are damaged by fire or other casualty as aforesaid during the last
eighteen (18) months of the Term hereof, Landlord and Tenant shall each have the
right to terminate this Lease upon notice to the other within thirty (30) days
of the date of fire or other casualty, in which event, Rent shall be apportioned
on a per diem basis and paid to the date of such fire or other casualty.
ARTICLE XI
----------
Liens
-----
Section 11.1. Lien Claims. Tenant shall not do any act which shall in any
way encumber the interest or estate of Landlord in and to the Project or any
portion thereof, nor shall any interest or estate of Landlord in the Project or
any portion thereof be in any way subject to any claim by way of lien or
encumbrance, whether by operation of law or by virtue of any express or implied
contract by Tenant, and any claim to or lien upon the Project or any portion
thereof arising from any act or omission of Tenant shall accrue only against the
leasehold estate of Tenant and shall in all respects be subject and subordinate
to the paramount title and rights of Landlord in and to the Project or any
portion thereof. Tenant will not permit the Project or any portion thereof to
become subject to any mechanics', laborers' or materialmen's lien on account of
labor or material furnished to Tenant or claimed to have been furnished to
Tenant in connection with work of any character performed or claimed to have
been performed on the Premises by or at the direction of sufferance of Tenant;
provided, however that Tenant shall have the right to contest in good faith and
with reasonable diligence, the validity of any such lien or claimed lien if
Tenant shall first give to Landlord a surety bond or title endorsement
reasonably acceptable to Landlord or an amount equal to one hundred twenty
percent (120%) of the amount of the lien or claimed lien which, together with
interest earned thereon, shall be held by Landlord as security to insure payment
thereof and to prevent any sale, foreclosure or forfeiture of the Premises by
reason of non-payment thereof. If a cash deposit is made, the amount so
deposited with
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Landlord shall be held by Landlord in an account established at a federally
insured banking institution until satisfactory removal of said lien or claim of
lien. On any final determination of the lien or claim for lien, Tenant will
immediately pay any judgment rendered, with all proper costs and charges, and
will, at its own expense, have the lien released and any judgment satisfied.
Should Tenant fail to diligently contest and pursue such lien contest, Landlord
may, at its option, file a claim against any surety or title company or use the
sums so deposited to discharge any such lien upon the renewal of such lien or
encumbrance Landlord shall pay all such sums remaining on deposit to
Tenant.
Section 11.2. Landlord's Right to Cure. If Tenant shall fail to contest
the validity of any lien or claimed lien or fail to give security to Landlord to
insure payment thereof, or shall fail to prosecute such contest with diligence,
or shall fail to have the same released and satisfy any judgment rendered
thereon, then Landlord may, at its election (but shal1 not be so required)
remove or discharge such lien or claim for lien (with the right, in its
discretion, to settle or compromise the same), and any amounts advanced by
Landlord, including reasonable attorneys' fees, for such purposes shall be so
much additional rent due from Tenant to Landlord at the next rent date after any
such payment, with interest thereon at the Lease Interest Rate from the date so
advanced.
ARTICLE XII
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TENANT ALTERATIONS
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Section 12.1. Alterations. Tenant shall not at any time during the Term
of this Lease (i) make any openings in or other alteration or improvement to the
roof or exterior walls of the Building, (ii) make any alteration, addition or
improvement to the Premises or any portion thereof without in each instance, the
prior written consent of Landlord which affect any Building system, or exceed
TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00) in costs in the aggregate
in any twelve (12)-month period (hereinafter collectively referred to as
"Alterations"). Subject to compliance with all of the provisions of this Lease,
Landlord consents to the installation of a floor mounted conveyor and a racking
system in the warehouse portion of the Premises. Landlord shall not unreasonably
withhold or delay its consent to other Alterations made by Tenant. No
Alterations to the Premises for which Landlord's consent is required shall be
commenced by Tenant until Tenant has furnished Landlord with a satisfactory
certificate or certificates from an insurance company acceptable to Landlord,
evidencing insurance coverage required under Section 9.1 hereof. Any Alterations
by Tenant hereunder shall be done in a good and workmanlike manner in compliance
with any Legal Requirements applicable governmental law, statute, ordinance or
regulation. Upon completion of any Alteration by Tenant hereunder, Tenant shall
furnish Landlord with a copy of the "as built" plans covering such construction.
Tenant, at its sole cost and expense, will make all Alterations on the Premises
which may be necessary by the act or neglect of any other person or corporation
(public or private), except Landlord, its agents, employees or contractors.
Before commencing any Alterations, involving an estimated cost of more than
TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00): (a) plans and
specifications therefor, prepared by a licensed architect, shall be submitted to
and approved by Landlord within ten (10) business days after submission to
Landlord (such approval shall not be unreasonably withheld or delayed); (b)
Tenant shall furnish to Landlord an estimate of the cost of the proposed work;
(c) all contracts for any proposed work shall be submitted to and approved by
Landlord; (d) evidence of insurance as required by Article IX hereof; and (e)
such other requirements as Landlord may reasonably require to be satisfied.
Prior to the commencement of any construction activity for which Landlord's
consent shall be required, certificates of such insurance coverages shall be
provided to Landlord and renewal certificates shall be delivered to Landlord
prior to the expiration date of the respective policies.
It shall be reasonable for Landlord to disapprove an Alteration if such
Alterations would (i) change the general design or structure of the Project or
any part thereof; (ii) decrease the size of the Project or any part thereof;
(iii) reduce or impair, to any material extent, the value, rentability of the
Premises or constitute waste; or
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(iv) give to any owner, lessee or occupant of any other property or to any other
person or corporation any easement, right-of-way or any other right over the
Premises.
Any Alteration shall be made with reasonable dispatch and in a good and
workmanlike manner and in compliance with all applicable permits and
authorizations and buildings and zoning laws and with all other Legal
Requirements. If any work does not comply with the provisions of this Lease,
Landlord may, by notice to Tenant, require that Tenant stop the work and take
steps necessary to cause corrections to be made, or Landlord may, itself,
perform the work, at Tenant's cost.
Section 12.2. Ownership of Alterations. All Alterations (except Tenant's
Equipment, as defined in Section 19.2 hereof), put in at the expense of Tenant
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises as a part thereof at the termination of this Lease, or at
Landlord's option, provided Landlord shall have advised Tenant in writing at
the time of its consent to said Alteration is sought that same must be removed
and the Premises restored to its original condition.
Section 12.3. Tenant Signs. Tenant shall not place any signs on any part
of the Building or Land without the prior written consent of Landlord. Upon
notice to and with the consent of Landlord, which consent shall not be
unreasonably withheld, Tenant may place the signs located on the exterior of its
current building (or a similar signs) on the exterior wall of the Premises and
install a monument sign at the Rohlwing Road entrance to the Project, provided
that (i) the installation and dimensions of said signs are in strict accordance
with Legal Requirements; (ii) Tenant continually maintains said signs in a
first-class manner and (iii) Tenant, at Tenant's sole cost and expense, pays
the costs associated with the installation and maintenance of the signs and
removes said signs at the expiration of the Term and restores the area in which
said signs are placed to its condition prior to the installation of said signs,
ordinary wear and tear excepted. If Landlord installs a monument sign at the
Thorndale Road entrance to the Project to be shared by all tenants in the
Building, Tenant's name shall be listed on the monument sign. Notwithstanding
the foregoing, no signage shall be permitted on the roof of the Building and no
advertising shall be permitted (except within the interior of the Premises).
Section 12.4. Environmental Impact. Notwithstanding any other term,
covenant or condition contained in this Lease, in the event that any Alteration
has any environmental impact on the Premises, Landlord may deny the Tenant the
right to proceed in Landlord's sole and absolute discretion.
ARTICLE XIII
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Condemnation
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Section 13.1. Taking: Lease to Terminate. If a portion of the Building or
the Premises shall be lawfully taken or condemned for any public or quasi-public
use or purpose, or conveyed under threat of such condemnation and as a result
thereof the Premises cannot be used for the same purpose and with the same
utility as before such taking or conveyance, the Term of this Lease shall end
upon, and not before, the date of the taking of possession by the condemning
authority, and without apportionment of the award. Tenant hereby assigns to
Landlord, Tenant's interest in such award, if any. Current Rent shall be
apportioned as of the date of such termination. If any part of the Building
shall be so taken or condemned, or if the grade of any street or alley adjacent
to the Building is changed by any competent authority and such taking or change
of grade makes it necessary or desirable to demolish, substantially remodel, or
restore the Building, the Landlord shall have the right to cancel this Lease
upon not less than ninety (90) days' prior notice to the date of cancellation
designed in the notice.
Section 13.2. Taking: Lease to Continue. In the event only a part of
the Premises shall be taken as a result of the exercise of the power of eminent
domain or condemned for a public or quasi-public use or
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purpose by any competent authority or sold to the condemning authority under
threat of condemnation, and as a result thereof the balance of the Premises can
be used for the same purpose as before such taking, sale or condemnation, this
Lease shall not terminate and Landlord, at its sole cost and expense up to the
amount of any condemnation award, shall promptly repair and restore the
Premises, subject to Force Majeure Delay. Any award paid as a consequence of
such taking, sale or condemnation, shall be paid to Landlord. Any sums not so
disbursed shall be retained by Landlord.
SECTION 13.3 Tenant's Claim. To the extent permitted by law and subject
to the rights of any lender with respect to the Premises, Tenant shall be
allowed to pursue a claim against the condemning authority (hereinafter referred
to as the "Tenant's Claim") that shall be independent of and wholly separate
from any action, suit or proceeding relating to any award to Landlord for
reimbursement of relocation expenses or for Tenant's Equipment and personal
property, provided: (i) Tenant's Claim shall in no way limit, affect, alter or
diminish in any kind or way whatsoever Landlord's award as a result of such
taking, sale or condemnation; (ii) Tenant's Claim shall in no event include any
claim for any interest in real property, it being expressly understood and
agreed that all sums paid with respect to the real property interests taken,
sold or condemned shall be the sole property of Landlord; and (iii) Tenant's
Claim shall in no event be joined with Landlord's proceeding or argued or heard
concurrently therewith and if the tribunal hearing Tenant's Claim orders such
joinder, Tenant agrees to voluntarily dismiss Tenant's Claim without prejudice
until such time as Landlord has received its award for such taking, sale or
condemnation.
ARTICLE XIV
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Assignment -- Subletting by Tenant
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SECTION 14.1. No ASSIGNMENT, SUBLETTING OR OTHER TRANSFER. Tenant shall
not assign this Lease or any interest hereunder, nor shall Tenant sublet or
permit the use or occupancy of the Premises or any part thereof by anyone other
than Tenant, without the express prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. No assignment or
subletting shall relieve Tenant of its obligations hereunder, and Tenant shall
continue to be liable as a principal and not as a guarantor or surety, to the
same extent as though no assignment or sublease had been made, unless
specifically provided to the contrary in Landlord's consent. Consent by Landlord
pursuant to this Article shall not be deemed, construed or held to be consent to
any additional assignment or subletting, but each successive act shall require
similar consent of Landlord. Landlord shall be reimbursed by Tenant for any
costs or expenses incurred pursuant to any request by Tenant for consent to any
such assignment or subletting. In the consideration of the granting or denying
of consent, Landlord may, at its option, take into consideration: (i) the
business reputation and credit worthiness of the proposed subtenant or assignee;
(ii) any required alteration of the Premises; (iii) the intended use of the
Premises by the proposed subtenant or assignee; and (iv) any other factors which
Landlord shall deem relevant.
SECTION 14.2. OPERATION OF LAW. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge or encumber this Lease or any interest hereunder.
SECTION 14.3. EXCESS RENTAL. If Tenant shall, with Landlord's prior
consent as herein required, sublet the Premises, an amount equal to fifty
percent (50%) of the rental in excess of the Base Rent and any additional rent
herein provided to be paid shall be for benefit of Landlord and shall be paid to
Landlord promptly when due under any such subletting as additional rent due
hereunder.
SECTION 14.4. MERGER OR CONSOLIDATION. If Tenant is a corporation whose
stock is not publicly traded, any transaction or series of transactions
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
any capital stock of Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions)
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resulting in the transfer of control of Tenant, shall be deemed to be a
voluntary assignment of this Lease by Tenant subject to the provisions of this
Article XIV. If Tenant is a partnership or limited liability company, any
transaction or series of transactions (including without limitation any
withdrawal or admittance of a partner or member or a change in any partner's or
member's interest in Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, shall be deemed to be a voluntary assignment of
this Lease by Tenant subject to the provisions of this assignment of this Lease
by Tenant subject to the provisions of this Article XIV. If Tenant is a
corporation whose stock is not publically traded, a change or series of changes
in ownership of stock which would result in direct or indirect change in
ownership by the stockholders or an affiliated group of stockholders of less
than twenty-five percent (25%) of the outstanding stock as of the date of the
execution and delivery of this Lease shall not be considered a change of
control. Notwithstanding the immediately foregoing, Tenant may, upon notice to,
but without Landlord's consent, assign this Lease to any corporation resulting
from a merger or consolidation of Tenant, provided that the total assets and the
total net worth of such assignee after such consolidation or merger shall be in
excess of the greater of (i) the net worth of Tenant immediately prior to such
consolidation or merger, or (ii) the net worth of Tenant as of the date hereof,
determined by generally accepted accounting principles and provided that Tenant
is not at such time in default hereunder, and provided further that such
successor shall execute an instrument in writing, acceptable to Landlord in its
reasonable discretion, fully assuming all of the obligations and liabilities
imposed upon Tenant hereunder and deliver the same to Landlord. Tenant shall
provide in its notice to Landlord such information as may be reasonably required
by Landlord to determine that the requirements of this Section 14.4 have been
satisfied. As used in this Section 14.4, the term "control" means possession of
the power to vote not less than a majority interest of any class of voting
securities and partnership or limited liability company interests or to direct
or cause the direction of the management or policies of a corporation, or
partnership or limited liability company through the ownership of voting
securities, partnership interests or limited liability company interests,
respectively.
Section 14.5. Unpermitted Transaction. Except as expressly otherwise
provided in this Lease, any assignment, subletting, use, occupancy, transfer or
encumbrance of this Lease or the Premises without Landlord's prior written
consent shall be of no effect and shall, at the option of Landlord, constitute a
default under this Lease.
ARTICLE XV
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Financial Statements
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Section 15.1. Financial Statements. Tenant agrees to furnish Landlord
annually, within ninety (90) days of the end of such fiscal year with a copy of
its annual report.
ARTICLE XVI
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Indemnity for Litigation
------------------------
Section 16.1. Indemnity for Litigation. Tenant agrees to pay, and to
indemnify and defend Landlord against, all costs and expenses (including
reasonable attorneys' fees) incurred by or imposed upon Landlord by or in
connection with any litigation to which Landlord becomes or is made a party due
to the act or omission of Tenant or any member of the Tenant Group, whether
commenced by or against Tenant, or any other person or entity or that may be
incurred by Landlord in enforcing any of the covenants and agreements of this
Lease with or without the institution of any action or proceeding relating to
the Premises or this Lease, or in obtaining possession of the Premises after an
Event of Default hereunder or upon expiration or earlier termination of this
Lease. The foregoing notwithstanding, Tenant's responsibility under this Section
16.1 to pay Landlord's costs and expenses (including reasonable attorneys' fees)
shall not extend to such costs and expenses incurred in defending an action
brought by Tenant to enforce the terms of this Lease in which there is a court
determination that Landlord failed to perform its
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obligations under this Lease. The provisions of this Section 16.1 shall survive
the expiration or earlier termination of this Lease.
Section 16.2. Landlord's Indemnity. Landlord agrees to pay, and to
indemnify and defend Tenant against all costs and expenses (including reasonable
attorney's fees) incurred by or imposed upon Tenant by or in connection with any
litigation to which Tenant becomes or is made a party due to the act or omission
of Landlord, whether commenced by or against Landlord, or any other person or
entity or that may be incurred by Tenant in enforcing any of the Landlord's
covenants and agreements of this Lease with or without the institution of any
action or proceeding relating to the Premises or this Lease. The foregoing
notwithstanding, Landlord's responsibility under this Section 16.2 to pay
Tenant's costs and expenses (including reasonable attorneys' fees) shall not
extend to such costs and expenses incurred in defending an action brought by
Landlord to enforce the terms of this Lease in which there is a court
determination that Tenant failed to perform its obligations under this Lease.
The provisions of this Section 16.2 shall survive the expiration or earlier
termination of this Lease.
ARTICLE XVII
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Estoppel Certificates
---------------------
Section 17.1. Estoppel Certificate. Tenant agrees that on the Commencement
and at any time and from time to time thereafter, upon not less than ten (10)
days' prior written request by Landlord, it will execute, acknowledge and
deliver to Landlord, or Landlord's mortgagee to the extent factually accurate, a
statement in writing in the form of Exhibit "D" attached hereto and by this
reference incorporated herein; provided, however, Tenant agrees to certify to
any prospective purchaser or mortgagee any other reasonable information
specifically requested by such prospective purchaser or mortgagee.
ARTICLE XVIII
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Inspection of Premises
----------------------
Section 18.1. Inspections. Tenant agrees to permit Landlord and any
authorized representatives of Landlord, to enter the Premises at all reasonable
times on reasonable advance notice, except in the case of emergency, for the
purpose of inspecting the same. Any such inspections shall be solely for
Landlord's purposes and may not be relied upon by Tenant or any other person.
Section 18.2. Landlord Signs. Tenant agrees to permit Landlord and any
authorized representative of Landlord to enter the Premises at all reasonable
times during business hours on reasonable advance notice to exhibit the same for
the purpose of sale, mortgage or lease. Landlord may display on the Premises
customary "For Sale" signs and during the final year of the Term hereof or any
extension thereof, Landlord may display on the Premises customary for "For Rent"
signs.
ARTICLE XIX
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Fixtures
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Section 19.1. Building Fixtures. All improvements and all plumbing,
heating, lighting, electrical and air-conditioning fixtures and equipment, and
other articles of personal property used in the operation of the Premises (as
distinguished from operations incident to the business of Tenant), whether or
not attached or
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affixed to the Premises (hereinafter referred to as "Building Fixtures"), shall
be and remain a part of the Premises and shall constitute the property of
Landlord.
SECTION 19.2. Tenant's Equipment. All of Tenant's trade fixtures and all
personal property, fixtures, apparatus, machinery and equipment now or hereafter
located upon the Premises, other than Building Fixtures, as shall be and remain
the personal property of Tenant, and the same are herein referred to as
"Tenant's Equipment."
SECTION 19.3. Removal of Tenant's Equipment. Tenant's Equipment may be
removed from time to time by Tenant; provided, however, that if such removal
shall injure or damage the Premises, Tenant shall repair the damage and place
the Premises in the same condition as it would have been if such Tenant's
Equipment had not been installed.
ARTICLE XX
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Default
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SECTION 20.1. Events of Default. Tenant agrees that any one or more of the
following events shall be considered "Events of Default" as said term is used
herein:
A. If an order, judgment or decree shall be entered by any court
adjudicating Tenant a bankrupt or insolvent, or approving a petition
seeking reorganization of Tenant or appointing a receiver, trustee or
liquidator of Tenant, or of all or a substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for
any period of sixty (60) days; or
B. Tenant shall file an answer admitting the material allegations of
a petition filed against Tenant in any bankruptcy, reorganization or
insolvency proceeding or under any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, arrangements,
composition or extension; or
C. Tenant shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver, trustee or
liquidator of Tenant, or any of the assets of Tenant; or
D. Tenant shall file a voluntary petition in bankruptcy, or shall
admit in writing its inability to pay its debts as they come due, or shall
file a petition or an answer seeking reorganization or arrangement with
creditors or take advantage of any insolvency law; or
E. A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated within
sixty (60) days from the date of entry or granting thereof; or
F. Tenant shall vacate the Premises or abandon same during the Term
hereof; or
G. Tenant shall default in making any payment of Rent or other
payment required to be made by Tenant hereunder when due as herein
provided; or
H. If Tenant shall suffer or permit any lien or encumbrance (subject
to Tenant's right to contest liens as provided in Section 11.1 hereof) to
attach to the Premises or the Project, and Tenant shall not discharge said
lien or encumbrance within thirty (30) days or within ten (10) days prior
to any sale or disposition or forfeiture pursuant to such execution,
whichever date shall first occur, or
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I. If Tenant shall fail to carry all required insurance under this
Lease; or
J. Any material misrepresentation (including by omission) made by
Tenant in this Lease; or
K. If Tenant shall fail to comply with an order of a court of
competent jurisdiction or proper order of a Governmental Authority within
the required time period which order directly relates to Tenant and the
Project; or
L. Failure to pay Taxes as provided in Section 5.2 H hereof.
M. If Tenant shall default in the performance of any covenant,
promise or agreement on the part of Tenant contained in this Lease not
otherwise specified in this Section 20.1 and such default shall continue
for thirty (30) days after notice thereof in writing by Landlord to Tenant,
or if such default or condition which gives rise thereto cannot with due
diligence and good faith be cured within such thirty (30)-day period, if
Tenant shall not in good faith and within the period of thirty (30) days
commence the curing of such default and pursue the curing of such default
continuously and diligently and in good faith to the end that such default
shall be cured within such minimum period in excess of thirty (30) days as
may be reasonably necessary to cure such default through pursuing such cure
promptly, diligently, continuously and in good faith; provided, however,
that such additional period beyond thirty (30) days shall not apply to a
default that creates a clear and present danger to persons or property or
materially adversely affects the Premises or the Project or if the failure
or default by Tenant is one for which Landlord (or any officer or other
agent or beneficial or other owner thereof) may be subject to fine or
imprisonment.
Upon the occurrence of any one or more of such Events of Default, Landlord
may at its election terminate this Lease or terminate Tenant's right to
possession only, without terminating this Lease. Upon termination of this Lease
or of Tenant's right to possession, Tenant shall immediately surrender
possession and vacate the Premises, and deliver possession thereof to Landlord.
Upon termination of this Lease, Landlord shall be entitled to recover as
liquidated damages because the parties hereto recognize that as of the date
hereof actual damages are not ascertainable and are of imprecise calculation and
not as a penalty, all Rent and other sums due and payable by Tenant through the
date of termination plus (i) an amount equal to sixty percent (60%) of the Rent
and other sums provided herein to be paid by Tenant for the residue of the Term,
and (ii) the costs of performing any other covenants to be performed by Tenant.
If Landlord elects to terminate Tenant's right to possession only, without
terminating this Lease, Landlord may, at Landlord's option, enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as hereinabove provided, without such entry and
possession terminating this Lease or releasing Tenant, in whole or in part from
Tenant's obligations to pay the Rent hereunder for the full Term or from any
other obligations of Tenant under this Lease. Landlord shall use commercially
reasonably efforts to relet all or any part of the Premises for such rent and
upon terms as are commercially reasonable (including the right to relet the
Premises for a term greater or lesser than that remaining of the Term of
premises and the right to relet the Premises as a part of a larger area, the
right to change the character or use made of the Premises and the right to grant
concessions of free rent). For the purpose of such reletting, Landlord may
decorate or make any repairs, changes, alterations, or additions in or to the
Premises that may be necessary or desirable. If Landlord is unable to relet the
Premises after using such commercially reasonably efforts to do so, Landlord
shall have the right to terminate this Lease, in which event, Tenant shall pay
to Landlord liquidated damages as provided in the immediately preceding
grammatical paragraph. If the Premises are relet and sufficient sums shall not
be realized from such reletting after payment of all expenses of such
decorations, repairs, changes, alterations, additions and the expenses of
repossession and such reletting, and the collection of the Rent herein provided
and other payments required to be made by Tenant under the provisions of this
Lease for the remainder of the Term of this Lease then, in such event, Tenant
shall pay to Landlord on demand any such deficiency and Tenant agrees that
Landlord may file suit to
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recover any sums falling due under the terms of this Section from time to time,
and all costs and expenses of Landlord, including reasonable attorneys' fees,
incurred in connection with any such suit shall be paid by Tenant.
SECTION 20.2. Bankruptcy. If Landlord shall not be permitted to terminate
this Lease, as provided in this Article XX because of the provisions of the
United States Code relating to Bankruptcy, as amended (hereinafter referred to
as the "Bankruptcy Code"), then Tenant as a debtor-in-possession or any trustee
for Tenant agrees promptly, within no more than sixty (60) days after the
filing of the bankruptcy petition, to assume or reject this Lease. In such
event, Tenant or any trustee for Tenant may only assume this Lease if: (a) it
cures or provides adequate assurance that the trustee will promptly cure any
default hereunder; (b) compensates or provides adequate assurance that Tenant
will promptly compensate Landlord of any actual pecuniary loss to Landlord
resulting from Tenant's default; and (c) provides adequate assurance of
performance during the fully stated term hereof of all of the terms, covenants,
and provisions of this Lease to be performed by Tenant. In no event after the
assumption of this Lease shall any then-existing default remain uncured for a
period in excess of the earlier of ten (10) days or the time period set forth
herein. Adequate assurance of performance of this Lease, as set forth
hereinabove, shall include, without limitation, adequate assurance: (i) of the
source of rent reserved hereunder; and (ii) that the assumption of this Lease
will not breach any provision hereunder.
If Tenant assumes this Lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth: (i) the name
and address of such person; (ii) all of the terms and conditions of such offer,
and (iii) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including, without limitation, the assurance
referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to
Landlord by the Tenant no later than twenty (20) days after receipt by the
Tenant but in any event no later than ten (10) days prior to the date that the
Tenant shall make application to a court of competent jurisdiction for authority
and approval to enter into such assignment and assumption, and Landlord shall
thereupon have the prior right and option, to be exercised by notice to the
Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code any and all monies or other considerations
payable or otherwise to be delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of the Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting the Landlord's property under the
preceding sentence not paid or delivered to the Landlord shall be held in trust
for the benefit of Landlord and shall be promptly paid to the Landlord.
Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be conclusively deemed without further
act or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption. Any
such assignee shall be permitted to use the Leased Premises only for the Use.
Nothing contained in this Section shall, in any way, constitute a waiver of
the provisions of Article XIV of this Lease relating to alienation. Tenant shall
not, by virtue of this Section, have any further rights relating to assignment
other than those granted in the Bankruptcy Code. Notwithstanding anything in
this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated as rent, shall
constitute rent for the purpose of Section 501(b)(6) or any successive section
of the Bankruptcy Code.
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SECTION 20.3. RE-ENTRY. Tenant agrees, upon receipt of notice of
termination, to at once surrender possession of the Premises, the Project and
related improvements to Landlord. Tenant expressly waives (to the full extent
permitted by law) the service of any other notice of intention to terminate this
Lease or of intention to re-enter which may be presently provided for by any
statute or other law or any future amendment or similar statute or law (so long
as, in the case of a future amendment or statute or law, the remedies to be
exercised by Landlord are not substantially different than remedies presently
available to Landlord), and agrees that the occurrence of any Event of Default
shall of itself, upon service of the notice above provided for, constitute a
forcible detainer by Tenant of the Premises within the meaning of the statutes
of the State of Illinois. No receipt of money by Landlord from Tenant after any
termination, howsoever occurring, of this Lease shall reinstate, continue or
extend the Term of this Lease.
ARTICLE XXI
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Landlord's Performance of Tenant's Covenant
-------------------------------------------
SECTION 21.1. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. In the
event Tenant shall fail to maintain any insurance required to be paid by it
under the terms hereof, or in an Emergency Situation or upon occurrence of an
Event of Default, Landlord may (but shall not be obligated so to do), and
without waiving or releasing Tenant from any obligation of Tenant hereunder,
make any payment or perform any other act which Tenant is obligated to make or
perform under this Lease in such manner and to such extent as Landlord may deem
desirable; and in so doing Landlord shall also have the right to enter upon the
Premises for any purpose reasonably necessary in connection therewith and to pay
or incur any other necessary and incidental costs and expenses, including
reasonable attorneys' fees. All sums so paid and all liabilities so incurred by
Landlord, together with interest thereon at the rate per annum which is the
lesser of (i) the Lease Interest Rate or (ii) the highest rate permitted by law
shall be deemed Additional Rent hereunder and shall be payable to Landlord upon
demand as Additional Rent. Landlord shall use reasonable efforts to give prior
notice (which may be oral) of its performance, if reasonably feasible under the
circumstances. The performance of any such obligation by Landlord shall not
constitute a waiver of Tenant's default in failing to perform the same. Inaction
of Landlord shall never be considered as a waiver of any right accruing to it
pursuant to this Lease. Landlord, in making any payment hereby authorized: (a)
relating to Taxes, may do so according to any bill, statement or estimate,
without inquiry into the validity of any tax, assessment, sale, forfeiture, tax
lien or title or claim thereof; (b) for the discharge, compromise or settlement
of any lien, may do so without inquiry as to the validity or amount of any claim
for lien which may be asserted; or (c) in connection with the completion of
construction of improvements to the Premises or the repair, maintenance or the
payment of operating costs thereof, may do so in such amounts and to such
persons as Landlord reasonably may deem appropriate. Nothing contained herein
shall be construed to require Landlord to advance monies for any purpose.
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant or any other occupant of
the premises or the Project or any part thereof, by reason of making repairs or
the performance of any work on the Premises or the Project or on account of
bringing materials, supplies and equipment into or through the Premises or the
Project during the course thereof and the obligations of Tenant under this Lease
shall not thereby be affected in any manner. In doing so, however, Landlord
shall use reasonable efforts not to interfere with the normal operation of the
Project. The term "Emergency Situation" shall mean a situation which has caused
or is likely to cause bodily injury to persons, contamination of or physical
damage to the Premises or adjoining property or economic liability or criminal
jeopardy to Landlord.
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ARTICLE XXII
-------------
Exercise of Remedies
--------------------
SECTION 22.1. CUMULATIVE REMEDIES. No remedy contained herein or otherwise
conferred upon or reserved to Landlord, shall be considered exclusive of any
other remedy, but the same shall be cumulative and shall be in addition to every
other remedy given herein, now or hereafter existing at law or in equity or by
statute, and every power and remedy given by this Lease to Landlord may be
exercised from time to time and as often as occasion may arise or as may be
deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
construed to be a waiver of any such default or an acquiescence therein.
SECTION 22.2. NO WAIVER. No waiver of any breach of any of the covenants of
this Lease shall be construed, taken or held to be a waiver of any other
breach, or a waiver, acquiescence in or consent to any further or succeeding
breach of the same covenant. The acceptance by Landlord of any payment of Rent
or other sums payable hereunder after the termination by Landlord of this Lease
or of Tenant's right to possession hereunder shall not, in the absence of
agreement in writing to the contrary by Landlord, be deemed to restore this
Lease or Tenant's right to possession hereunder, as the case may be, but shall
be construed as a payment on account and not in satisfaction of damages due from
Tenant to Landlord. Receipt of Rent by Landlord, with knowledge of any breach of
this Lease by Tenant or of any default by Tenant in the observance or
performance of any of the conditions or covenants of this Lease, shall not be
deemed to be a waiver of any provision of this Lease.
SECTION 22.3. EQUITABLE RELIEF. In the event of any breach or threatened
breach by Tenant of any of the agreements, terms, covenants or conditions
contained in this Lease, Landlord shall be entitled to enjoin such breach or
threatened breach and shall have the right to invoke any right and remedy
allowed at law or in equity or by statute or otherwise as though re-entry,
summary proceedings, and other remedies were not provided for in this Lease.
ARTICLE XXIII
-------------
Subordination to Mortgages
--------------------------
SECTION 23.1. SUBORDINATION. Landlord may execute and deliver a mortgage
or trust deed in the nature of a mortgage ("Mortgage") against its interest in
the Project or any portion thereof. This Lease and all of the rights of Tenant
hereunder, shall automatically, and without the requirement of the execution of
any further documents, be and are hereby made expressly subject and subordinate
at all times to the lien of any Mortgage and to all advances made or hereafter
to be made upon the security thereof. Provided the holder of said Mortgage
agrees in writing not to disturb the rights of Tenant under this Lease so long
as Tenant is not in default hereunder, Tenant agrees to execute and deliver such
instruments subordinating this Lease to the lien of any such Mortgage as may be
requested in writing by Landlord from time to time. Notwithstanding anything to
the contrary contained herein, any mortgagee under a Mortgage may, by notice in
writing to the Tenant, subordinate its Mortgage to this Lease.
SECTION 23.2. MORTGAGE PROTECTION. Tenant agrees to give the holder of any
Mortgage, by registered or certified mail, a copy of any notice of default
served upon the Landlord by Tenant, provided that prior to such notice Tenant
has received notice (by way of service on Tenant of a copy of an assignment of
rents and leases, or otherwise) of the address of such mortgagee and containing
a request therefor. Tenant further agrees that if Landlord shall have failed to
cure such default within the time provided for in this Lease, then said
mortgagee shall have an additional thirty (30) days after receipt of notice
thereof within which to cure such default or, if such default cannot be cured
within that time, then such additional time as may be necessary, if, within such
thirty (30) days, any mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not
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limited to commencement of foreclosure proceedings, if necessary to effect such
cure). Until the time allowed as aforesaid for said mortgagee to cure such
defaults has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of default. This Lease may not be modified or
amended so as to reduce the Rent or shorten the Term, or so as to adversely
affect in any other respect to any material extent the rights of the Landlord or
Tenant, without the prior written consent, in each instance, of the mortgagee.
ARTICLE XXIV
------------
INDEMNITY AND WAIVER
--------------------
SECTION 24.1. TENANT INDEMNITY. Tenant shall not do or permit any act or
thing to be done or omit to do any act or thing upon the Premises or Project
which may subject Landlord to any liability or responsibility for injury, damage
to persons or property, or to any liability by reason of any violation of Legal
Requirements and shall exercise such control over the Premises so as to fully
protect Landlord against any such liability. Tenant shall defend, indemnify and
save Landlord, and any official, agent, beneficiary, contractor, director,
employee, lessor, mortgagee, officer, parent, partner, shareholder and trustee
of Landlord (each an "INDEMNIFIED PARTY") representatives, successors and
assigns harmless from and against any and all liabilities, suits, judgments,
settlements, obligations, fines, damages, penalties, claims, costs, charges and
expenses, including, without limitation, engineers', architects' and attorneys'
fees, court costs and disbursements, which may be imposed upon or incurred by or
asserted against any Indemnified Party by reason of any of the following
occurring during or after (but attributable to a period of time falling within)
the Term:
A. any demolition or razing or construction of any improvements or
any other work or thing done in, on or about the Premises or any part
thereof by Tenant or any member of the Tenant Group, including any claim
that such work constitutes "public works";
B. any use, nonuse, possession, occupation, alteration, repair,
condition, operation, maintenance or management of the Premises or any
part thereof or of any tunnel, creek, ditch, detention area, sidewalk, curb
or vault adjacent thereto by Tenant or any member of the Tenant Group;
C. any act or failure to act on the part of Tenant or any member of
the Tenant Group;
D. any accident, injury (including death) or damage to any person or
property occurring in, on or about the Premises or any part thereof or in,
on or about any tunnel, creek, ditch, detention area, sidewalk, curb or
vault adjacent thereto as a result of the act or neglect of Tenant or any
member of the Tenant Group;
E. any failure to perform or comply with any of the covenants,
agreements, terms or conditions in this Lease on Tenant's part to be
performed or complied with (other than the payment of money);
F. any lien or claim which may be alleged to have arisen against or
on the Premises, or any lien or claim which may be alleged to have arisen
out of this Lease and created or permitted to be created by Tenant or any
member of the Tenant Group against any assets of Landlord, or any liability
which may be asserted against Landlord with respect thereto;
G. any failure on the part of Tenant to keep, observe and perform
any of the terms, covenants, agreements, provisions, conditions or
limitations contained in the contracts and agreements affecting the
Premises on Tenant's part to be kept, observed, or performed; and
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H. any contest permitted pursuant to the provisions of this Lease.
No agreement or covenant of Tenant in this Section 24.1 shall be deemed to
exempt Landlord from, and Tenant's obligations under this Section 24.1 shall not
include liability or damages for injury to persons or damage to property caused
by or resulting from the negligence of Landlord, its agents or employees, in the
construction, operation or maintenance of the Premises.
The obligations of Tenant under this Section 24.1 shall not be affected in
any way by the absence in any case of covering insurance or by the failure or
refusal of any insurance carrier to perform any obligation on its part under
insurance policies affecting the Premises or any part thereof.
Section 24.2. Waiver of Claims. Tenant waives all claims it may have
against Landlord and Landlord's agents for damage or injury to person or
property sustained by Tenant or any member of the Tenant Group or by any
occupant of the Premises, or by any other person, resulting from any part of the
Premises becoming out of repair, or resulting from any accident on or about the
Premises or resulting directly or indirectly from any act or neglect of any
person (excluding Landlord). This Section 24.2 shall include, but not by way of
limitation, damage caused by water, snow, frost, steam, excessive heat or cold,
sewage, gas, odors, or noise, or caused by bursting or leaking pipes or plumbing
fixtures, and shall apply equally whether any such damage results from the act
or neglect of Tenant or of any other person (excluding Landlord), and whether
such damage be caused or result from anything or circumstance above mentioned or
referred to, or to any other thing or circumstance whether of a like nature or
of a wholly different nature. All Tenant's Equipment and other personal property
belonging to Tenant or any occupant of the Premises that is in or on any part of
the Premises shall be there at the risk of Tenant or of such other person only,
and Landlord shall not be liable for any damage thereto or for the theft or
misappropriation thereof.
Section 24.3. Landlord's Indemnity. Landlord will protect, indemnify and
save Tenant, its officers, directors and their respective successors and assigns
harmless from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation,
reasonable attorneys' fees and expenses) imposed upon, incurred by or asserted
against Tenant by reason of any accident, injury to or death of persons or loss
of or damage to property occurring on or about the Premises or any part thereof
resulting from the negligent act or omission of Landlord or anyone claiming by,
through or under Landlord.
ARTICLE XXV
-----------
Surrender
---------
Section 25.1. Condition. Upon the termination of this Lease whether by
forfeiture, lapse of time or otherwise/upon, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises to Landlord, broom clean, in good order, condition and repair,
reasonable wear and tear excepted. "Broom clean" means free from all debris,
dirt, rubbish, personal property of Tenant, oil, grease, tire tracks or other
substances, inside of the Premises. Any damage caused by removal of Tenant from
the Premises, including any damages caused by removal of Tenant's Equipment, as
herein defined, shall be repaired and paid for by Tenant prior to the expiration
of the Term.
All Alterations temporary or permanent, excluding Tenant's Equipment, in or
upon the Premises placed there by Tenant, shall become Landlord's property
and shall remain upon the Premises upon such termination of this Lease by lapse
of time or otherwise, without compensation or allowance or credit to Tenant,
unless Landlord requests their removal. If Landlord so requests removal of
said additions, hardware, alterations or improvements and Tenant does not make
such removal by the termination of this Lease, or within ten (10) days after
such request, whichever is later, Landlord may remove the same and deliver the
same to any other place of business of Tenant
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or warehouse same, and Tenant shall pay the cost of such removal, delivery and
warehousing to Landlord on demand.
SECTION 25.2. REMOVAL OF TENANT'S EQUIPMENT. Upon the termination of this
Lease by lapse of time, or otherwise, Tenant may remove Tenant's Equipment
provided, however, that Tenant shall repair any injury or damage to the Premises
which may result from such removal. If Tenant does not remove Tenant's Equipment
from the Premises prior to the end of the Term, however ended, Landlord may, at
its option, remove the same and deliver the same to any other place of business
of Tenant or warehouse the same, and Tenant shall pay the cost of such removal
(including the repair of any injury or damage to the Premises resulting from
such removal), delivery and warehousing to Landlord on demand, or Landlord may
treat tenant's equipment as having been conveyed to Landlord with this Lease as
a Bill of Sale, without further payment or credit by Landlord to Tenant.
SECTION 25.3. HOLDOVER. If Tenant retains possession of the Premises or any
part thereof after the termination of the Term, by lapse of time and otherwise,
then Tenant shall pay to Landlord monthly rent, at one hundred fifty percent
(150%) the rate payable for the month immediately preceding said holding over
(including increases for additional rent which Landlord may reasonably
estimate), computed on a per-month basis, for each month or part thereof
(without reduction for any such partial month) that Tenant thus remains in
possession, and in addition thereto, Tenant shall pay Landlord all damages,
consequential as well as direct, sustained by reason of Tenant's retention of
possession. Alternatively, at the election of Landlord expressed in a written
notice to Tenant and not otherwise, if Tenant holds over for more than forty-
five (45) days such retention of possession shall constitute a renewal of this
Lease for six (6) months, at a monthly rental equal to one hundred twenty
percent (120%) of the monthly Base Rent payable in the last month of the Term.
The provisions of this paragraph do not exclude the Landlord's rights of
re-entry or any other right hereunder. Any such extension or renewal shall be
subject to all other terms and conditions herein contained.
ARTICLE XXVI
------------
COVENANT OF QUIET ENJOYMENT
---------------------------
SECTION 26.1. COVENANT OF QUIET ENVIRONMENT. Landlord covenants that
Tenant, on paying the Rent and all other charges payable by Tenant hereunder,
and on keeping, observing and performing all the other terms, covenants,
conditions, provisions and agreements herein contained on the part of Tenant to
be kept, observed and performed. all of which obligations of Tenant are
independent of Landlord's obligations hereunder, shall, during the Term,
peaceably and quietly have, hold and enjoy the Premises subject to the terms,
covenants, conditions, provisions and agreement hereof free from hindrance by
Landlord or any person claiming by, through or under Landlord.
ARTICLE XXVII
-------------
No Recording
------------
SECTION 27.1. NO RECORDING. Neither this Lease nor any memorandum or other
short form hereof shall be recorded.
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ART1CLE XXVIII
--------------
NOTICES
-------
SECTION 28.1. NOTICES. All notices, consents, approvals to or demands upon
or by Landlord or Tenant desired or required to be given under the provisions
hereof, shall be in writing. Any notices or demands from Landlord to Tenant
shall be deemed to have been duly and sufficiently given if a copy thereof has
been personally served, forwarded by expedited messenger or recognized overnight
courier service with evidence of delivery or mailed by United States registered
or certified mail in an envelope properly stamped and addressed to Tenant at
Tenant's Mailing Address, or at such other address as Tenant may theretofore
have furnished by written notice to Landlord, with a copy to Donald F. Engel
Schwartz & Freeman, 401 North Michigan Avenue, Suite 1900, Chicago, Illinois
60611. Any notices or demands from Tenant to Landlord shall be deemed to have
been duly and sufficiently given if forwarded by expedited messenger or
recognized overnight courier service with evidence of delivery or mailed by
United States registered or certified mail in an envelope properly stamped and
addressed to Landlord at Landlord's Mailing Address, with a copy to Mark S.
Richmond Katz Randall & Weinberg, 333 West Wacker Drive, Suite 1800, Chicago,
Illinois 60606, or at such other address as Landlord may theretofore have
furnished by written notice to Tenant. The effective date of any such notice
shall be the date of actual delivery, except that if delivery is refused, the
effective date of notice shall be the date delivery is refused.
ARTICLE XXIX
------------
COVENANTS RUN WITH LAND
-----------------------
SECTION 29.1. COVENANTS. All of the covenants, agreements, conditions and
undertakings in this Lease contained shall extend and inure to and be binding
upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto, the same as if they were in every case specifically
named and shall be construed as covenants running with the Land, and wherever in
this Lease reference is made to either of the parties hereto, it shall be held
to include and apply to, wherever applicable, the heirs, executors,
administrators successors and assigns of such party. Nothing herein contained
shall be construed to grant or confer upon any person or persons, firm,
corporation or governmental authority, other than the parties hereto, their
heirs, executors, administrators, successors and assigns, any right, claim or
privilege by virtue of any covenant, agreement, condition or undertaking in this
Lease contained.
SECTION 29.2. RELEASE OF LANDLORD. The term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of fee title to the Premises, and in the event of any transfer or
transfers of the title, Landlord herein named (and in the case of any subsequent
transfers or conveyances, the then grantor) shall be automatically freed and
relieved, from and after the date of such transfer or conveyance, of all
personal liability as respects the performance of any covenants or obligations
on the part of Landlord contained in this Lease thereafter to be performed;
provided that any funds in the hands of such Landlord or the then grantor at
the time of such transfer, in which Tenant has an interest, shall be turned over
to the grantee, and any amount then due and payable to Tenant by Landlord or the
then grantor under any provisions of this Lease, shall be paid to Tenant.
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ARTICLE XXX
-----------
Environmental Matters
---------------------
Section 30.1. Defined Terms.
A. The term "HAZARDOUS MATERIALS", when used herein, shall include, but
shall not be limited to, any substances, materials or wastes that are regulated
by any local governmental authority, the state where the Premises or the Project
is located, or the United States of America because of toxic, flammable,
explosive, corrosive, reactive, radioactive or other properties that may be
hazardous to human health or the environment, including without limitation,
above or underground storage tanks, flammables, explosives, radioactive
materials, radon, petroleum and petroleum products, petroleum products (other
than petroleum products that are normally contained in motor vehicles to the
extent such products are not released), urea formaldehyde foam insulation,
methane, lead-based paint, polychlorinated biphenyl compounds, hydrocarbons or
like substances and their additives or constituents, pesticides and any other
special, toxic or hazardous materials, wastes, substances or materials of any
kind, including without limitation, those now or hereafter defined, determined
or identified as "hazardous substances," "hazardous materials," "toxic
substances" or "hazardous wastes" in any Environmental Law.
B. "ENVIRONMENTAL LAW" shall mean any Federal, state or local law,
statute, ordinance, code, rule, regulation, policy, common law, license,
authorization, decision, order, injunction, which pertains to health, safety,
any Hazardous Material, or the environment (including but not limited to ground
or air or water or noise pollution or contamination, and underground or above-
ground tanks) and shall include, without limitation, the Resource Conservation
and Recovery Act ("RCRA"), 42 U.S.C. (S)6901 et seq., as amended by the
Hazardous and Solid Waste Amendments of 1984; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)9601 et seq.
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"); the Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. (S)1251 et seq.; the
Clean Air Act, 42 U.S.C. (S)7401 et seq.; the Toxic Substances Control Act, 15
U.S.C. (S)2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)300f et seq.;
the Illinois Environmental Protective Act, 415 ILSC 4/1 et seq.; the Municipal
Code of the City of Chicago; the Clean Air Act (42 U.S.C. (S)7401 et seq.,
"CAA"); the Rivers and Harbors Act, (33 U.S.C. (S)401 et seq., "RHA"); the
Emergency Planning and Community Right-to-Know Act of 1986 (41 U.S.C. 11001 et
seq.. "EPCRA"), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
136 to 136y); the Oil Pollution Act of 1990 (33 U.S.C. 2701 et seq., "OPA"); and
the Occupational Safety and Health Act (29 U.S.C. 651 et seq., "OHSA"); and any
other local, state or federal environmental statutes, and all rules,
regulations, orders and decrees now or hereafter promulgated under any of the
foregoing, as any of the foregoing now exist or may be changed or amended or
come into effect in the future.
C. "ENVIRONMENTAL CLAIM" shall mean and include any demand, notice of
violation, inquiry, cause of action, proceeding or suit for damages (including
reasonable attorneys' and experts' fees), losses, injuries to person or
property, damages to natural resources, fines, penalties, interest, cost
recovery, compensation, or contribution resulting from or in any way arising in
connection with any Hazardous Material or any Environmental Law.
D. "PRE-EXISTING CONDITION" shall mean the presence of any Hazardous
Material on the Premises, to the extent such Hazardous Material was not
introduced onto the Premises after the Commencement Date.
E. "ENVIRONMENTAL CONDITION" shall mean the existence of any Hazardous
Material on the Premises other than a Pre-Existing Condition, (i) in violation
of, or requiring cleanup under, any Environmental Law or the provisions of this
Article XXX; or (ii) which subjects Landlord to liability for any Environmental
Claim or which must be remediated to prevent Landlord from incurring liability
as a result of such Environmental Claim.
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F. "Environmental Remediation" shall mean any investigative, cleanup,
removal, containment, remedial or other action relating to an Environmental
Condition (i) required pursuant to any Environmental Law, or (ii) necessary to
prevent Landlord from incurring, or relieve Landlord from, liability as a result
of an Environmental Claim.
G. "Remediating Party" shall mean that party which has elected (or is
deemed to have elected) to perform any Environmental Remediation.
Section 30.2. Tenant's Covenants with Respect to Environmental Matters.
During the Term, Tenant, at its sole cost and expense, shall:
A. comply with all Environmental Laws relating to the use and
operation of the Premises;
B. keep the Premises free of Hazardous Materials not used in the
ordinary course of Tenant's business as of the date hereof;
C. not exacerbate a Pre-Existing Condition of which Tenant becomes
aware;
D. in the case of an Environmental Condition promptly, but not later
than three (3) business days after the discovery of an Environmental
Condition, notify Landlord of the Environmental Condition;
E. not install or operate any above or below ground tank, sump, pit,
pond, lagoon or other storage or treatment vessel or device on the
Premises without first obtaining Landlord's prior written consent;
F. not handle, use, generate, treat, dispose of or permit the use,
handling, generation, treatment, storage or disposal of any Hazardous
Materials in, on, under, around or above the Premises or Project at any
time during the Term.
Section 30.3. Conduct of Tenant. If Tenant, with the prior written
authorization of Landlord, which authorization may be granted or denied by
Landlord in its sole and absolute discretion generates, uses, transports,
stores, treats or disposes of any Hazardous Materials:
A. Tenant shall, at its own cost and expense, comply with all
Environmental Laws relating to Hazardous Materials;
B. Tenant shall (i) not dispose of any Hazardous Materials in
dumpsters or trash containers or at any other location at the Project; (ii)
not discharge any Hazardous Materials into drains or sewers; (iii) not
cause or allow the release, discharge, emission or run-off of any Hazardous
Materials to air, to surface waters, to the land, to ground water, whether
directly or indirectly; (iv) at Tenant's own cost and expense, arrange for
the lawful transportation and off-site disposal of all Hazardous Materials
generated by Tenant; (v) provide secondary containment around all Hazardous
Materials storage containers, storage facilities and above ground storage
tanks; (vi) conduct all necessary environmental inspections, such as, but
not limited to, asbestos inspections prior to any renovation or demolition,
as required by 40 CFR Part 61 and provide copies of all such reports to the
Landlord; (vii) comply with all reporting requirements under any local,
state or federal ordinance, statute or regulation, such as, but not limited
to, toxics inventory reporting under the Emergency Planning and Community
Right-to-Know Act, the provisions under 40 CFR Part 61, or various
regulations controlling the emissions into the atmosphere of volatile
organic compounds and provide copies of all such reports and notifications
to Landlord; and (viii) use only highly skilled people to address all
environmental issues associated with the leasehold, that such people and
all employees of the Tenant shall receive all required training or
certification under any local, state or federal law specifically mentioned
or alluded to in Section 30.1 of this Lease;
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C. Tenant shall promptly provide Landlord with copies of all
communications, permits or agreements with any governmental authority or
agency (federal, state or local) or any private entity relating in any way
to the violation or alleged violation of any Environmental Laws or to any
violation of Tenant's obligations under subparagraph (B) above;
D. Upon the written request of Landlord no more frequently than once
every year, or on any other occasion in the event that Landlord has reason
to believe an environmental problem exists at the Premises, Tenant shall
provide Landlord the results of appropriate tests of air, water and soil to
demonstrate (i) that Tenant is in compliance with all applicable laws,
rules or permits relating in any way to the presence of any Hazardous
Materials on the Premises or the Project and (ii) the lack of any releases,
discharges or emissions.
If the presence, release, threat of release, placement on or in the
Premises and/or the Project of any Hazardous Materials occurs or is caused in
whole or in part during the Term of this Lease as a result of any act or
omission of Tenant or any member of the Tenant Group, or the generation,
transportation, storage, treatment, or disposal at the Premises and/or the
Project of any Hazardous Materials occurs or is caused in whole or in part by
Tenant or any member of the Tenant Group during the Term of this Lease gives
rise to liability (including, but not limited to, a response action, remedial
action, or removal action) under any Environmental Laws or common law theory,
including, but not limited to nuisance, strict liability, negligence and
trespass, tenant shall promptly complete all Environmental Remediation necessary
and mitigate exposure to liability arising from the Hazardous Materials, whether
or not required by law.
SECTION 30.4. EXACERBATION. If Tenant exacerbates a Pre-Existing
Condition of which Tenant is aware (including as a result of Tenant's
investigative or remediation activities) during the Lease term, that the
provisions of this Article XXX shall apply to such exacerbation of the Pre-
Existing Condition, and Tenant shall perform Environmental Remediation as to
such exacerbation. Tenant shall be responsible for all fines and penalties
caused by Tenant or to the extent Tenant exacerbates a Pre-Existing Condition of
which it becomes aware (including Tenants environmental investigation or
remediation activities) at any time during the Lease Term.
SECTION 30.5. RIGHTS OF INSPECTION. Upon reasonable prior notice,
Landlord and their respective agents and representatives shall have a right of
entry and access to the Premises at any time in Landlord's discretion for the
purposes of (i) inspection of the documentation relating to Hazardous Materials
or environmental matters maintained by Tenant or occupant of the Premises; (ii)
ascertaining the nature of the activities being conducted on the Premises and
investigating whether Tenant is in compliance with its obligations under Article
XXX of this Lease; and (iii) determining the type, kind and quantity of all
materials and substances brought onto the Premises, or made or produced thereon.
Landlord and its agents and representatives shall have the right to take samples
in quantities sufficient for analysis of all materials and substances present on
the Premises including but not limited to, samples, materials or substances
brought onto or made or produced on the Premises by Tenant or occupant of the
Premises or their respective agents, employees, contractors or invitees and
shall also have the right to conduct other tests and studies as may be
reasonably determined by Landlord to be appropriate in order to investigate
whether Tenant is in compliance with its obligations under Article XXX.
SECTION 30.6. COPIES OF NOTICES. During the term of this Lease,
Tenant and Landlord shall each provide the other promptly with copies of all
summons, citations, directives, information inquiries or requests, notices of
potential responsibility, notices of violation or deficiency, orders or decrees,
Environmental Claims, complaints, investigations, judgments, letters, notices of
environmental liens or response actions in progress, and other communications,
written or oral, actual or threatened, received in the case of Tenant, by Tenant
or occupant of the Premises, or in the case of Landlord, by Landlord, from the
United States Environmental Protection Agency, Occupational Safety and Health
Administration, Illinois Environmental Protection Agency, or other federal,
state or local agency or authority, or any other entity or individual (including
both governmental and non-governmental entities and individuals), concerning (a)
any actual or alleged release of a Hazardous Material on, to or from the
Premises; (b) the imposition of any lien on the Premises relating to any
Hazardous Material; (c) any actual or alleged
34
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violation of or responsibility under Environmental Laws; or (d) any actual or
alleged liability under any theory of common law tort or toxic tort, including
without limitation, negligence, trespass nuisance, strict liability or
ultrahazardous activity.
Section 30.7. Tests and Reports.
A. Upon written request by Landlord. Tenant shall provide Landlord, at
Tenant's expense, with (i) copies of all environmental reports and tests
prepared or obtained by or for Tenant; (ii) copies of transportation and
disposal contracts (and related manifests, schedules, reports and other
information) entered into or obtained by Tenant with respect to any Hazardous
Materials; (iii) copies of any permits issued to Tenant under Environmental Laws
with respect to the Premises; (iv) prior to filing, copies of any and all
reports, notifications and other filings to be made by Tenant or occupant of the
Premises to any federal, state or local environmental authorities or agencies
and after filing, copies of such filings; and (v) any other applicable
documents and information with respect to environmental matters relating to the
Premises. Tenant shall be obligated to provide such documentation only to the
extent within Tenant's possession or control.
B. In addition, if Landlord shall ever reasonably believe that there
exists any breach by Tenant of the terms of this Article XXX, or if any
Environmental Claim is made or threatened, or if a default shall have occurred
under the Lease, or at Landlord's discretion, one (1) time per Lease Year,
Landlord shall have the right, but not the duty, to enter upon the Premises and
conduct an environmental assessment of the Premises, including, but not limited
to, a visual site inspection, review of records pertaining to the site and
interviews of Tenant's representatives or others concerning the site use and
history and other matters. The investigation may also include reasonable
subsurface or other invasive investigation of the Premises including, but not
limited to, soil borings and sampling of site soil and ground or surface water
for laboratory analysis, as may be recommended by the consultant as part of its
inspection of the Premises or based upon such other reasonable evidence of
Environmental Conditions warranting such subsurface or other invasive
investigation. Landlord shall have the right, but not the duty, to retain any
independent professional consultant to conduct any such environmental
assessment; provided, however, that Landlord agrees to limit, in the absence of
an Environmental Claim or default under this Article XXX, the number of such
environmental assessments to one (1) per Lease Year for the Lease Term. Tenant
will cooperate with the Landlord's consultant and will supply to the consultant,
promptly upon request, any information reasonably requested by Landlord to
facilitate the completion of the environmental assessment. Landlord and its
designees are hereby granted access to the Premises at any time or times, upon
reasonable notice (which may be written or oral) to perform such environmental
assessment. In exercising its right, Landlord shall use its reasonable efforts
to minimize disruption of operations at the Premises. Any costs associated with
performance of the environmental assessment, including, but not limited to, the
consultant fees and restoration of any property damaged by such environmental
assessment, shall be paid by Landlord, unless such investigation discloses an
Environmental Condition caused by Tenant or any member of the Tenant Group, in
which case Tenant shall pay such costs.
Section 30.8. Indemnification. Tenant shall reimburse, defend, indemnify
and hold Landlord and any other Indemnified Party free and harmless from and
against any and all Environmental Claims, response costs, losses, liabilities,
damages, costs and expenses, including, without limitation, loss of rental
income, loss due to business interruption, and reasonable attorneys' fees and
costs, arising out of or in any way connected with any or all of the following:
A. any Hazardous Materials (other than a Pre-Existing Condition)
which, at any time during the Term, are or were actually or allegedly
generated, stored, treated, released, disposed of or otherwise located on
or at the Premises as a result of the act or omission of Tenant or any
member of the Tenant Group (regardless of the location at which such
Hazardous Materials are now or may in the future be located or disposed
of), including, but not limited to any and all (i) liabilities under any
common law theory of tort, nuisance, strict liability, ultrahazardous
activity, negligence or otherwise based upon, resulting from or in
connection with any Hazardous Material; (ii) obligations to take response,
cleanup or corrective action pursuant to any Environmental Laws; and (iii)
the costs and expenses of investigation or remediation in
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<PAGE>
connection with the decontamination, removal, transportation, incineration
or disposal of any of the foregoing; and
B. any actual or alleged illness, disability, injury or death of any
person, in any manner arising out of or allegedly arising out of exposure
to Hazardous Materials or other substances or conditions present at the
Premises as a result of the act or omission of Tenant or any member of the
Tenant Group (including, but not limited to, ownership, operation and
disposal of any equipment which generates, creates or uses electromagnetic
files, x-rays, other forms of radiation and radioactive materials),
regardless of when any such illness, disability, injury or death shall have
occurred or been incurred or manifested itself; and
C. any actual or alleged failure of Tenant or any member of the
Tenant Group at any time and from time to time to comply with all
applicable Environmental Laws;
D. any failure by Tenant to comply with its obligations under this
Article XXX relating to an Environmental Condition for which Tenant is
Remediating Party;
E. Tenant's failure to provide all information, make all submissions,
and take all steps required by all applicable governmental authorities;
F. the imposition of any lien for damages caused by, or the
recovery of any costs for, the remediation cleanup of Hazardous Material
as a result of events that took place during the Term of this Lease as a
result of the act or omission of Tenant or any member of the Tenant Group;
G. costs of removal of any and all Hazardous Material from all or any
portion of the Premises, which Hazardous Material were placed on the
Premises during the Term of this Lease as a result of the act or omission
of Tenant or any member of the Tenant Group;
H. costs incurred to comply, in connection with all or any portion of
the Premises, with all governmental regulations with respect to Hazardous
Materials on, in, under or affecting the Premises, which Hazardous
Materials were placed on the Premises during the Term of this Lease as a
result of the act or omission of Tenant or any member of the Tenant Group;
I. any spills, discharges, leaks, escapes, releases, dumping,
transportation, storage, treatment or disposal of any Hazardous Materials
which occur during the Term of this Lease, but only to the extent that such
Hazardous Materials originated from or were or are located on the Premises
as a result of the act or omission of Tenant or any member of the Tenant
Group.
The foregoing indemnification shall not apply to any loss incurred by
Landlord as a result of a Pre-Existing Condition except to the extent any such
Pre-Existing Condition of which Tenant becomes aware is exacerbated by Tenant or
any member of the Tenant Group. The obligations of Tenant under this Section
30.8 shall survive any termination or expiration of this Lease.
Section 30.9. Tenant Acknowledgement with respect to Environmental
Matters. Tenant acknowledges that Landlord has made no representation whatsoever
regarding Hazardous Materials on or about the Premises.
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ARTICLE XXXI
------------
Expansion Option for Expansion Space
------------------------------------
SECTION 31.1. Expansion Option. Provided Tenant is not in default under
the terms and conditions of this Lease on the date the Availability Notice or
Expansion Notice (as such terms are hereinafter defined) are delivered to
Landlord or Tenant, as applicable, Tenant shall have the option (hereinafter
referred to as the "Expansion Option") to lease the portion of the Building
containing approximately 26,195 square feet of space not leased to Tenant
hereunder (hereinafter referred to as the "Expansion Space") subject to the
terms and conditions hereinafter provided. Landlord shall deliver a written
notice (herein referred to as the "Availability Notice") of the effective date
on which Tenant may lease the Expansion Space (said effective date is
hereinafter referred to as the "Expansion Date"). The Expansion Date shall be a
date during Lease Year 6 or Lease Year 7. The Availability Notice shall be sent
to Tenant at least one (1) year prior to the Expansion Date. To the extent
Tenant desires to exercise the Expansion Option, Tenant shall deliver written
notice (herein referred to as the "Expansion Notice") to Landlord at least one
hundred eighty (180) days prior to the Expansion Date. To the extent Tenant
fails to deliver to Landlord the Expansion Notice exercising the Expansion
Option at least one hundred eighty (180) days prior to the Expansion Date,
Tenant shall be deemed to have forever waived its Expansion Option. If Tenant
exercises the Expansion Option in a timely fashion, Tenant shall lease the
Expansion Space on the terms and conditions as contained in this Lease, except
(i) Tenant shall be obligated to commence paying Rent for the Expansion Space on
the Expansion Date, (ii) as of the Expansion Date (a) Annual Base Rent for the
Expansion Space shall be $137,523.75, (b) the term "Premises", as used in this
Lease, shall include the Expansion Space, and (c) the Tenant's Proportionate
Share shall be one hundred percent (100%). Tenant hereby acknowledges and agrees
the Expansion Space shall be tendered to Tenant by Landlord in its then "as-is"
condition.
If any lessee then in possession of the Expansion Space refuses or fails to
deliver possession thereof before the Expansion Date, Landlord shall use
reasonable efforts to cause such lessee to so deliver possession by prosecution
of court process and the date for such Expansion Space to be added to the
Premises shall be delayed until possession of the Expansion Space is delivered
to Tenant; however, such failure of Landlord to deliver possession of the
Expansion Space to Tenant due to the failure of the lessee then in possession to
vacate or to appropriately deliver possession of such Expansion Space to
Landlord shall not be a default of this Lease by Landlord.
The Expansion Option herein granted shall automatically terminate upon the
earliest to occur of (i) the termination of this Lease, (ii) the termination of
Tenant's rights to possession of the Premises, (iii) the assignment of this
Lease or subletting of in excess of fifty percent (50%) of the premises by
Tenant, or (iv) the failure of Tenant to timely or properly exercise the
Expansion Option as provided herein.
ARTICLE XXXII
-------------
Right of First Offer for Expansion Space
----------------------------------------
SECTION 32.1. Right of First Offer. Landlord agrees that on one (1)
occasion during the Initial Term, in the event Tenant fails to timely or
properly exercise the Expansion Option if (i) Tenant is in possession of the
Premises not having either assigned this Lease or sublet fifty percent (50%) or
more of the Premises and (ii) no Event of Default exists under the terms of this
Lease, Landlord will, before entering into any new lease for any portion of the
Expansion Space notify Tenant of the effective date (the date Landlord sends
such notice to Tenant is hereinafter referred to as the "ROFO Date") on which
Tenant may commence to lease the Expansion Space (hereinafter referred to as the
"ROFO Occupancy Date"). If Tenant exercises its rights to lease the Expansion
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Space pursuant to this Section 32.1, Tenant shall lease the Expansion Space on
the terms and conditions as contained in this Lease, except (i) Tenant shall be
obligated to commence paying Rent for the Expansion Space on the ROFO Occupancy
Date, (ii) as of the ROFO Occupancy Date (a) Annual Base Rent for the Expansion
Space shall be $137,523.75, (b) the term "Premises", as used in this Lease,
shall include the Expansion Space, and (c) the Tenant's Proportionate Share
shall be one hundred percent (100%). Tenant hereby acknowledges and agrees the
Expansion Space shall be tendered to Tenant by Landlord in its then "as-is"
condition.
If Tenant does not accept the lease terms referenced above offered by
Landlord within ten (10) business days of the ROFO Date and execute an amendment
to this Lease incorporating the Expansion Space as part of the Premises for
the remaining Term and the terms set forth above within twenty (20) business
days of the ROFO Date, then Landlord will be able to lease the Expansion Space
to any person or entity on such terms and conditions as may be acceptable to
Landlord, and Tenant's right to lease such Expansion Space shall terminate.
The provisions of this paragraph shall not include any portion of the Expansion
Space leased to a tenant of the Building pursuant to an option or right granted
to such tenant as part of its lease of space in the Building.
ARTICLE XXXIII
--------------
Renewal Option
--------------
Section 33.1. Renewal Option. Tenant shall have the option (hereinafter
referred to as the "Renewal Option") to renew the Initial Term for all of the
Premises as of the expiration date of the Initial Term, for one (1) additional
period of five (5) years (a "Renewal Term") upon the following terms and
conditions:
A. Tenant gives Landlord written notice of its exercise of the
Renewal Option at least twelve (12) months prior to the expiration of the
Initial Term.
B. Tenant is not in default under this Lease either on the date
Tenant delivers the notice required under (A) above or at any time
thereafter prior to the commencement of the Renewal Term.
C. All of the terms and provisions of this Lease (except this Article
XXXII) shall be applicable to the Renewal Term, except that Annual Base
Rent for the Renewal Term shall be an amount equal to the lesser of (i) the
sum of EIGHT HUNDRED SEVENTY-NINE THOUSAND SEVENTY-FIVE AND NO/100 DOLLARS
($879,075.00), plus one hundred fifteen percent (115%) of the Base Rent
then being paid for the Expansion Space, or (ii) the Fair Value as defined
below. The term "Fair Value" as used herein shall mean Landlord's
determination, utilizing its reasonable judgment, of an annual amount per
rentable square foot for each year of the applicable Renewal Term for which
Fair Value is being determined beginning with the first (lst) day of the
subject period that a willing, creditworthy, new non-equity tenant leasing
comparable space to Tenant's would pay and a willing, comparable landlord
of an industrial building comparable to the Building in the Chicago
metropolitan area ("Market") would accept at arm's length, giving
appropriate consideration to annual rental rate per rentable square foot,
rental escalations, length of lease term, size and location of the premises
being leased, and other generally applicable terms and conditions
prevailing for comparable space in comparable buildings located in the
Market. In the event Tenant notifies Landlord within ten (10) days after
receipt of notice of Landlord's determination of Fair Value that Tenant
disagrees with Landlord's determination, then, Landlord and Tenant shall
institute an appraisal procedure to determine the Fair Value by jointly
nominating and appointing, within ten (10) days after receipt of notice
from the other party, one appraiser who shall make a determination of the
Fair Value of the Premises. If Landlord and Tenant fail to jointly agree on
the nomination and appointment of one appraiser within said ten (10) day
period, each party shall then each nominate and appoint one appraiser
within fifteen (15) days after the end of the initial ten (10) day period
and give notice of such appointment to the other party. Upon the
appointment of the two appraisers as aforesaid, the two appraisers so
appointed
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shall jointly make a determination of the Fair Value of the Premises. If
either party fails to appoint an appraiser within said fifteen (15) day
period, the appraiser appointed by the other party shall make the
determination of the Fair Value. If the two appraisers are unable to agree
upon a determination of the Fair Value of the Premises within fifteen (15)
days after the appointment of the second appraiser, the two appraisers
shall jointly nominate and appoint a third appraiser within fifteen (15)
days after the expiration of said fifteen (15) day period and give written
notice of such appointment to both parties. In the event the two appraisers
fail to appoint such third appraiser within said fifteen (15) day period,
either party may thereafter apply to the United States District Court for
the Northern District of Illinois for the appointment of such third
appraiser. The third appraiser shall make a determination of the Fair
Value. In the event the three appraisers are unable to agree upon a
determination of the Fair Value of the Premises within fifteen (15)
days after the appointment of the third appraiser, then the Fair Value
shall be an amount equal to the average of the three values contained in
the respective written appraisals submitted by the appraisers. The
appraisers shall make their determination in writing and give notice
thereof to both parties. Each appraiser shall afford both parties a hearing
and the right to submit evidence, with the privilege of cross-examination
in connection with its determination of the Fair Value. In the event any
appraiser appointed as aforesaid shall die or become unable or unwilling to
act before completion of the appraisal, such appraiser's successor shall be
appointed in the same manner as provided above. Any appraiser appointed
hereunder shall (x) be independent of both parties (and of all persons and
entities with interest in either party); (y) have not less than five (5)
years' experience in the appraisal of real property; and (z) hold the
professional designation M.A.I., or if the M.A.I. ceases to exist, a
comparable designation from an equivalent professional appraiser
organization. All appraisal fees and expenses shall be borne equally by the
parties.
Section 33.2. "As Is" Condition. Except as otherwise expressly
provided to the contrary in this Lease, Tenant agrees to accept the Premises to
be covered by this Lease during the Renewal Term in an "as is" physical
condition and Tenant shall not be entitled to receive any allowance, credit,
concession or payment from Landlord for the improvement thereof.
Section 33.3. Amendment. In the event Tenant exercises the Renewal
Option, Landlord and Tenant shall mutually execute and deliver an amendment to
this Lease reflecting the renewal of the Term on the terms herein provided,
which amendment shall be executed and delivered promptly after the determination
of Rent to be applicable to the Renewal Term as hereinabove provided.
Section 33.4. Termination. The Renewal Options herein granted shall
automatically terminate upon the earliest to occur of (i) the expiration or
termination of this Lease, (ii) the termination of Tenant's right to possession
of the Premises, (iii) any assignment of the Lease or subletting by Tenant of in
excess of fifty percent (50%) of the Premises, or (iv) the failure of Tenant to
timely or properly exercise the Renewal Option.
Section 33.5. No Commissions. Landlord and Tenant acknowledge and
agree that no real estate brokerage commission or finder's fee shall be payable
by Landlord in connection with any exercise by Tenant of the Renewal Option
herein contained except as may be provided in any written agreement between
Landlord and Tenant's Broker.
ARTICLE XXXIV
-------------
Security Deposit
----------------
Section 34.1. Security Deposit. Tenant agrees to deposit with
Landlord, upon the execution of this Lease, the Security Deposit as security for
the full and faithful performance by Tenant of each and every term, provision,
covenant and condition of this Lease. To the extent that the Rent increases or
decreases during the Term the Security Deposit shall increase or decrease
accordingly. If Tenant defaults beyond any applicable grace and/or
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cure period in respect to any of the terms, provisions, covenants and conditions
of this Lease including, but not limited to, payment of all rental and other
sums required to be paid by Tenant hereunder, Landlord may use, apply or retain
the whole or any part of the Security Deposit for the payment of such rent in
default, for any sum which Landlord may expend or be required to expend by
reason of Tenant's default including, without limitation, any damages or
deficiency in the reletting of the Premises, whether such damages or deficiency
shall have accrued before or after re-entry by Landlord. If any of the Security
Deposit shall be so used, applied or retained by Landlord at any time or from
time to time, Tenant shall promptly, in each such instance, within five (5) days
of written demand therefor by Landlord, pay to Landlord such additional sums as
may be necessary to restore the Security Deposit to the original amount set
forth in the first Section of this Lease. If Tenant shall fully and faithfully
comply with all the terms, provisions, covenants and conditions of this Lease,
the Security Deposit, or the balance thereof, shall be returned to Tenant after
the following: (a) the time fixed as the expiration of the Term of this Lease;
(b) the removal of Tenant from the Premises; (c) the surrender of the Premises
by Tenant to Landlord in accordance with this Lease; and (d) final determination
of all amounts payable by Tenant hereunder and payment of same. Tenant shall
earn interest on the aforesaid Security Deposit at a passbook interest rate.
Interest shall be paid to Tenant upon Tenant's written request, but not more
than once during any calendar year. In the absence of evidence satisfactory to
Landlord of an assignment of the right to receive the Security Deposit or the
remaining balance thereof, Landlord may return the security deposit to the
original Tenant, regardless of one or more assignments of this Lease.
ARTICLE XXXV
------------
Miscellaneous
-------------
Section 35.1. Captions. The captions of this Lease are for convenience
only and are not to be construed as part of this Lease and shall not be
construed as defining or limiting in any way the scope or intent of the
provisions hereof.
Section 35.2. Severability. If any covenant, agreement or condition of
this Lease or the application thereof to any person, firm or corporation or to
any circumstances, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such covenant, agreement or
condition to persons, firms or corporations or to circumstances other than those
as to which it is invalid or unenforceable, shall not be affected thereby. Each
covenant, agreement or condition of this Lease shall be valid and enforceable to
the fullest extent permitted by law.
Section 35.3. Applicable Law. This Lease shall be construed and enforced
in accordance with the laws of the state where the Premises are located.
Section 35.4. Amendments in Writing. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned, except by a written
instrument, duly signed, acknowledged and delivered by the other party.
Section 35.5. Relationship of Parties. Nothing contained herein shall be
deemed or construed by the parties hereto, nor by any third party, as creating
the relationship of principal and agent or of partnership, or of joint venture
by the parties hereto, it being understood and agreed that no provision
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship other than the relationship of Landlord and Tenant.
Section 35.6. Brokerage. Tenant warrants that it has no dealings with any
real estate broker or agent in connection with this lease other than Landlord's
Broker and Tenant's Broker, and Tenant covenants to pay, hold harmless and
indemnify Landlord from and against any and all cost, expense or liability for
any
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compensation, commissions and charges claimed by any other broker or other agent
with respect to this Lease or the negotiation thereof arising out of any acts of
Tenant.
Section 35.7. No Accord and Satisfaction. No payment by Tenant or receipt
by Landlord of a lesser amount than the monthly rent herein stipulated and
additional rent shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed as accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
Section 35.8. Joint Effort. The preparation of this Lease has been a joint
effort of the parties hereto and the resulting documents shall not, solely as a
matter of judicial construction, be construed more severely against one of the
parties than the other.
Section 35.9. Waiver of Jury Trial. Landlord and Tenant hereby waive a
jury trial in action brought by the other hereunder.
Section 35.10. Time. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
Section 35.11. Landlord's Consent. Landlord's granting of any consent
under this Lease, or Landlord's failure to object to any action taken by Tenant
without Landlord's consent required under this Lease, shall not be deemed a
waiver by Landlord of its rights to require such consent for any further similar
act by Tenant. No waiver by either party of any other breach on the part of the
other of the covenants of this Lease shall be construed, taken or held to be a
waiver of any other breach or to be a waiver, acquiescence in or consent to any
further or succeeding breach of the same covenant. None of the Landlord's or
Tenant's covenants under this Lease, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord and
Tenant.
Section 35.12. No Partnership. Landlord is not, and shall not be deemed to
be, in any way or for any purpose, the partner, employer, principal, master or
agent of or with Tenant.
Section 35.13. Landlord's Liability. Notwithstanding anything to the
contrary herein contained, there shall be absolutely no personal liability
asserted or enforceable against Landlord or on any persons, firms or entities
who constitute Landlord with respect to any of the terms, covenants, conditions
and provisions of this Lease except as provided in Section 4.9 hereof, and
Tenant shall, subject to the rights of any mortgagee, look solely to the
interest of Landlord, its successors and assigns in the Premises for the
satisfaction of each and every remedy of Tenant in the event of default by
Landlord hereunder; such exculpation of personal liability is absolute and
without any exception whatsoever. If the entity constituting Landlord is a
partnership, Tenant agrees that the deficit capital account of any such partner
shall not be deemed an asset or property of said partnership.
Section 35.14. Landlord Rights. This Lease does not grant any rights to
light or air over or about the Premises. Landlord specifically excepts and
reserves to itself the use of the Common Areas, any roofs, the exterior and
structural components of the Building, all rights to the Land and improvements
below and adjacent to the improved floor level of the Building, to the
improvements and air rights above the Building and to the improvements and air
rights located outside the demising walls of the Building and to such areas
within the Building required for installation of utility lines and other
installations, and no rights with respect thereto are conferred upon Tenant.
Section 35.15. Rent Absolute. Except as otherwise expressly provided
herein, this Lease shall be deemed and construed to be a "net lease" and Tenant
agrees to pay all costs and expenses of every kind and nature whatsoever,
ordinary and extraordinary, arising out of or in connection with the ownership,
maintenance,
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repair, replacement, use and occupancy of the Premises during the Term of this
Lease, which, except for the execution and delivery hereof, would otherwise have
been payable by Landlord.
SECTION 35.16. TENANT AUTHORITY. Simultaneously with the execution and
delivery of this Lease by Tenant, Tenant shall deliver to Landlord:
A. Certified resolutions of its board of directors of Tenant
executing this Lease on behalf of Tenant authorizing the execution and
delivery of this Lease.
B. A certificate of incumbency executed by the secretary of any
corporate partner of Tenant executing this Lease on behalf of Tenant
identifying by name, office and facsimile signature the officers of Tenant.
C. A current certificate of good standing issued by the Secretary
of State of the state of incorporation of Tenant and the State of Illinois.
SECTION 35.17. PURCHASE CONTINGENCY. Landlord and Tenant acknowledge
and agree that Landlord's obligations under this Lease are expressly contingent
upon Landlord's purchase of the Land and the closing of such purchase by which
Landlord obtains fee simple title to the Land. In the event that said events
have not occurred on or before September 30, 1996, either party may terminate
this Lease upon notice to the other at any time prior to the closing of such
purchase.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date set forth above.
LANDLORD: CENTERPOINT PROPERTIES CORPORATION, a Maryland
- -------- corporation
By: /s/ Michael M. Mullen
-------------------------------------------
Its: CIO
By: /s/ Fred D. Reynolds
-------------------------------------------
Its: VP of Development
TENANT: PLAYBOY ENTERPRISES, INC., a Delaware corporation
- ------
By: /s/ Howard Shapiro
-------------------------------------------
Its: Ex. V.P.
By: /s/ Robert D. Campbell
-------------------------------------------
Its: Asst. Secretary
42
<PAGE>
EXHIBIT "A"
SITE PLAN
---------
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION OF LAND
-------------------------
PARCEL 1
LOT 10 IN BLOOMINGDALE TOWNSHIP SUPERVISOR'S ASSESSMENT PLAT NO. 1, BEING AN
ASSESSMENT PLAT OF THE NORTH 1/2 OF THE SOUTHEAST 1/4 OF SECTION 1, TOWNSHIP 40
NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN DU PAGE COUNTY,
ILLINOIS.
PARCEL 2
THE EAST 69.49 FEET OF THE NORTH LINE THEREOF OF LOT 11 IN BLOOMINGDALE TOWNSHIP
SUPERVISOR'S ASSESSMENT PLAT NO. 1 OF THE NORTH 1/2 OF THE SOUTHEAST 1/4 OF
SECTION 1, TOWNSHIP 40 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN IN
DU PAGE COUNTY, ILLINOIS.
PARCEL 3
LOT 3 IN ROHLWING/THORNDALE SUBDIVISION, BEING A SUBDIVISION IN THE SOUTHEAST
1/4 OF SECTION 1, TOWNSHIP 40 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED MAY 30, 1996 AS DOCUMENT NUMBER
R96-090148, IN DU PAGE COUNTY, ILLINOIS.
<PAGE>
EXHIBIT "C"
PRELIMINARY PLANS AND SPECIFICATIONS
------------------------------------
<PAGE>
EXHIBIT "D"
TENANT ESTOPPEL CERTIFICATE
---------------------------
Property Name: __________________________________ ("Property")
Tenant:
To: ________________________________________________
DEFINITIONS:
- -----------
Lease Date:
Landlord:
Tenant:
Security Deposit ________________________________________________
Date of Possession:
Rent Commencement Date:
Monthly Base Rent
Annual Base
Rental Amount:
Monthly Deposits:
Term:
Termination Date:
Renewal Option(s):
Square Footage:
Use:
Tenants Address
For Notices:
["Purchaser"] ["Lender"] proposes to [purchase the Property] [finance the
Property] and this Tenant Estoppel Certificate is to be made and delivered in
connection with that [purchase] [financing].
The undersigned Tenant under the above-referenced lease dated as of the
Lease Date between Landlord and Tenant ("Lease"), certifies, represents,
confirms and agrees in favor of [Purchaser] [Lender] the following:
<PAGE>
l. The above-described Lease has not been cancelled, modified, assigned,
extended or amended and contains the entire agreement between Landlord and
Tenant except as follows:
2. Rent has been paid to ____________. There is no Prepaid Rent. The
amount of the Security Deposit is as set forth above, which is currently being
held by Landlord.
3. Tenant took possession of the leased premises on the Date of
Possession, and commenced to pay rent on the Rent Commencement Date, in the
amount of the Monthly Base Rent, each payable in advance. Our current Annual
Base Rental Amount is as set forth above, payable in equal monthly installments,
subject to percentage rental, common area maintenance charges, escalation
charges and other charges in accordance with the terms and provisions of the
Lease, which as of the date hereof total the Monthly Deposit Amount, each
payable in equal monthly installments in advance. We are currently in occupancy
of the leased premises. No "discounts", "free rent", "discounted rent" or
"abatements of rent" have been agreed to or are in effect.
4. The Lease is for the Term set forth above and ending on the
Termination Date, and we have the Renewal Option(s) set forth above.
5. All space and improvements covered by the Lease have been completed
and furnished to the satisfaction of Tenant, all conditions required under the
Lease have been met, and Tenant has accepted and taken possession of the leased
premises on the Date of Possession as set forth above and presently occupies the
leased premises, presently consisting of the Square Footage as set forth above.
6. The Lease is (a) in full force and effect, and (b) free from default
by both Landlord and Tenant; and we have no claims, liens, charges or credits
against Landlord or offsets against rent.
7. The undersigned has not assigned or sublet the Lease, nor does the
undersigned hold the Property under assignment or sublease.
8. There are no other agreements written or oral, between the undersigned
and Landlord with respect to the Lease and/or the leased premises and building.
Landlord has satisfied all commitments, arrangements or understandings made to
induce Tenant to enter into the Lease, and Landlord is not in any respect in
default in the performance of the terms and provisions of the Lease, nor is
there now any fact or condition which, with notice or lapse of time or both,
would become such a default.
9. The leased premises are currently being used for the Use set forth
above.
10. Tenant is maintaining (free of default) all insurance policies that
the Lease requires Tenant to maintain.
11. Neither Landlord nor [Purchaser] [Lender] nor any of their respective
successor or assigns, has or will have any personal liability of any kind or
nature under or in connection with the Lease; and, in the event of a default by
Landlord or [Purchaser] [Lender] under the Lease, Tenant shall look solely to
Landlord's or [Purchaser's] [Lender's] interest in the building in which the
leased premises are located.
12. Tenant is not in any respect in default under the terms and provisions
of the Lease (nor is there now any fact or condition which, with notice or lapse
of time or both, would become such a default), and Tenant has not assigned,
transferred or hypothecated its interest under the Lease.
13. Tenant (i) does not have any option or preferential right to purchase
all or any part of the leased premises or all or any part of the building of
which the leased premises are a part; and (ii) does not have any right, title or
interest with respect to the leased premises other than as lessee under the
Lease.
2
<PAGE>
14. We understand that [Purchaser] [Lenderl is planning to [purchase]
[finance] the Property on which the leased premises is located to Purchaser, and
we agree to make all payments required under the Lease to [Purchaser] [Lender]
upon our receipt of notice from Landlord and/or [Purchaser] [Lender]. Further,
upon receipt of such notice, we will thereafter look to [Purchaser] [Lender] and
not Landlord as the landlord under the Lease. We agree to give all notices
required to be given by us to Landlord under the Lease to [Purchaser] [Lender]
upon our receipt of said notice.
15. The statements contained herein may be relied upon by [Purchaser]
[Lender] and by any prospective purchaser or lender of the Property.
16. If Tenant is a Corporation, the undersigned is a duly appointed
officer of the corporation signing this Agreement, and is the incumbent in the
office indicated under his or her name. If Tenant is a partnership or joint
venture, the undersigned is a duly appointed partner or officer of the
partnership or joint venture signing this certificate. In any event, the
undersigned individual is duly authorized to execute this Agreement on behalf of
Tenant.
17. Tenant (a) executes this certificate with the understanding that
[Purchaser] [Lender] is contemplating [purchasing] [financing] the Property, and
that if [Purchaser] [Lender] [purchases] [finances] the Property, [Purchaser]
[Lender] will do so in material reliance on this certificate; and (b) agrees
that the certifications and representations made herein shall survive such
acquisition.
18. The current address to which all notices to Tenant as required under
the Lease should be sent is the Tenant's Address for Notices.
19. [Purchaser's] [Lender's] rights hereunder shall inure to its
successors and assigns.
IN WITNESS WHEREOF, Tenant has executed this estoppel certificate as of
this ___ day of ______, 199_.
a
---------------------------------
-----------------
By:
-------------------------------
Its:
3
<PAGE>
[LETTERHEAD OF FCL BUILDERS, INC.]
REVISED PRELIMINARY SPECIFICATIONS OF A BUILDING FOR
PLAYBOY ENTERPRISES, INC.
SEPTEMBER 4, 1996
This outline specification, along with the attached preliminary site plan A100,
dated September 4, 1996, composite floor plan A101, dated September 4, 1996,
first floor plan A102, dated September 4, 1996, second floor plan A103, dated
September 4, 1996, exterior elevation A105, dated September 4, 1996 and
landscape plan L100, dated September 4, 1996 prepared by Cornerstone Architects,
Inc. Job No. 96020, shall define the scope of a new facility for Playboy
Enterprises, Inc.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
General Description.................................Section 1.00
Design..............................................Section 2.00
Site Work...........................................Section 3.00
Building Shell......................................Section 4.00
Interior Improvements...............................Section 5.00
H V.A.C. System.....................................Section 6.00
Plumbing............................................Section 7.00
Fire Protection.....................................Section 8.00
Electrical .........................................Section 9 00
Miscellaneous.......................................Section 10.00
</TABLE>
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<PAGE>
1.00 GENERAL DESCRIPTION
-------------------
1.10 Size of Building and Tract:
The total facility will be approximately 128,867 square feet, located
on an 8.3521 acre parcel (363,819.51 square feet) on in the southwest
quadrant of Rohlwing Road and Old Thorndale Road, Itasca, Illinois.
1.20 SIZE OF BUILDING (BY UNIT):
Playboy Enterprises, Inc. 106,038 Square Feet
Expansion Space 22,829 Square Feet
-------
Total...................... 128,867 Square Feet
=======
1.30 SIZE OF PLAYBOY ENTERPRISES, INC. (BY USE):
Office - 2 story 35,130 Square Feet
Warehouse 70,908 Square Feet
-------
Total...................... 106,038 Square Feet
=======
Please note that warehouse square footage includes:
Warehouse Office & Washrooms 700 Square Feet
Art Storage 2,000 Square Feet
Retail 1,300 Square Feet
1.40 EXPANSION AREA:
There will be additional parking expansion (beyond the initial 275
cars) for one hundred twenty-five (125) cars as per site plan
totaling 400 car capacity.
2.00 DESIGN
------
The design of the facility will be completed by registered architects
and engineers. The design will include architectural, structural,
civil, mechanical, plumbing, fire protection, electrical and
landscaping plans. The plans will be in sufficient detail to allow
issuance of a building permit by local authorities. All building
permit and tap-on fees are included.
3.00 SITE WORK
---------
3.10 Grading:
All work necessary to clear, strip, excavate, backfill and
grade the site for the proposed building construction in
accordance with recommendations of an independent soils
engineer.
-3-
<PAGE>
3.20 PAVED AREAS:
3.21 AUTOMOBILE PARKING - Two hundred seventy-five (275) initial
stalls to be provided, handicap as required. Paving to be 2
1/2" asphalt over 9" stone. Striping and concrete bumpers
(where needed) provided. Handicap signage is included.
3.22 TRUCK DRIVE - Paving to be 3" asphalt over 12" stone.
3.23 TRUCK DOCK - Paving be 8" concrete reinforced with 6" x 6" x
6/6 gauge steel mesh, on 3" compacted stone, extending 60'
from building at all depressed docks and drive-in door.
3.30 Exterior patio lunch areas, sidewalks, plazas, stoops and
pads - To be 5" concrete. broom finished over compacted stone.
3.40 Exterior Lighting - Install two (2) bollard lights to
illuminate the entry walk, 400 watt wall mounted high pressure
sodium light fixtures to illuminate car parking and truck dock
areas and 400 watt pole-mounted high pressure sodium light
fixtures to illuminate remote car parking areas in accordance
with local code requirement.
3.50 LANDSCAPING:
Provide landscaping including sodding, seeding, fine grading,
plantings, lawn irrigation, retaining wall and fence around
detention area and patio area as shown on drawings.
3.60 All necessary storm, sanitary and water connections to
existing municipal lines located at property line. All
plumbing materials to conform with local code.
3.70 Provide a fire loop around building with fire hydrants located
as required by the Village of Itasca.
3.80 Exterior electrical lines servicing adjoining building to the
northwest to be removed and rerouted as per Commonwealth
Edison design.
4.00 BUILDING SHELL
--------------
4.10 EXTERIOR WALLS:
All elevations of building to receive load bearing insulated
precast concrete wall panels. Panels to have an R value of 10.
Wall panels and accent reveals to be stained to Playboy
Enterprises, Inc.'s choice of color.
Prefinished aluminum coping to be installed on all elevations
of the building. Coping to be painted to Playboy Enterprises,
Inc.'s choice of standard color.
-4-
<PAGE>
4.20 Windows:
Provide two sections of full height, curtain wall glazing system with two
(2) 3' x 7' glass doors and sidelights with 1" tinted insulated glass in
aluminum thermal break frames on office elevations as per elevation study.
Exterior aluminum mullions to be shop painted to Playboy Enterprises,
Inc.'s choice of standard color. Frames to be manufactured by Kawneer or
equal.
4.30 Main Office and Retail Entry Plazas:
Entry plazas to receive 5" poured in place concrete sidewalk leading from
parking lot to office entry and retail entry as shown on enclosed plans.
Entrance canopy to be supported by architectural columns. Soffit to receive
a skin coat of synthetic plaster, dryvit or equal, painted. One (1) glass
door and metal canopy in lieu of hollow metal door at Retail Area entrance.
Also two (2) 6' x 6' tinted insulated windows to the exterior wall of the
Retail Area.
4.40 Steel Structure:
Steel structure to be a combination of long span steel bar joists, beams
and wide flange columns or truss girders and tube columns. Roof deck to be
22 gauge, prime painted off-white, standard ribbed deck. Columns to be
spaced approximately 43.4' x 50' on center, as per floor plan. Bottom of
joists to be 28' clear from top of slab.
4.41 Provide a 125# live load mezzanine totaling 17,565 square feet (less
open air Lobby Area) constructed of structural steel, corrugated
deck, 3" concrete topping and one (1) metal pan stairway with
concrete filled treads, one (1) exposed ornamental stairway at main
reception and one (1) exposed pre-fabricated metal stairway and
landing with removable handrail for loading into second story
Computer/Phone Room.
4.42 Provide a two (2) stop passenger elevator at an allowance of $35,000.
4.50 Roof:
4.51 Roof System:
Roof to be a single ply, 45 mil, ballasted EPDM membrane roofing
system, Firestone, Carlisle or equal with isocyanurate insulation (R
value equal to 14). This system is to be applied in accordance with
manufacturer's specifications, and shall carry a manufacturer's
fifteen (15) year full system warranty.
-5-
<PAGE>
4.52 STORM PIPING AND DRAINS:
All roof drainage via interior PVC downspouts with insulated
horizontal offsets.
4.53 SKYLIGHTS:
Install ten (10) 4' x 8' double dome insulated skylights in
warehouse area. Location to be determined by Playboy
Enterprises, Inc. (SEE ALTERNATE, LAST PAGE).
4.60 FLOOR SLABS:
Concrete floor slabs to be 6" (3,500 p.s.i.), reinforced with
fibermesh, steel trowel finish on 3" compacted stone in warehouse
area. Floor tolerances to be F/F/=35 and F/L/=20 in warehouse area.
4" concrete with 6" x 6" x 10/10 gauge steel mesh, steel trowel
finish on 3" compacted stone in first floor office areas. Concrete
floor to be sawcut in both directions, no greater than 14.5' on
center.
4.70 TRUCK DOCKS AND OVERHEAD DOORS:
4.71 TRUCK LOADING DOORS:
Exterior truck docks to receive four (4) 9' x 10' manually
operated insulated metal overhead doors with two (2) vision
lites per door at shipping docks and four (4) 9' x 10'
electrically operated insulated metal overhead doors with two
(2) vision lites per door at receiving docks.
Grade level truck/van entrance to receive one (1) - 12' x 14'
electrically operated, insulated metal overhead door.
4.72 TRUCK DOCK ACCESSORIES:
Provide eight (8) 30,000# capacity 6' x 8' mechanical levelers.
Provide eight (8) dock seals with bumpers. Provide one (1)
Phoenix type light at each of four (4) shipping truck dock
locations.
5.00 INTERIOR IMPROVEMENTS:
----------------------
5.10 WALLS
5.11 Demising wall separating Playboy Warehouse from Tenant B
Warehouse to be full height concrete block. Demising walls
separating office and warehouse to be full height concrete
block. Demising walls separating Art Storage from
Warehouse/Office and separating Retail Area from
Warehouse/Office to be concrete block to a height of 12' with
two sided drywall and metal stud partition above to bottom of
deck.
-6-
<PAGE>
5.12 Interior office partition walls to be 5/8" gypsum wallboard
over 3-5/8" metal studs - 2.0' on center, located per plan.
Wallboard to be taped, sanded, and painted with two (2) coats
of flat latex paint. Wet walls in washrooms to receive
wainscot of ceramic tile over moisture resistant wallboard.
Walls around washrooms, and conference rooms shall be
insulated. All interior office walls shall penetrate ceiling
grid.
5.13 Perimeter Walls - Perimeter walls in office areas shall be
5/8" gypsum board over 1-1/2" furring strips over masonry or
precast walls. Finish to match other gypsum board walls.
5.14 Interior of warehouse walls to be field painted.
5.20 FLOORING:
5.21 Reception & Vestibule - Install quarry tile and base.
Office Area - Install carpet at $16.00 per square yard
installed with 5' quarry tile main walkways in customer
service.
Retail - Install carpet at $16.00 per square yard installed,
and 30 square feet of quarry tile at the Retail Area entrance.
Art Room Warehouse Offices & Warehouse Washrooms - Apply two
(2) coats of lapidolith floor sealer.
Office Washrooms - Install ceramic tile and base.
Lunchrooms & Janitor Closets - Install VCT tile with vinyl
base.
5.22 Warehouse Area - Exposed concrete to be treated with two (2)
coats of lapidolith floor sealer.
5.30 CEILING:
5/8" x 24" x 24" Armstrong Glacier or equal acoustical ceiling board
in Chicago Metallic or equal suspended grid system throughout the
office area. Ceiling height to be 9' in main Office Areas and Retail
Areas except for full height reception area and (PLUS/MINUS SIGN)
11' in Lunch Room and Customer Service Areas. Standard 2' x 4'
ceiling tiles to be installed in Warehouse Offices. Art Storage Area
to be exposed off-white deck.
5.40 DOORS, FRAMES, HARDWARE:
Doors in metal stud and sheetrock partitions to be full height (8'
10") 1-3/4" solid core "A" grade oak. Stain finish to be selected by
Playboy Enterprises, Inc. Doors in concrete block partitions and
precast panels are to be 1-3/4" hollow metal doors, painted to match
the walls.
-7-
<PAGE>
5.50 Provide a 2,000 square foot, air conditioned art storage room within
the warehouse area as per plan.
6.00 H.V.A.C. SYSTEMS
----------------
6.10 OFFICE AREA, RETAIL AREA, ART STORAGE ROOM AND WAREHOUSE OFFICES
(EXCLUDING WAREHOUSE WASHROOM) - A combination heating and cooling
system furnished by a nationally known supplier such as Carrier,
Trane or equal. This equipment to be designed to maintain 75
(degrees) F. when outside temperature is 95 (degrees) F. in summer,
and to maintain 75 (degrees) F. when outside temperature is -10
(degrees) F. in winter. Exhaust fans are included for all washrooms,
conference rooms and the lunchroom areas to conform with local code.
Provide 1,200 CFM exhaust fan with speed control for Smokers' Lounge.
Computer Room to receive a separate zone.
6.20 WAREHOUSE:
Roof mounted 1800 MBH, 40,000 CFM air pressurization system achieving
one (1) air change per hour, RAPID AIR or equal. System to provide 65
(degrees) F. at -10 (degrees) F. outside temperature.
7.00 PLUMBING
--------
7.10 Provide complete plumbing system with separate rest room facilities
for first and second floor Office men and women as well as
warehouse/truckers men's room plumbing to consist of. . .
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
FIXTURE TOTAL 1ST FLOOR 1ST FLOOR 2ND FLOOR 2ND FLOOR WAREHOUSE WAREHOUSE
- ------- ----- --------- --------- --------- --------- --------- ---------
WOMEN MEN WOMEN MEN WOMEN MEN
----- --- ----- --- ----- ---
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Toilet 16 5 3 3 2 2 1
- --------------------------------------------------------------------------------------------
Urinals 5 2 2 1
- --------------------------------------------------------------------------------------------
Drop in 12 3 3 3 3
Lavatories
- --------------------------------------------------------------------------------------------
Wall Mounted 2 1 1
Lavatory
- --------------------------------------------------------------------------------------------
Hot Water 3
Heaters
- --------------------------------------------------------------------------------------------
Lunch Room 1
Sink
- --------------------------------------------------------------------------------------------
Electric 3
Watercooler
- --------------------------------------------------------------------------------------------
Coffee Area l
Sink
- --------------------------------------------------------------------------------------------
Janitor Sink 2
- --------------------------------------------------------------------------------------------
Total Plumbing Fixtures 45
</TABLE>
-8-
<PAGE>
8.00 FIRE PROTECTION
Install an light Hazard Fire Protection System throughout first and second
floor office and retail areas. Install an ESFR sprinkler system throughout
warehouse and art storage areas. Heads to be located above bar joists.
Fire pump and pump room are included as required by code.
Install five (5) 1-1/2" hose stations throughout the Warehouse Area.
Provide fire alarm system in accordance with code requirements.
9.00 ELECTRICAL SERVICE, OUTLETS AND LIGHTING
9.10 ELECTRICAL SERVICE:
Install a 2,000 ampere, 277/480 volt, 3 phase, 4 wire main
electrical service. Service to be separately metered for Unit A and
Unit B. Also install Office and Warehouse subpanels as required for
building loads only.
9.20 ELECTRICAL AND TELEPHONE OUTLETS:
Install 110 volt outlets throughout the Office and Retail Areas as
shown on drawing numbers 102 and 103 dated, September 9, 1996.
Install telephone/data conduit stub-outs, located as shown on
drawing number 102 and 103, dated September 9, 1996.
All first floor Customer Service workstations to receive electrical,
phone and data from wall mounted connection points with the
exception of raised General Office Area and the adjoining twenty
(20) workstations which will be fed via floor slab conduit.
-9-
<PAGE>
9.30 Lighting
Office and Retail Areas - Office and Retail Areas to receive 2' x 4' lay-
in, four tube fluorescent fixtures, located to provide an initial 70
footcandles throughout.
Art Storage Area - Art Storage Area to receive 400 watt metal halide
light fixtures to provide an initial 30 footcandles.
Warehouse Areas - Warehouse areas to receive 400 watt metal halide light
fixtures located to provide an initial 30 footcandles throughout
(PLUS/MINUS SIGN)40,000 square feet (60%) of warehouse and 40 footcandles
throughout (PLUS/MINUS SIGN)26,800 square feet (40%) of warehouse area.
Assuming general warehouse conditions (no racking, process equipment or
other obstructions). Upon receipt of an approved rack and/or process
layout, additional lighting, if any, will be provided and installed at
tenant's expense.
Emergency lighting to be installed throughout building to conform to
local code assuming general warehouse conditions (no racking, process
equipment or other obstructions). Upon receipt of an approved rack and/or
process layout, additional emergency lighting, if any, will be provided
and installed at tenant's expense.
10.00 MISCELLANEOUS
Inclusions:
-- Scheduled construction time is seven (7) months for initial building
shell (warehouse) and an additional three (3) months for office
finish-out from the issuance of a complete building permit.
-- Builders' Risk insurance.
-- Architectural plans and specifications.
-- Surveys and soil borings.
-- Construction guarantee for one (1) year.
Exclusions:
-- Air conditioning of warehouse rest rooms.
-- Electronic security systems and automated H.V.A.C. shut down
systems.
-- Field painting of steel or piping.
-- Winter conditions.
-- Utility companies' excess facility charges.
-- Task lighting and process related installations.
-- Fire extinguishers and additional hose stations.
-10-
<PAGE>
ALTERNATES: NOTE: All prices are quoted as initial year rent per square foot.
1. Provide a UPS System for portions of Office Area.
(Cost to be determined after specification is established.)
2. Provide an additional ten (10) 4' x 8' double dome insulated skylights,
totaling twenty (20). Location to be determined by Playboy Enterprises,
Inc.
ADD $ .01
Decision required by October 15, 1996.
3. Add exterior stair and exterior door to south side of Warehouse Offices (at
Receiving Area).
ADD $.005
Decision required by October 1, 1996.
-11-
<PAGE>
[BLUEPRINT OF FINAL LANDSCAPE PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF FINAL SITE PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF COMPOSITE PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF FIRST FLOOR PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
[BLUEPRINT OF EXTERIOR ELEVATIONS APPEARS HERE]
<PAGE>
[PLAT OF CONSOLIDATION AND BLUEPRINT APPEARS HERE]
<PAGE>
[BLUEPRINT OF FIRST FLOOR PLANS APPEARS HERE]
<PAGE>
[BLUEPRINT OF SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
Exhibit 10.24(g)
SECOND AMENDMENT TO THE
PLAYBOY ENTERPRISES, INC.
DEFERRED COMPENSATION PLAN
--------------------------
This Second Amendment is made on this 25th day of April, 1996, to be
effective as of April 1, 1996.
WHEREAS, Playboy Enterprises, Inc. (the "Company") sponsors the Deferred
Compensation Plan, as previously amended, for certain highly compensated
employees (the "Employees' Plan"), and a Board of Directors' Deferred
Compensation Plan (the "Directors' Plan") for outside directors of the Company;
and
WHEREAS, the Company wishes to clarify the eligibility provisions of the
Employees' Plan to reflect the limitations on eligibility that have been in
effect, pursuant to the determination of the plan administrative committee,
since July 1, 1993, which limitations serve to ensure the continued status of
such plan as a "top hat" plan; and
WHEREAS, the Company wishes to clarify the terms of the Employees' Plan to
provide that: (i) a participant in the Employees' Plan shall not be entitled to
a benefit distribution in the normal course unless such participant shall have
ceased all service with the Company in all eligible classes covered under the
Employees' Plan; and (ii) the account balance of a participant who shall become
a director of the Company no later than 90 days after his or her separation from
service shall be transferred directly to an account established for such
individual under the Directors' Plan (and such individual shall not have the
opportunity to receive a distribution of such amount under the Employees' Plan).
NOW, THEREFORE, the Employee's Plan is hereby amended in the following
respect:
1. Section 3.01 of the plan is hereby amended and restated in its
entirety to read as follows, effective as of July 1, 1993:
"3.01 Participation. Participation in the Plan for any Plan Year
shall be limited to Employees of the Company (including any Employee
serving as a director of the Company) who satisfy either of the minimum
compensation requirements set forth below:
(a) The Participant is expected to receive Salary for the Plan Year
of not less than $90,000; or
<PAGE>
(b) The Participant's actual earnings as reported on his or her Form
W-2, plus any amounts deferred by the Participant under Section 125 and/or
Section 401(k) of the Internal Revenue Code of 1986 and/or pursuant to the terms
of this Plan for the immediately preceding complete calendar year equalled or
exceeded $90,000.
For all Plan Years beginning on or after July 1, 1994, the foregoing
dollar limitation shall be increased for each Plan Year by multiplying such
dollar amount by a fraction, the numerator of which shall be the national
Employment Cost Index issued in the month of March immediately preceding such
Plan Year and the denominator of which is the Employment Cost Index issued in
the month of March of the prior calendar year."
2. The following sentence is hereby added at the end of Section 4.09 of
the plan, effective as of April 1, 1996:
"Notwithstanding any Plan provisions to the contrary: (i) no
Participant shall be entitled to receive a benefit distribution under
any of Sections 4.01 through 4.04 in the normal course unless such
participant shall have ceased all service with the Company in all
eligible classes covered under Section 3.01 of this Plan (without
regard to the compensation requirements for eligibility to participate
in that Section); and (ii) in the case of any Participant who shall
separate from service but shall no later than 90 days thereafter
become a director of the Company, the full amount standing to the
credit of such Participant under this Plan shall be transferred to an
account established for him or her under the Company's Board of
Directors Deferred Compensation Plan (and such Participant shall not
be eligible to receive a distribution of that amount under this
Plan)."
<PAGE>
Exhibit 10.24(h)
FIRST AMENDMENT TO THE
PLAYBOY ENTERPRISES, INC.
BOARD OF DIRECTORS'
DEFERRED COMPENSATION PLAN
This First Amendment is made on this 25th day of April, 1996, to be
effective as of April 1, 1996.
WHEREAS, Playboy Enterprises, Inc. (the "Company") sponsors a Deferred
Compensation Plan, as previously amended, for certain highly compensated
employees (the "Employees' Plan"), and the Board of Directors' Deferred
Compensation Plan (the "Directors' Plan") for outside directors of the Company;
and
WHEREAS, the Company wishes to clarify the terms of the Directors' Plan to:
(i) allow such plan to accept a direct transfer of any amounts standing to the
credit of an eligible director under the Employees' Plan (attributable to
periods during which such individual had been a participant in such plan); and
(ii) provide that certain elections made by the eligible director under the
Employees' plan with respect to the transferred amounts shall be preserved as to
such amounts under the Directors' Plan.
NOW, THEREFORE, the Directors' Plan is hereby amended in the following
respect:
1. The following sentence shall be added at the end of Section 3.01 of
the plan, effective as of April 1, 1996:
"Notwithstanding the foregoing, any Director who was previously a
participant in the Company's Deferred Compensation Plan shall
contribute to this Plan the full amount standing to his or her credit
under such Deferred Compensation Plan, as and to the extent permitted
or required under the terms of such plan, whether or not such Director
shall otherwise elect make deferral contributions hereunder."
2. A new Section 4.08 shall be added to Article IV of the plan to read
as follows:
"4.08 Preservation of Interim Distribution Benefit Elections. If
a Participant who had been a participant in the Company's Deferred
Compensation Plan, and whose account balance under such plan shall
have been transferred to this Plan under Section 3.01 hereof, shall
have made a valid election or elections with respect to all or a
portion of the amounts so transferred under Section 4.05 (Interim
Distribution Benefit) of such Deferred Compensation Plan, such
election(s) shall be preserved and given effect by the Administrative
Committee. For purposes of applying this provision: (a) the
Administrative Committee shall refer to
<PAGE>
Section 4.05 of the Deferred Compensation Plan, a copy of which
Section shall be attached as an exhibit to this Plan; and (b)
references in such Section to the "Administrative Committee" shall be
deemed to refer to this Plan's Administrative Committee. Nothing in
this Section 4.08 shall be interpreted so as to permit any
Participant, including a former participant in the Company's Deferred
Compensation Plan, to make any similar election with respect to any
amounts subject to deferral under this Plan."
<PAGE>
Exhibit 10.25(i)
[LOGO OF RABBIT HEAD]
PLAYBOY ENTERPRISES INC. INTEROFFICE CORRESPONDENCE
DATE: August 15, 1996 PRIVILEGED AND CONFIDENTIAL
- --------------------------------------------------------------------------------
TO: Tony Lynn
- --------------------------------------------------------------------------------
FROM: Christie Hefner
- --------------------------------------------------------------------------------
SUBJECT: Employment Agreement
- --------------------------------------------------------------------------------
================================================================================
.
Tony, this will confirm our agreement to amend your employment
agreement dated May 21, 1992 as follows:
1. The Employment Term will be extended through June 30, 2000.
2. Your Basic Compensation will be $525,000 for the period July 1,
1996 through June 30, 1997 and $550,000 for each year of your
Employment Term thereafter.
3. The Profits Base on which your Contingent Compensation will be
computed will continue to be $2.35 million.
4. The Contingent Compensation payable to you will continue to be 5%
of the amount by which the pre-tax profit of the Playboy
Entertainment Group for each fiscal year during the Employment
Term exceeds the Profits Base. However, once the sum of Basic
Compensation plus Contingent Compensation equals $2 million
in any fiscal year, any additional Contingent Compensation
payable to you in such fiscal year will be reduced to 2.5% of the
amount by which the pre-tax profit of the Playboy Entertainment
Group in such fiscal year exceeds the Profits Base.
5. Paragraph 3.D. under your Employment Agreement will be deleted in
its entirety and the following will be substituted in lieu
thereof:
D. Equity Bonus:
------------
(i) In the event that Company directly or indirectly sells,
transfers or otherwise disposes of an equity interest in the
Playboy Entertainment Group (or all or substantially all of
the assets comprising the Playboy Enter-
<PAGE>
PRIVILEGED AND CONFIDENTIAL
- ---------------------------
August 15, 1996
To: Tony Lynn
Re: Employment Agreement
Page Two
tainment Group operations) to a third party (including a sale to
the public) during the Employment Term or within three (3) months
following the end of the Employment Term (an "Equity Disposition
Transaction"), then Employee shall be entitled to a one-time
Equity Bonus that will be computed by multiplying the Contingent
Compensation payable to Employee in the fiscal year immediately
preceding the fiscal year in which the Equity Disposition
Transaction takes place by the number of fiscal years remaining
in the Employment Term. The Equity Bonus will be paid to Employee
in cash promptly following the closing date of the Equity
Disposition Transaction.
(ii) It is the express intent of the parties hereto that the Equity
Bonus shall only be payable in connection with an Equity
Disposition Transaction which constitutes a bona fide transfer of
an equity interest in the Playboy Entertainment Group and shall
not be payable in connection with any other transaction (whether
in the form of joint ventures, co-productions or otherwise) which
represents a financing transaction. In no event shall Company
structure a transaction which would otherwise constitute a sale
or disposition of an equity interest in the Playboy Entertainment
Group as a financing transaction for the purpose of frustrating
the provisions of this Paragraph 3.D.
(iii) The payment of the Equity Bonus, if any, will be in addition to
any Contingent Compensation payable to you.
6. If your employment is terminated by the Company without cause, you will be
entitled to:
<PAGE>
PRIVILEGED AND CONFIDENTIAL
- ---------------------------
August 15, 1996
To: Tony Lynn
Re: Employment Agreement
Page Three
(i) a one-time severance payment equal to your Basic Compensation in the
fiscal year in which such termination occurs; plus
(ii) 100% of the Contingent Compensation to which you would have been
entitled for, and only for, the fiscal year in which such termination
occurs (based on the actual pre-tax profits of the Playboy
Entertainment Group for such fiscal year).
Any amounts paid to you under this Paragraph 6. will be reduced by any
amounts paid to you pursuant to your Change in Control Severance Agreement
dated as of June 1, 1992.
Except as modified above, all of the other terms and conditions of your
employment agreement will remain as is.
ACCEPTED AND AGREED TO:
/s/ Anthony L. Lynn
- -----------------------
Date August 16, 1996
- -----------------------
<PAGE>
Exhibit 10.25(j)
PLAYBOY
MICHAEL S. PERLIS
PRESIDENT AND PUBLISHER
February 26, 1993
CONFIDENTIAL
Mr. Herb Laney
540 Jefferson Street
Hinsdale, IL 60521
Dear Herb:
It is my great pleasure to formally confirm the deal we have discussed
relating to your continuing employment by PEI.
First, effective with the new fiscal, you will carry the title of President,
Catalogs. Your salary will be $200,000 per year. Your participation in PEI's
incentive compensation program will be at the 50% level.
You will receive 5% on all profits over '93 levels times three years, i.e.,
if '93 profits are 4.5MM, you will be paid 5% on cumulative profits over 13.5MM
at the end of fiscal '96 (4.5MM for '93 is the lowest multiple we will use).
You must be employed through fiscal '96 to receive payment.
If your employment is terminated for any reason other than cause, you will
receive a full years' severance.
Herb, you've done really fine work. It is a pleasure to work with you. I know
you'll accomplish even greater things in the next several years.
Sincerely,
MSP/ck
cc: Christie Hefner
David Chemerow /s/ MS Perlis
Howard Shapiro
<PAGE>
Exhibit 10.25(k)
INTEROFFICE CORRESPONDENCE
PLAYBOY ENTERPRISES, INC.
DATE: MAY 1, 1996
---------------------------------------------------
TO: HERB LANEY
----------------------------------------------------
FROM: CHRISTIE HEFNER
--------------------------------------------------
SUBJECT: SPECIAL INCENTIVE COMPENSATION PLAN
------------------------------------------------
I'M VERY PLEASED TO EXTEND YOUR SPECIAL INCENTIVE COMPENSATION PLAN FOR
AN ADDITIONAL THREE YEARS.
UNDER THIS EXTENSION, AND IN ADDITION TO YOUR PARTICIPATION IN THE
INCENTIVE COMPENSATION PLAN FOR SENIOR EXECUTIVES, THE COMPANY WILL PAY
YOU 5% ON ALL PRE-TAX OPERATING PROFITS EARNED BY THE CATALOG GROUP IN
EXCESS OF THE FISCAL 1996 OPERATING PROFITS OF THE GROUP BASED ON
CUMULATIVE PROFITS ACHIEVED OVER A THREE YEAR PERIOD FROM FISCAL YEAR
1997 THROUGH FISCAL YEAR 1999. (BY WAY OF EXAMPLE, IF FISCAL YEAR 1996
OPERATING PROFITS FOR THE GROUP ARE $5,521,000, YOU WOULD BE ENTITLED TO
5% OF THE CUMULATIVE PROFITS IN EXCESS OF $16,563,000.) YOUR PAYOUT IS
CONDITIONED UPON YOUR BEING EMPLOYED BY PEI THROUGH FISCAL 1999.
<PAGE>
Exhibit 11
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Primary:
- --------
Earnings:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle $ 4,252 $ 629 $ (16,364)
Loss on disposal of discontinued operations - - (620)
--------- --------- -----------
Income (loss) before cumulative effect of change in
accounting principle 4,252 629 (16,984)
Cumulative effect of change in accounting principle - - 7,500
--------- --------- -----------
Net income (loss) $ 4,252 $ 629 $ (9,484)
========= ========= ===========
Shares:
Weighted average number of common shares outstanding 20,014 19,984 19,928
Assuming exercise of options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options 361 218 286
--------- --------- -----------
Weighted average number of common shares outstanding
as adjusted 20,375 20,202 20,214
========= ========= ===========
Primary earnings per common share:
Income (loss) before cumulative effect of change in
accounting principle:
From continuing operations $ 0.21 $ 0.03 $ (0.81)
From discontinued operations - - (0.03)
--------- --------- -----------
Total 0.21 0.03 (0.84)
Cumulative effect of change in accounting principle - - 0.37
--------- --------- -----------
Net income (loss) $ 0.21/1/ $ 0.03/1/ $ (0.47)/2/
========= ========= ===========
</TABLE>
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
FOR THE YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
Fully diluted:
- --------------
<S> <C> <C> <C>
Earnings:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle $ 4,252 $ 629 $(16,364)
Loss on disposal of discontinued operations - - (620)
------- ------- --------
Income (loss) before cumulative effect of change in
accounting principle 4,252 629 (16,984)
Cumulative effect of change in accounting principle - - 7,500
------- ------- --------
Net income (loss) $ 4,252 $ 629 $ (9,484)
======= ======= ========
Shares:
Weighted average number of common shares outstanding 20,014 19,984 19,928
Assuming exercise of options reduced by the number
of shares which could have been purchased with the proceeds
from exercise of such options 426 268 330
------- ------- ---------
Weighted average number of common shares outstanding
as adjusted 20,440 20,252 20,258
======= ======= =========
Earnings per common share assuming full dilution:
Income (loss) before cumulative effect of change in
accounting principle:
From continuing operations $ 0.21 $ 0.03 $ (0.81)
From discontinued operations - - (0.03)
------- -------- ---------
Total 0.21 0.03 (0.84)
Cumulative effect of change in accounting principle - - 0.37
------- -------- ---------
Net income (loss) $ 0.21 /1/ $ 0.03 /1/ $ (0.47) /2/
======= ======== =========
</TABLE>
/1/ This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
/2/ This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
Exhibit 13
SELECTED FINANCIAL AND OPERATING DATA
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues
Publishing
Playboy magazine
Subscription $ 49,379 $ 48,556 $ 46,389
Newsstand 24,408 24,876 25,946
Advertising 27,431 27,588 27,978
Other 4,111 3,362 3,654
- ---------------------------------------------------------------------------------------------------
Total Playboy magazine 105,329 104,382 103,967
Playboy-related businesses 27,591 22,891 19,401
- ---------------------------------------------------------------------------------------------------
Total Publishing 132,920 127,273 123,368
- ---------------------------------------------------------------------------------------------------
Entertainment
Playboy Television
Cable pay-per-view 14,293 11,934 8,989
Cable monthly subscription 6,856 7,004 7,397
Satellite direct-to-home and other 18,129 10,022 6,511
- ---------------------------------------------------------------------------------------------------
Total Playboy Television 39,278 28,960 22,897
Domestic home video 9,370 9,517 7,019
International television and home video 11,955 11,160 9,891
- ---------------------------------------------------------------------------------------------------
Total Playboy Businesses 60,603 49,637 39,807
AdulTVision 1,907 -- --
Movies and other 2,316 2,060 282
- ---------------------------------------------------------------------------------------------------
Total Entertainment 64,826 51,697 40,089
- ---------------------------------------------------------------------------------------------------
Product Marketing 7,125 6,844 6,974
- ---------------------------------------------------------------------------------------------------
Catalog 71,716 61,435 48,556
- ---------------------------------------------------------------------------------------------------
Total Net Revenues $276,587 $247,249 $218,987
- ---------------------------------------------------------------------------------------------------
Operating Income (Loss)
Publishing
Playboy magazine $ 3,558 $ 7,168 $ 3,546
Playboy-related businesses 10,356 7,572 5,188
Administrative expenses and other (4,679) (4,031) (5,041)
- ---------------------------------------------------------------------------------------------------
Total Publishing 9,235 10,709 3,693
- ---------------------------------------------------------------------------------------------------
Entertainment
Before programming expense 30,467 21,097 10,870
Programming expense (21,263) (20,130) (18,174)
- ---------------------------------------------------------------------------------------------------
Total Entertainment 9,204 967 (7,304)
- ---------------------------------------------------------------------------------------------------
Product Marketing 3,692 3,428 2,518
- ---------------------------------------------------------------------------------------------------
Catalog 5,244 5,209 4,148
- ---------------------------------------------------------------------------------------------------
Corporate Administration and Promotion (17,882) (17,256) (17,278)
- ---------------------------------------------------------------------------------------------------
Total Operating Income (Loss) $ 9,493 $ 3,057 $(14,223)
- ---------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands, except per share amounts, number of
employees and ad pages) 1996 1995* 1994* 1993* 1992* 1991*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Net revenues $276,587 $247,249 $218,987 $214,875 $193,749 $174,042
Interest income (expense), net (592) (569) (779) (131) 1,828 3,224
Income (loss) from continuing operations before
extraordinary item and cumulative effect of change in
accounting principle 4,252 629 (16,364) 365 1,822 2,411
Net income (loss) 4,252 629 (9,484) 365 3,510 4,510
Per common share
Income (loss) from continuing operations before
extraordinary item and cumulative effect of change
in accounting principle 0.21 0.03 (0.83) 0.02 0.10 0.13
Net income (loss) 0.21 0.03 (0.48) 0.02 0.19 0.24
Cash dividends declared -- -- -- -- -- --
Before one-time and unusual items and nonrecurring
expenses/(1)/
Operating income (loss) 9,493 3,057 (9,610) 3,291 3,548 2,290
Net income (loss) 4,252 629 (12,371) 925 4,069 3,147
Net income (loss) per common share 0.21 0.03 (0.62) 0.05 0.22 0.17
Adjusted EBITDA/(2)/ $ 9,921 $ 6,311 $ (9,333) $ (3,709) $ 316 $ 963
- -------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $150,869 $137,835 $131,921 $127,767 $121,211 $115,464
Long-term financing obligations $ 347 $ 687 $ 1,020 $ 1,347 $ 1,669 $ 1,987
Shareholders' equity $ 52,283 $ 47,090 $ 46,311 $ 55,381 $ 43,256 $ 39,588
Long-term financing obligations as a percentage of total
capitalization 0.7% 1.4% 2.2% 2.4% 3.7% 4.8%
Number of shares outstanding
Class A 4,749 4,714 4,709 4,701 4,701 4,697
Class B 15,437 15,276 15,255 15,192 13,830 13,813
Number of employees 621 600 578 624 637 599
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA
Playboy magazine ad pages 569 595 595 660 648 724
Investments in Company-produced and licensed entertainment
programming $ 25,549 $ 21,313 $ 17,185 $ 23,033 $ 16,615 $ 15,876
Amortization of investments in Company-produced and
licensed entertainment programming $ 21,263 $ 20,130 $ 18,174 $ 14,076 $ 8,972 $ 7,931
Playboy Television (at year end)
Cable pay-per-view homes 11,300 10,600 9,600 9,100 7,300 4,700
Cable monthly subscribing households 192 201 205 232 281 314
Satellite direct-to-home households 4,867 3,282 1,926 197 106 N/A/(3)/
Percentage of total U.S. cable pay-per-view homes with
access to Playboy Television/(4)/ 42.8% 45.2% 43.2% 50.1% 43.6% 31.1%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For a more detailed description of the Company's financial position,
results of operations and accounting policies, please refer to
Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Consolidated Financial Statements and notes
thereto, beginning on page 25.
* Certain reclassifications have been made to conform to the fiscal 1996
presentation.
Notes to Selected Financial and Operating Data
/(1)/ One-time and unusual items and nonrecurring expenses consist of the
following:
1994: Restructuring expenses of $2,875, unusual items of $1,676,
primarily due to write-offs of entertainment programming, and
nonrecurring expenses of $62. Fiscal 1994 results also included a one-
time tax benefit of $7,500 that resulted from the adoption of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
which required a change in the method of accounting for income taxes.
1993: Expenses of $1,379 incurred in connection with the relocations of
the Entertainment Group's headquarters, the Publishing Group's
headquarters and the Catalog Group's operations facility, a $1,000 tax
benefit resulting from the settlement of a tax dispute for an amount less
than the related reserve and a gain of $665 resulting from the sale of
the Catalog Group's former operations facility. Fiscal 1993 results also
included nonrecurring expenses of $886, consisting primarily of operating
losses and restructuring charges related to the events business.
1992: Expenses of $1,064 incurred in connection with the relocation of
the Entertainment Group's headquarters and a gain of $505 resulting from
the sale of a note related to the disposition of one of the Company's
former properties.
1991: Interest income of $1,363, which resulted from a state income tax
refund pursuant to a settlement agreement with the state of Illinois.
/(2)/ Represents earnings before income taxes plus interest expense,
depreciation and amortization less cash investments in programming.
/(3)/ The Company began to focus on the emerging satellite direct-to-home
market in fiscal 1992.
/(4)/ Based on projections by Paul Kagan Associates, Inc.
23
<PAGE>
FINANCIAL INFORMATION RELATING TO
INDUSTRY SEGMENTS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues/(1)(2)/
Publishing $132,920 $127,273 $123,368
Entertainment 64,826 51,697 40,089
Product Marketing 7,125 6,844 6,974
Catalog 71,716 61,435 48,556
- ----------------------------------------------------------------------------------------------------
Total $276,587 $247,249 $218,987
====================================================================================================
Income (Loss) from Continuing Operations Before Income Taxes
and Cumulative Effect of Change in Accounting Principle/(2)/
Publishing $ 9,235 $ 10,709 $ 3,693
Entertainment 9,204 967 (7,304)
Product Marketing 3,692 3,428 2,518
Catalog 5,244 5,209 4,148
Corporate Administration and Promotion/(3)/ (17,882) (17,256) (17,278)
Investment income (expense), net 88 139 (128)
Interest expense (680) (708) (651)
Other, net (452) (52) (239)
- ----------------------------------------------------------------------------------------------------
Total $ 8,449 $ 2,436 $(15,241)
====================================================================================================
Identifiable Assets
Publishing $ 45,661 $ 38,433 $ 39,645
Entertainment 60,336 53,229 49,737
Product Marketing 5,484 5,964 6,133
Catalog 12,966 14,807 12,184
Corporate Administration and Promotion/(4)/ 26,422 25,402 24,222
- ----------------------------------------------------------------------------------------------------
Total $150,869 $137,835 $131,921
====================================================================================================
Depreciation and Amortization/(5)/
Publishing $ 967 $ 909 $ 1,024
Entertainment 21,836 20,606 18,573
Product Marketing 217 194 182
Catalog 639 673 792
Corporate Administration and Promotion 2,682 2,098 1,871
- ----------------------------------------------------------------------------------------------------
Total $ 26,341 $ 24,480 $ 22,442
====================================================================================================
Capital Expenditures
Publishing $ 213 $ 101 $ 367
Entertainment 74 22 151
Product Marketing 20 2 7
Catalog 77 10 21
Corporate Administration and Promotion 376 247 275
- ----------------------------------------------------------------------------------------------------
Total $ 760 $ 382 $ 821
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these tables.
Notes to Financial Information Relating to Industry Segments
/(1)/ Net revenues include export sales of $36,571, $30,858 and $26,709 in
fiscal 1996, 1995 and 1994, respectively.
/(2)/ Intercompany transactions have been eliminated.
/(3)/ Corporate Administration and Promotion expenses together with segment
selling and administrative expenses make up the Company's selling and
administrative expenses.
/(4)/ Corporate assets consist principally of property and equipment,
trademarks and net deferred tax assets.
/(5)/ Amounts include depreciation of property and equipment, amortization of
intangible assets, expenses related to the 1995 Stock Incentive Plan and
amortization of investments in entertainment programming.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30, 1996
COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
The Company's revenues were $276.6 for the fiscal year ended June 30, 1996, a
12% increase over revenues of $247.2 for the fiscal year ended June 30, 1995.
This increase was due to higher revenues from all of the Company's Groups,
primarily driven by increases from Playboy Television, the Critics' Choice Video
and Collectors' Choice Music catalogs and Playboy-related publishing businesses.
The Company reported operating income of $9.5 for the year ended June 30, 1996
compared to $3.1 for the year ended June 30, 1995. This increase was primarily
due to significant growth in operating income of the Entertainment Group,
principally as a result of substantial growth of Playboy Television.
Net income for the year ended June 30, 1996 was $4.3, or $0.21 per share,
compared to $0.6, or $0.03 per share, for the prior year.
Several of the Company's businesses can experience variations in quarterly
performance. As a result, the Company's performance in any quarterly period is
not necessarily reflective of full-year or longer-term trends. For example,
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 unusual public interest. Advertising revenues
also vary from quarter to quarter, depending on product introductions by
advertising customers, changes in advertising buying patterns and economic
conditions. In addition, Entertainment Group revenues vary with the timing of
sales to international customers, particularly the timing of new multiyear
agreements to both program and supply programming for exclusive Playboy-branded
time slots on overseas pay television services. To allow greater flexibility the
Company modified how it programs its international networks effective with the
fourth quarter of fiscal 1996. This modification results in the revenues from
these networks now being recorded on a quarterly basis, which has the effect of
smoothing out the fluctuations caused by recording a year's worth of programming
sales in one quarter. Previously, the Company scheduled programming for a full
year in the quarter during which the network was launched or an agreement was
renewed, and recognized the full year of revenues in that quarter.
PUBLISHING GROUP
Fiscal 1996 Publishing Group revenues of $132.9 increased $5.6, or 4%, compared
to fiscal 1995. Operating income of $9.2 declined $1.5, or 14%, compared to
prior year operating income of $10.7.
Playboy Magazine
Playboy magazine circulation revenues increased $0.4 for the year ended June 30,
1996 compared to the prior year. Subscription revenues were 2% higher. Newsstand
revenues were down slightly as favorable newsstand sales adjustments in the
prior year related to fiscal 1994 issues and 1% fewer U.S. and Canadian
newsstand copies sold in the current year were mostly offset by a higher average
newsstand price in the current year primarily due to especially strong sales of
the December issue, which featured Farrah Fawcett, at a higher cover price.
Although the Company is always looking for celebrity pictorials, there is no
certainty that they will occur in any fiscal year. Additionally, the current
year benefited from higher revenues from the rental of Playboy magazine's
subscriber list. Advertising revenues declined 1%, or $0.2, for the year ended
June 30, 1996 compared to the prior year primarily as a result of 4% fewer
advertising pages in the current year, mostly offset by higher average net
revenue per page, principally due to rate increases effective with the January
1996 and 1995 issues. Advertising sales for the fiscal 1997 first quarter issues
of the magazine are closed, and the Company expects to report an 18% decrease in
the number of advertising pages compared to the fiscal 1996 first quarter.
Playboy magazine operating income decreased $3.6, or 50%, for the year ended
June 30, 1996 compared to the prior year due to a significant increase in paper
costs partially offset by a decrease in direct costs and operating expenses and
the net increase in revenues discussed above. Manufacturing costs for the year
ended June 30, 1996 increased 26% compared to the prior year principally due to
higher paper prices which began impacting the Company in the second half of
fiscal 1995. For the year ended June 30, 1996, average paper prices were 46%, or
$7.9, higher than the prior year. Paper prices have begun to decline, and the
Company expects average paper prices to be lower in fiscal 1997 beginning in the
second quarter compared to fiscal 1996. Direct costs and operating expenses
decreased 5% for the year ended June 30, 1996 largely due to lower subscription
acquisition amortization, primarily as a result of improving efficiencies by
lowering the advertising rate base in the current year, and advertising sales
expenses in the current year combined with a legal settlement in the prior year
with the Company's former distributor of Playboy magazine. Partially offsetting
the above were expenses in the current year related to a new advertising
campaign.
Playboy-related Businesses
Operating income from Playboy-related businesses increased $2.8, or 37%, on a
$4.7, or 21%, increase in revenues for the year ended June 30, 1996 compared to
the prior year. These increases were primarily due to higher revenues from
newsstand specials and Playboy foreign editions. The higher revenues related to
newsstand specials were primarily a result of the favorable impact of a $1.00
increase in the cover price to $6.95 in most of the country in the fourth
quarter of fiscal 1995, combined with the publication of three additional
newsstand specials in fiscal 1996. Also contributing to the favorable variances
was a significant increase in revenues related to developing new media
businesses due in part to the Company's free Web site on the Internet which
generated advertising revenues in fiscal 1996. Partially offsetting the above
were lower revenues from ancillary businesses.
Administrative Expenses
The Publishing Group's administrative expenses increased 16% for the year ended
June 30, 1996 compared to the prior year. The increase was primarily due to
higher variable compensation expense related to performance combined with higher
employee medical benefit expenses in the current year.
ENTERTAINMENT GROUP
Fiscal 1996 Entertainment Group revenues of $64.8 increased $13.1, or 25%,
compared to fiscal 1995. Operating income of $9.2 increased $8.2 compared to
prior year operating income of $1.0.
The following discussion focuses on the profit contribution of each business
before programming expense ("profit contribution").
25
<PAGE>
Playboy Television
For the year ended June 30, 1996, revenues of the Company's branded domestic pay
television service, Playboy Television, were $10.3, or 36%, higher compared to
the prior year. Cable pay-per-view revenues increased 20%, attributable to an
increase in the number of cable addressable homes to which Playboy Television
was available, higher average buy rates, and higher average revenue per buy in
the current year. At June 30, 1996, Playboy Television was available to 11.3
million cable addressable homes, a 7% increase compared to June 30, 1995. Of the
11.3 million cable addressable homes, 3.9 million could receive Playboy
Television on a 24-hour basis, a 30% increase compared to June 30, 1995. The
average annual increase in the number of total cable addressable homes to which
Playboy Television was available over the last five complete fiscal years was
20%. Cable monthly subscription revenues declined 2% for the year ended June 30,
1996 compared to the prior year due in part to a decline in the average number
of subscribing households.
Management believes that the growth in cable access for the Company's domestic
pay television business has slowed in recent years due to the effects of cable
reregulation by the Federal Communications Commission ("FCC"), including the
"going-forward rules" announced in fiscal 1995 which provide cable operators
with incentives to add basic services. Competition for channel space has been
the primary factor in the slower growth as cable operators have utilized
available channel space to comply with "must-carry" provisions, mandated
retransmission consent agreements and "leased access" provisions. Additionally,
the delay of new technology, primarily digital set-top converters which would
dramatically increase channel capacity, has contributed to the problem.
Management believes that growth will continue to be affected in the near term as
the cable television industry responds to the FCC's rules and subsequent
modifications, and develops new technology. Management believes that the slower
growth in cable access has also been impacted by the Telecommunications Act of
1996 (the "Act") discussed below. However, as addressable technology becomes
more widely available, the Company believes that ultimately its pay television
networks will be available to the vast majority of cable homes.
In February 1996, Congress passed the Act, and President Clinton signed it
into law. Certain provisions of the Act are directed exclusively at cable
programming in general and adult cable programming in particular. In some cable
systems, audio or momentary bits of video of premium or pay-per-view channels
may accidentally become available to non-subscribing cable customers. This is
called "bleeding" and is not a widespread problem. Section 505 of the Act
requires cable systems to install technology in every household in every cable
system that offers adult programming, whether or not customers request it or
need it, to prevent any possibility of bleeding. Section 505 further provides
that until a cable operator complies with the Act, it must restrict the period
during which the programming is transmitted. Penalties for violation of the Act
are significant and include fines and imprisonment. The Company believes that
Section 505 is unconstitutional and unnecessary and fully supports Section 504
of the Act, which mandates that cable operators place full audio and video
blocks on any channel, at no charge, at a customer's request. On February 26,
1996, one of the Company's subsidiaries filed a civil suit challenging Section
505. Fifteen organizations representing a wide range of influential media, free
speech and entertainment organizations filed friend of the court briefs
supporting the Company's litigation. On March 7, 1996, the Company was granted a
Temporary Restraining Order ("TRO") staying the implementation and enforcement
of Section 505. In granting the TRO, the court found that the Company had
demonstrated it is likely to succeed on the merits of its claim that Section 505
is unconstitutional. The TRO will remain in place until a special three-judge
panel in the United States District Court for the District of Delaware decides
the Company's motion for a preliminary injunction. The Company believes that if
Section 505 were to be enforced, the Company's revenues attributable to its
domestic pay television services could be materially adversely affected due to
reduced cable carriage and/or reduced buy rates.
Satellite direct-to-home and other revenues were 81% higher for the year ended
June 30, 1996 compared to the prior year. The increase was primarily due to
higher DirecTV revenues, as a result of a 158% increase in the subscriber
universe and the Company's change to 24-hour programming in August 1995, and
higher revenues from PrimeStar, which launched Playboy Television in the fourth
quarter of fiscal 1995, slightly offset by lower revenues from TVRO, or the big-
dish market. Playboy Television was available to 16.2 million cable addressable
and satellite direct-to-home households, including 375,000 monthly subscribers,
at June 30, 1996. The current year also included revenues from licensing
episodes of one of the Company's series to Showtime Networks Inc.
Profit contribution for Playboy Television increased $8.1, or 65%, compared to
the prior year, in spite of higher marketing costs and expenses related to the
civil suit discussed above in the current year, due to the significant increase
in revenues.
Domestic Home Video
Domestic home video revenues decreased $0.1 for the year ended June 30, 1996
compared to the prior year primarily due to recording a higher net guarantee in
the prior year from a three-year distribution agreement with Uni Distribution
Corp. related to backlist titles effective in the fourth quarter of fiscal 1995,
and subject to certain earn-out provisions in the final year. The current year
included the second year of the guarantee as well as a reserve established
related to the first year of the guarantee recorded in the prior year in the
event that the earn-out provisions will not be met in the final year. The prior
year also included sales and returns of backlist titles prior to the inception
of the distribution agreement. Partially offsetting the above were higher sales
of new releases in the current year, in part due to extraordinary sales of The
Best of Pamela Anderson. Although the Company is always looking for releases
that feature celebrities, there is no certainty that they will occur in any
fiscal year. Additionally, there were higher revenues from a direct-response
continuity series deal with Time Life Inc. In fiscal 1996, Time Life Inc.
replaced Warner Music Enterprises, Inc., both divisions of Time Warner Inc., as
the distributor of this series.
Profit contribution increased $0.5 for the year ended June 30, 1996 compared
to the prior year principally due to the timing of costs related to an industry
convention.
International Television and Home Video
For the year ended June 30, 1996, revenues and profit contribution from the
international television and home video business increased $0.8 and $2.2,
respectively, compared to the prior year. Revenues and profit contribution from
the international home video business both increased $1.4 due in part to higher
sales to South Korea. An increase in the profit contribution of the
international television business of $0.8 is primarily due to a write-off of
$1.3 recorded in the prior year related to sales to a distributor in fiscal
1994, partially offset by lower revenues in the current year, primarily due to
revenues in the prior year associated with multiyear agreements. Variations in
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quarterly performance are caused by revenues and profit contribution from
multiyear agreements being recognized depending upon the timing of program
delivery, license periods and other factors. To allow greater flexibility the
Company modified how it programs its international networks effective with the
fourth quarter of fiscal 1996. This modification results in the revenues from
these networks now being recorded on a quarterly basis, which has the effect of
smoothing out the fluctuations caused by recording a year's worth of programming
sales in one quarter. Previously, the Company scheduled programming for a full
year in the quarter during which the network was launched or an agreement was
renewed, and recognized the full year of revenues in that quarter.
Programming Expense
Programming amortization expense associated with the Entertainment Group's
Playboy businesses discussed above increased $1.1 for the year ended June 30,
1996 compared to the prior year. The increase was principally due to higher
international home video amortization combined with increased investments in
entertainment programming, partially offset by lower international television
amortization.
Cash investments in entertainment programming for all of the Entertainment
Group's businesses, including those businesses discussed below, were $21.3 in
fiscal 1995 and $25.5 in fiscal 1996, and are planned for approximately $29.0 in
fiscal 1997. These amounts include expenditures for Playboy-branded programming,
AdulTVision and feature-length films. As a result of these higher levels of cash
investments, management anticipates that programming amortization expense in
fiscal 1997 will be approximately $25.0, or approximately $3.8 higher than in
fiscal 1996.
AdulTVision
In July 1995, the Company launched a second pay television channel, AdulTVision,
as a flanker channel to Playboy Television to enhance the Company's position
against competitive pressures from adult movie channels and to drive cable
access for Playboy Television. AdulTVision is principally offered on a pay-per-
view basis and is primarily sold in combination with Playboy Television through
cable operators, and to the direct-to-home market. For the year ended June 30,
1996, revenues for the new channel were $1.9. The channel reported an operating
loss for fiscal 1996 but the Company expects that it will be profitable in
fiscal 1997.
Movies and Other
For the year ended June 30, 1996, revenues from the Entertainment Group's movies
and other businesses increased $0.3 primarily due to higher revenues related to
feature-length films in the current year. Operating income increased $0.2
compared to the prior year.
The Entertainment Group's administrative expenses for the year ended June 30,
1996 increased $0.9 compared to the prior year primarily due to higher variable
compensation expense related to performance and higher employee medical benefit
expenses in the current year.
PRODUCT MARKETING GROUP
Product Marketing Group revenues of $7.1 for the year ended June 30, 1996
increased $0.3, or 4%, compared to the prior year primarily due to 19% higher
international product licensing royalties, primarily due to strong sales from
Asia. Partially offsetting the above were lower revenues in the current year
from Special Editions, Ltd., as the Company's art publishing and art products
business continues to move from direct sales to licensing, combined with no
royalties in the current year from a Sarah Coventry licensee that experienced
financial difficulties and was terminated in the second quarter of the prior
year. Operating income of $3.7 increased $0.3, or 8%, for the year ended June
30, 1996 compared to the prior year principally due to an increase in operating
income of international product licensing, primarily due to the higher revenues.
Partially offsetting the favorable variance was lower operating income from
Sarah Coventry product licensing, principally due to the lower revenues,
combined with higher variable compensation expense related to performance and
higher employee medical benefit expenses in the current year.
CATALOG GROUP
Fiscal 1996 Catalog Group revenues of $71.7 increased $10.3, or 17%, compared to
fiscal 1995. The revenue increase was a result of higher sales volume from all
of the Company's catalogs, Critics' Choice Video, Collectors' Choice Music and
Playboy. The increase was primarily attributable to higher circulation for all
three catalogs combined with a strong response to the Critics' Choice Video
catalog's implementation of a competitive pricing strategy in the second quarter
of fiscal 1996. This strategy was in reaction to lower response rates in the two
prior quarters which the Company believes were due in part to competition from
mass marketers which offer popular videos at deeply-discounted prices.
Additionally, the higher Collectors' Choice Music revenues were also due in part
to a new promotion. Fiscal 1996 Catalog Group operating income of $5.2 remained
stable compared to fiscal 1995 as incremental profit generated from the higher
revenues was sufficient to absorb higher expenses related to paper price and
postal rate increases. There were also higher expenses in fiscal 1996 relative
to the higher revenues from expanded mailings to prospective customers of the
catalogs. In fiscal 1997, the Company plans to continue to increase the
circulation for all three catalogs. The Company anticipates that paper costs
will be lower in fiscal 1997 compared to fiscal 1996 as prices have begun to
decline, and the Critics' Choice Video and Collectors' Choice Music catalogs
have changed to a different type of paper, similar in quality, but lower in
price. In fiscal 1998, the catalog operations will move from its current
facility to a larger facility under terms of a build-to-suit lease. The new
facility will be built in fiscal 1997 in the same Chicago suburb.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate administration and promotion expense of $17.9 for the year ended June
30, 1996 increased $0.6, or 4%, compared to the prior year. Expenses were higher
in the current year primarily due to higher variable compensation expense
related to performance and higher employee medical benefit expenses, partially
offset by lower marketing expenses in the current year.
CASINO GAMING
In fiscal 1996 the Company announced plans to re-enter the casino gaming
business. The Company's image, international appeal and successful history in
gaming makes this a logical extension into the fast growing field of adult
entertainment. In June 1995 the Company, with a consortium of Greek investors,
bid for an exclusive gaming license on the island of Rhodes, Greece and in
November 1995 the Greek government officially notified the Company's consortium
that it had won the competitive bid for this license. The Company's consortium
expects to complete negotiations with the
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government for its contract to operate the casino in calendar 1996 and expects
the casino to open in calendar 1997. The Company will receive licensing
royalties on revenues of the hotel/casino and owns less than 20% of its equity.
The Company is continuing to explore other gaming opportunities with a strategy
to enter into, with strong local partners, joint-venture agreements under which
the Company would receive license fees for the use of the Playboy name and
trademarks and consider taking equity positions.
FISCAL YEAR ENDED JUNE 30, 1995
COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
The Company's revenues were $247.2 for the fiscal year ended June 30, 1995, a
13% increase over revenues of $219.0 for the fiscal year ended June 30, 1994.
This increase was primarily due to higher revenues from the Catalog and
Entertainment Groups, and Playboy-related publishing businesses.
The Company reported operating income of $3.1 for the year ended June 30, 1995
compared to an operating loss of $14.2 for the year ended June 30, 1994 largely
due to a significant improvement in operating income of the Publishing Group
combined with operating income reported for the Entertainment Group in fiscal
1995 compared to an operating loss in the prior year. In addition, fiscal 1994
included a $2.9 restructuring charge, a $1.7 net charge for unusual items, the
establishment of various reserves totaling $1.5, and a $1.0 reduction in
carrying value of inventories.
Net income for the year ended June 30, 1995 was $0.6, or $0.03 per share,
compared to a net loss of $9.5, or $0.48 per share, for the prior year. A $0.6
loss on disposal of discontinued operations in fiscal 1994 resulted from
increasing the reserve related to the environmental cleanup of a site in Lake
Geneva, Wisconsin, formerly owned by a subsidiary of the Company. The net loss
for the year ended June 30, 1994 also included a one-time tax benefit of $7.5
that resulted from the adoption of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, which required a change in the method of
accounting for income taxes.
The Company's operating income of $3.1 and net income of $0.6, or $0.03 per
share, for the year ended June 30, 1995 compared to an operating loss of $9.6
and a net loss of $12.4, or $0.62 per share, for the year ended June 30, 1994,
excluding the impact of the $2.9 restructuring charge, the $1.7 net charge
related to unusual items and the $7.5 one-time tax benefit in fiscal 1994.
PUBLISHING GROUP
Fiscal 1995 Publishing Group revenues of $127.3 increased $3.9, or 3%, compared
to fiscal 1994. Operating income of $10.7 increased $7.0 compared to prior year
operating income of $3.7, which was impacted by restructuring expenses of $1.1,
a charge for unusual items of $0.4, and charges totaling $1.5 related to the
establishment of reserves and reductions in carrying value of inventories.
Playboy Magazine
Playboy magazine circulation revenues increased 2%, or $1.1, for the year ended
June 30, 1995 primarily due to 5% higher subscription revenues and favorable
newsstand sales adjustments related to prior years' issues in fiscal 1995,
partially offset by 9% fewer U.S. and Canadian newsstand copies sold in fiscal
1995. Advertising revenues declined 1%, or $0.4, for the year ended June 30,
1995 compared to the prior year as a result of slightly lower average net
revenue per page, despite a 5% rate increase effective with the January 1995
issue, as a result of higher frequency discounts and special pricing in fiscal
1995 and a change in the mix of advertising pages sold. Advertising pages for
fiscal 1995 were flat compared to fiscal 1994, which included the January 1994
40th anniversary issue that contained a higher than normal number of advertising
pages.
Playboy magazine operating income more than doubled for the year ended June
30, 1995 compared to the prior year principally due to decreases in
manufacturing costs and direct costs and operating expenses. Manufacturing costs
for the year ended June 30, 1995 decreased 5% compared to the prior year
principally due to the increased size of the January 1994 40th anniversary issue
of the magazine in the prior year, partially offset by slightly higher paper
prices in fiscal 1995. These higher paper prices began impacting the Company in
the second half of fiscal 1995, though most dramatically in the fourth quarter
as average paper prices increased 18% compared to the fourth quarter of the
prior year. For the year ended June 30, 1995 average paper prices were 1% higher
than the prior year. Direct costs and operating expenses decreased 2% for the
year ended June 30, 1995 largely due to fiscal 1994 charges totaling $2.1
related to the establishment of reserves, reduction in carrying value and write-
off of editorial inventory and restructuring. Also contributing to the decrease
in direct costs and operating expenses were lower advertising promotion
expenses, lower costs related to the new photo studio in California in fiscal
1995 and expenses in the prior year associated with the 40th anniversary issue,
partially offset by an increase in subscription acquisition amortization expense
and higher costs related to a postal rate increase that was effective on January
1, 1995.
Playboy-related Businesses
Operating income from Playboy-related businesses increased $2.4, or 46%, on a
$3.5, or 18%, increase in revenues for the year ended June 30, 1995 compared to
the prior year. These increases were primarily due to higher revenues from
newsstand specials as a result of the publication of two additional newsstand
specials in fiscal 1995 and higher revenues from Playboy foreign editions and
ancillary businesses. Partially offsetting these increases were higher expenses
in fiscal 1995 related to the anticipated growth of the new media business.
Administrative Expenses and Other
The Publishing Group's administrative expenses and other costs decreased 20% for
the year ended June 30, 1995 compared to the prior year. The decrease was
primarily due to lower salary expenses and lower employee medical benefit
expenses in fiscal 1995, partially offset by higher variable compensation
expense related to performance in fiscal 1995 and the receipt of a management
fee from duPont Publishing, Inc. in fiscal 1994.
ENTERTAINMENT GROUP
Fiscal 1995 Entertainment Group revenues of $51.7 increased $11.6, or 29%,
compared to fiscal 1994. The Entertainment Group reported fiscal 1995 operating
income of $1.0 compared to a prior year operating loss of $7.3, which included
restructuring expenses of $0.6 and a charge for unusual items of $1.6.
The following discussion focuses on the profit contribution of each business
before programming expense ("profit contribution").
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Playboy Television
For the year ended June 30, 1995, revenues of the Company's branded domestic pay
television service, Playboy Television, were 26% higher compared to the prior
year. Cable pay-per-view revenues increased 33%, attributable to an increase in
the number of cable addressable homes to which Playboy Television was available,
higher average buy rates, and higher average revenue per buy in fiscal 1995. At
June 30, 1995, Playboy Television was available to 10.6 million cable
addressable homes, a 10% increase compared to June 30, 1994. Cable monthly
subscription revenues declined 5% for the year ended June 30, 1995 compared to
the prior year due to a decline in the average number of subscribing households.
The number of monthly subscribers at June 30, 1995 was relatively flat compared
to June 30, 1994.
Satellite direct-to-home and other revenues were 54% higher for the year ended
June 30, 1995 compared to the prior year. The increase was primarily due to new
revenues from the launch of Playboy Television on DirecTV and PrimeStar, and
growth in selling directly to the backyard dish market, distribution by
commercial retailers of satellite programming and increased emphasis on consumer
marketing. Playboy Television was available to 13.9 million cable and satellite
direct-to-home households, including 337,000 monthly subscribers, at June 30,
1995.
Profit contribution for Playboy Television increased $3.9, or 46%, compared to
fiscal 1994 as the net increase in revenues more than offset higher expenses in
fiscal 1995 related to selling directly to the backyard satellite dish market
and the absence of sublease income from the Company's satellite transponder in
fiscal 1995. As a result of the Company's move in May 1994 to 24-hour
availability for Playboy Television, it no longer receives monthly sublease
income of approximately $0.1, the cumulative loss of which was more than offset
in fiscal 1995 by the higher profit contribution resulting from increased
revenues due to 24-hour availability in additional homes. At June 30, 1995,
Playboy Television was available in 3.0 million cable homes on a 24-hour basis
compared to 1.2 million cable homes at June 30, 1994.
Domestic Home Video
Domestic home video revenues rebounded $2.5 for the year ended June 30, 1995
compared to the prior year primarily due to revenues related to a guarantee from
a distribution agreement entered into in the fourth quarter of fiscal 1995 with
Uni related to backlist titles. Additionally, domestic home video launched two
new product lines, a direct-response continuity series to sell Playboy titles,
and The Eros Collection, a small-budget Playboy-produced line of movies. Also
contributing to the increase in revenues were adjustments in fiscal 1994
attributable to weak sales of fiscal 1993 titles, partially offset by sales in
fiscal 1994 of higher-priced rental titles. Profit contribution increased $3.7
for the year ended June 30, 1995 compared to the prior year primarily due to the
increase in revenues in fiscal 1995 combined with higher marketing expenses in
the prior year largely attributable to fiscal 1993 releases.
International Television and Home Video
For the year ended June 30, 1995, revenues and profit contribution from the
international television and home video business increased $1.3 and $0.1,
respectively, compared to the prior year. Profit contribution from the
international home video business increased $0.7 on a $0.6 increase in revenues.
A decrease in the profit contribution of the international television business
of $0.6 is primarily due to a write-off of $1.3 in fiscal 1995 related to sales
to a distributor in fiscal 1994, partially offset by an increase in revenues of
$0.7, in part due to the launch of a Playboy Television channel in the United
Kingdom late in fiscal 1995. Variations in quarterly performance are caused by
revenues and profit contribution from multiyear agreements being recognized
depending upon the timing of program delivery, license periods and other
factors.
Programming Expense
Programming amortization expense associated with the Entertainment Group's
Playboy businesses discussed above increased $2.0 for the year ended June 30,
1995 compared to the prior year. The increase was principally due to increased
investments in entertainment programming combined with the higher international
television and home video revenues. Partially offsetting the increase was a $0.4
unusual charge in fiscal 1994 related to the establishment of a reserve for
programming of O.J. Simpson: Minimum Maintenance Fitness for Men ("Minimum
Maintenance"), and a $0.9 favorable effect of a change in accounting estimate.
In the second quarter of fiscal 1995, the distribution rights and the remaining
inventory of Minimum Maintenance were sold, which resulted in an immaterial
profit contribution.
The Company revised its amortization method for licensed film costs during the
fourth quarter of fiscal 1994 because of its decision to offer Playboy
Television on a 24-hour basis, which resulted in a change in the scheduling of
licensed films. Licensed films are being aired throughout the term of the
license period, and related costs are primarily being amortized over such
period, generally three years.
Movies and Other
For the year ended June 30, 1995, revenues from the Entertainment Group's movies
and other businesses increased $1.8 compared to the prior year primarily due to
revenues in fiscal 1995 related to three new feature-length films, combined with
adjustments in the prior year related to the documentary film Hugh Hefner: Once
Upon a Time. Operating performance for the year ended June 30, 1995 increased
$2.1 primarily due to the increase in revenues combined with the favorable
impact in fiscal 1995 of a $1.2 market value adjustment for the documentary film
in the prior year, partially offset by fiscal 1995 programming amortization
expense related to the feature-length films.
The Entertainment Group's administrative expenses and other costs for the year
ended June 30, 1995 decreased $0.6 compared to the prior year. This decrease was
primarily due to costs in fiscal 1994 of $0.6 associated with restructuring.
Additionally, higher variable compensation expense related to performance was
mostly offset by lower employee medical benefit expenses in fiscal 1995.
PRODUCT MARKETING GROUP
Product Marketing Group revenues of $6.8 for the year ended June 30, 1995
decreased $0.1, or 2%, compared to the prior year primarily due to lower
royalties from a Sarah Coventry licensee that experienced financial difficulties
and was terminated, combined with lower revenues from Special Editions, Ltd., as
the Company's art publishing and art products business moves from direct sales
to licensing. Mitigating the above were 16% higher international product
licensing royalties in fiscal 1995 primarily due to strong sales from Asia.
Operating income of $3.4 increased $0.9, or 36%, for the year ended June 30,
1995 compared to the prior year principally due to increases in the operating
performances of international product licensing, primarily due to the higher
revenues, and Special Editions, Ltd., principally
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due to a $0.5 reduction in carrying value of art publishing inventory in fiscal
1994, partially offset by the lower revenues. Partially offsetting the above was
a decrease in Sarah Coventry operating income primarily due to the decrease in
revenues partially offset by lower bad debt expense in fiscal 1995.
CATALOG GROUP
Fiscal 1995 Catalog Group revenues of $61.4 increased $12.9, or 27%, compared to
fiscal 1994. The revenue increase was a result of higher sales volume from all
of the Company's catalogs, Critics' Choice Video, Collectors' Choice Music,
which was first mailed to prospective customers in October 1993, and Playboy.
Fiscal 1995 Catalog Group operating income of $5.2 increased $1.1, or 26%,
compared to fiscal 1994 due to higher operating income from all three of the
catalogs. The Critics' Choice Video catalog reported higher operating income
partially attributable to a licensing agreement entered into in February 1994
that allows the Company to purchase inventory at a lower cost. However, expenses
were higher due to increased mailings to prospective customers, and paper price
and postal rate increases. The Collectors' Choice Music catalog generated a
meaningful profit in fiscal 1995, its first full year of operation, despite
higher expenses related to significantly expanding circulation, and paper price
and postal rate increases.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate administration and promotion expense of $17.3 for the year ended June
30, 1995 was stable compared to the prior year. Higher variable compensation
expense related to performance in fiscal 1995 was offset by net one-time
expenses in fiscal 1994 associated with charges related to restructuring and a
real estate tax obligation related to the Company's former office space in Los
Angeles, California, partially offset by a benefit related to an insurance
settlement.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $2.4 in cash and cash equivalents and $5.0 in
short-term borrowings, compared to $1.5 in cash and cash equivalents and $5.0 in
short-term borrowings at June 30, 1995. The Company expects to meet its short-
term and long-term cash requirements through its revolving credit agreement and
cash generated from operations. See Cash Flows From Financing Activities below.
Cash Flows From Operating Activities
Net cash provided by operating activities was $4.5 for the year ended June 30,
1996 compared to $3.2 for the prior year. This increase was primarily due to the
Company's improved operating performance in the current year. Additionally,
there was an increase in cash provided by accrued salaries, wages and employee
benefits during fiscal 1996 primarily due to the timing of payrolls combined
with higher accruals at June 30, 1996 related to the 1995 Stock Incentive Plan
and employee benefits. Partially offsetting these increases was lower cash
provided by accounts payable in fiscal 1996, primarily due to the timing of
inventory purchases for the Critics' Choice Video catalog, principally as the
result of lower liabilities recorded at June 30, 1996 due to a later mailing
date for the July 1996 catalog combined with higher liabilities recorded at June
30, 1995 to support higher circulation for the July 1995 catalog. The Company
invested $25.5 in Company-produced and licensed entertainment programming during
fiscal 1996 compared to $21.3 in the prior year, and expects to invest
approximately $29.0 in such programming in fiscal 1997.
Net cash provided by operating activities was $3.2 for the year ended June 30,
1995 compared to net cash used for operating activities of $4.4 for the prior
year. This increase was primarily due to the Company's improved operating
performance in fiscal 1995. Additionally, there was cash provided by accounts
payable during fiscal 1995 compared to cash used for accounts payable in the
prior year, principally in the Entertainment and Catalog Groups. There also was
cash provided by deferred subscription acquisition costs in fiscal 1995 compared
to cash used in the prior year, primarily due to higher spending in fiscal 1994.
Partially offsetting these increases were lower cash provided from deferred
revenues, principally due to higher subscription mailings in fiscal 1994, and a
higher use of cash in fiscal 1995 related to receivables, principally in the
Entertainment Group. Cash used for inventories in fiscal 1995 was primarily due
to higher paper inventory at June 30, 1995, whereas cash provided by inventories
in fiscal 1994 was principally attributable to an increase of inventory related
to the Critics' Choice Video catalog in fiscal 1993. The Company invested $21.3
in Company-produced and licensed entertainment programming during fiscal 1995
compared to $17.2 in the prior year. Net cash provided by discontinued
operations in fiscal 1994 of $0.5 primarily resulted from a United Kingdom tax
refund in connection with the settlement in fiscal 1993 of litigation related to
the Company's discontinued United Kingdom gaming operations.
Cash Flows From Investing Activities
Net cash used for investing activities was $4.2 for the year ended June 30, 1996
compared to $0.3 for the prior year. The current year period included
investments in equity interests of $3.6 in the first overseas Playboy Television
channels in the United Kingdom and Japan, the casino gaming venture that was
awarded an exclusive license on the island of Rhodes, Greece, and an additional
equity interest in VIPress Poland Sp. z o.o., which publishes the Polish edition
of Playboy magazine. Capital expenditures for the year ended June 30, 1996 were
$0.4 higher than in the prior year. The Company also leased $1.7 of furniture
and equipment in fiscal 1996, compared to $1.4 in fiscal 1995. The Company
expects to make capital expenditures of approximately $0.7 and to lease assets
totaling approximately $3.5 in fiscal 1997. The expected increase in leased
assets in fiscal 1997 is largely related to the catalog operations move
previously discussed.
Net cash used for investing activities was $0.3 for the year ended June 30,
1995 compared to $2.3 for the prior year. Under the terms of its July 1988
purchase of an 80% interest in Critics' Choice Video, Inc., effective July 1,
1993, the Company acquired the remaining 20% interest in Critics' Choice Video,
Inc. for $3.0, which consisted of $1.5 in cash and one-year promissory notes
totaling $1.5, which were paid July 1, 1994. Capital expenditures for the year
ended June 30, 1995 were $0.4 lower than in the prior year. The Company also
leased $1.4 of furniture and equipment in fiscal 1995, compared to $0.9 in
fiscal 1994.
Cash Flows From Financing Activities
Net cash provided by financing activities was $0.6 for the year ended June 30,
1996 compared to net cash used for financing activities of $2.7 in the prior
year. This increase was principally due to the payment on July 1, 1994 of the
$1.5 promissory notes referred to above, combined with a reduction in short-term
borrowings under the Company's revolving line of credit of $1.0 in fiscal 1995.
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In March 1996, the Company and its banks amended the Company's revolving
credit agreement. The amendment increased the line of credit from $19.5 to $35.0
and extended the maturity date of the line to March 1999. The credit agreement
remains collateralized by substantially all of the Company's assets and requires
the Company to maintain financial covenants pertaining to net worth, leverage
and cash flow.
Net cash used for financing activities was $2.7 for the year ended June 30,
1995 compared to net cash provided by financing activities of $6.0 in the prior
year. The decrease was principally due to a reduction in short-term borrowings
under the Company's revolving line of credit of $1.0 in fiscal 1995 compared to
an increase in short-term borrowings of $6.0 in fiscal 1994. Also contributing
to the decrease was the payment on July 1, 1994 of the promissory notes referred
to above.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("Statement 109").
When tax effected at the presently enacted tax rates, the Company's deductible
temporary differences, tax credit carryforwards and net operating loss
carryforwards ("NOLs") at July 1, 1993 resulted in a total potential gross
deferred tax asset for federal income tax purposes of $25.1. Management, after
analyzing available facts, concluded that it was prudent to establish a
valuation allowance of $12.1, which, combined with $5.5 of gross deferred tax
liabilities, resulted in the Company's recognition of a net deferred tax asset
of $7.5. In fiscal 1996, the Company realized $2.4 of the $6.9 net deferred tax
asset recorded at June 30, 1995 by utilizing a portion of the NOLs against
fiscal 1996 income. Management believes that the net deferred tax asset of $4.5
at June 30, 1996 is an amount that will more likely than not be realized in
future periods.
Based on current tax law, the Company must generate approximately $13.2 of
future taxable income prior to the expiration of the Company's NOLs for full
realization of the net deferred tax asset. At June 30, 1996, the Company had
NOLs of $37.5 for tax purposes, with $0.8 expiring in 2001, $8.9 expiring in
2003, $8.2 expiring in 2004, $2.1 expiring in 2007, $1.1 expiring in 2008 and
$16.4 expiring in 2009.
Management continues to believe that it is more likely than not that a
sufficient level of taxable income will be generated in years subsequent to
fiscal 1996 and prior to the expiration of the Company's NOLs to realize the
$4.5 net deferred tax asset recorded at June 30, 1996. Following is a summary of
the bases for management's belief that a valuation allowance of $28.0 is
adequate, and that it is more likely than not that the net deferred tax asset of
$4.5 will be realized:
. Management reviewed the components of the Company's NOLs and determined that
they primarily resulted from several nonrecurring events, which were not
indicative of the Company's ability to generate future earnings.
. The Publishing, Product Marketing and Catalog Groups continue to generate
earnings, while the Company's substantial investments in the Entertainment
Group resulted in significant earnings growth in fiscal 1996 and are
anticipated to lead to increased earnings potential in fiscal 1997 and future
years.
. The Company has several opportunities to accelerate taxable income into the
NOL carryforward period. Tax planning strategies would include the
capitalization and amortization versus immediate deduction of circulation
expenditures, the immediate inclusion versus deferred recognition of prepaid
subscription income, the revision of depreciation and amortization methods for
tax purposes and the sale-leaseback of certain property that would generate
taxable income in future years.
The reconciliation of the Company's income (loss) before income taxes for
financial statement purposes to taxable income (loss) for the years ended June
30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes for
financial statement purposes $ 8.4 $ 2.4 $(15.9)
Exclusion of permanent differences 0.4 0.8 0.5
State taxes (0.1) (0.1) (0.1)
Temporary differences
Programming cost amortization (0.2) (1.3) (2.1)
Deferred subscription acquisition costs (1.0) 0.7 (3.6)
Other 4.0 2.9 4.8
- -----------------------------------------------------------------------
Taxable income (loss) $11.5 $ 5.4 $(16.4)
=======================================================================
</TABLE>
OTHER
In January 1993, the Company received a General Notice from the United States
Environmental Protection Agency (the "EPA") as a "potentially responsible party"
("PRP") in connection with a site identified as the Southern Lakes Trap & Skeet
Club, apparently located at the Resort-Hotel in Lake Geneva, Wisconsin (the
"Resort"), formerly owned by a subsidiary of the Company. The Resort was sold by
the Company's subsidiary to LG Americana-GKP Joint Venture in 1982. Two other
entities were also identified as PRPs in the notice. The notice relates to
actions that may be ordered taken by the EPA to sample for and remove
contamination in soils and sediments, purportedly caused by skeet shooting
activities at the Resort property. During fiscal 1994, the EPA advised the
Company of its position that the area of land requiring remediation is
approximately twice the size of the initial site. The Company believes that it
has established adequate reserves, which totaled $0.7 at June 30, 1996, to cover
the eventual cost of its anticipated share (based on an agreement with one of
the other PRPs) of any remediation that may be agreed upon. The Company is also
reviewing available defenses, insurance coverage and claims it may have against
third parties.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of in fiscal 1996, which adoption had no effect
on the financial statements.
The Company will implement the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123") in
fiscal 1997. It is the Company's intention to adopt only the disclosure
requirements of Statement 123.
31
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 276,587 $ 247,249 $ 218,987
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (234,247) (214,327) (196,817)
Selling and administrative expenses (32,847) (29,865) (31,842)
Restructuring expenses -- -- (2,875)
Unusual items -- -- (1,676)
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses (267,094) (244,192) (233,210)
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 9,493 3,057 (14,223)
- ----------------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income (expense), net 88 139 (128)
Interest expense (680) (708) (651)
Other, net (452) (52) (239)
- ----------------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (1,044) (621) (1,018)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes
and cumulative effect of change in accounting principle 8,449 2,436 (15,241)
Income tax expense (4,197) (1,807) (1,123)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
cumulative effect of change in accounting principle 4,252 629 (16,364)
Loss on disposal of discontinued operations -- -- (620)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle 4,252 629 (16,984)
Cumulative effect of change in accounting principle -- -- 7,500
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,252 $ 629 $ (9,484)
============================================================================================================================
Weighted average number of common shares outstanding 20,014 19,984 19,928
============================================================================================================================
Income (loss) per common share
Income (loss) before cumulative effect
of change in accounting principle
From continuing operations $0.21 $0.03 $ (0.83)
From discontinued operations -- -- (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Total 0.21 0.03 (0.86)
Cumulative effect of change in accounting principle -- -- 0.38
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $0.21 $0.03 $ (0.48)
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30
<TABLE>
<CAPTION>
(in thousands, except share data) 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,438 $ 1,471
Receivables, net of allowance for doubtful accounts of $3,009 and $4,837 29,110 24,151
Inventories 23,499 21,428
Programming costs 33,873 29,740
Deferred subscription acquisition costs 9,569 9,176
Other current assets 10,420 10,190
- ----------------------------------------------------------------------------------------------------------------
Total current assets 108,909 96,156
- ----------------------------------------------------------------------------------------------------------------
Property and equipment
Land 292 292
Buildings and improvements 8,333 8,245
Furniture and equipment 20,352 19,839
Leasehold improvements 8,427 8,200
- ----------------------------------------------------------------------------------------------------------------
Total property and equipment 37,404 36,576
Accumulated depreciation (25,510) (23,100)
- ----------------------------------------------------------------------------------------------------------------
Property and equipment, net 11,894 13,476
- ----------------------------------------------------------------------------------------------------------------
Programming costs--noncurrent 3,362 3,209
Trademarks 11,887 11,046
Net deferred tax assets 4,191 6,493
Other noncurrent assets 10,626 7,455
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 150,869 $ 137,835
- ----------------------------------------------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 5,000 $ 5,000
Current financing obligations 340 333
Accounts payable 22,745 19,549
Accrued salaries, wages and employee benefits 6,941 4,088
Reserves for losses on disposals of discontinued operations 707 766
Income taxes payable 970 875
Deferred revenues 44,378 42,905
Other liabilities and accrued expenses 8,940 8,621
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 90,021 82,137
- ----------------------------------------------------------------------------------------------------------------
Long-term financing obligations 347 687
Other noncurrent liabilities 8,218 7,921
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 98,586 90,745
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity
Common stock, $0.01 par value
Class A--7,500,000 shares authorized; 5,042,381 issued 50 50
Class B--30,000,000 shares authorized; 16,477,143 issued 165 165
Capital in excess of par value 36,323 36,398
Retained earnings 22,798 18,546
Foreign currency translation adjustment (17) --
Less cost of 293,427 and 328,427 Class A common shares and 1,040,045
and 1,201,294 Class B common shares in treasury (7,036) (8,069)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 52,283 47,090
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 150,869 $ 137,835
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
33
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Class A Class B Capital in
Common Common Excess of Retained Treasury
(in thousands of dollars) Stock Stock Par Value Earnings Other Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $ 50 $ 165 $36,344 $ 27,401 $ -- $ (8,579) $ 55,381
Net loss -- -- -- (9,484) -- -- (9,484)
Exercise of 8,400 Class A and
62,500 Class B stock options -- -- 35 -- -- 372 407
Issuance of 889 Class B common shares
to employees as service awards -- -- 2 -- -- 5 7
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 50 165 36,381 17,917 -- (8,202) 46,311
Net income -- -- -- 629 -- -- 629
Exercise of 4,500 Class A and
20,000 Class B stock options -- -- 14 -- -- 128 142
Issuance of 960 Class B common shares
to employees as service awards -- -- 3 -- -- 5 8
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 50 165 36,398 18,546 -- (8,069) 47,090
Net income -- -- -- 4,252 -- -- 4,252
Exercise of 35,000 Class A and
159,750 Class B stock options -- -- (81) -- -- 1,025 944
Issuance of 1,499 Class B common
shares to employees as service awards -- -- 6 -- -- 8 14
Foreign currency translation
adjustment -- -- -- -- (17) -- (17)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ 50 $ 165 $36,323 $22,798 $ (17) $ (7,036) $ 52,283
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 4,252 $ 629 $ (9,484)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating activities
Depreciation of property and equipment 2,383 2,531 2,752
Amortization of intangible assets 1,783 1,590 1,516
Amortization of investments in entertainment programming 21,263 20,130 18,174
Investments in entertainment programming (25,549) (21,313) (17,185)
Cumulative effect of change in accounting principle -- -- (7,500)
Changes in current assets and liabilities
Receivables (4,574) (3,498) 1,609
Inventories (2,061) (2,160) 2,398
Deferred subscription acquisition costs (393) 910 (2,478)
Other current assets (426) (1,586) (683)
Accounts payable 2,931 5,869 (1,287)
Accrued salaries, wages and employee benefits 2,853 277 (327)
Income taxes payable 27 92 (36)
Deferred revenues 1,468 1,171 5,416
Other liabilities and accrued expenses 224 581 366
-------- -------- --------
Net change in current assets and liabilities 49 1,656 4,978
-------- -------- --------
Increase in trademarks (1,766) (1,856) (1,492)
Decrease in net deferred tax assets 2,399 629 --
(Increase) decrease in other noncurrent assets (487) (832) 318
Increase in other noncurrent liabilities 258 96 2,371
Net cash provided by (used for) discontinued operations (59) (124) 531
Increase in reserve for loss on disposal of discontinued operations -- -- 620
Other, net 15 44 33
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 4,541 3,180 (4,368)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Additions to property and equipment (760) (382) (821)
Acquisitions of equity interests in international ventures (3,619) -- --
Acquisition of Critics' Choice Video, Inc. minority interest -- -- (1,510)
Other, net 211 67 54
- ---------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,168) (315) (2,277)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Increase (decrease) in short-term borrowings -- (1,000) 6,000
Repayment of debt (350) (1,850) (350)
Proceeds from exercise of stock options 944 198 350
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 594 (2,652) 6,000
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 967 213 (645)
Cash and cash equivalents at beginning of year 1,471 1,258 1,903
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,438 $ 1,471 $ 1,258
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1996
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition: Revenues from the sale of magazine subscriptions are
recognized over the terms of the subscriptions. Sales of magazines and newsstand
specials (net of estimated returns), and revenues from the sale of
advertisements, are recorded when each issue goes on sale. Revenues from the
sale of catalog products are recognized when the items are shipped. Pay
television revenues are recognized based on pay-per-view buys and monthly
subscriber counts reported each month by the system operators. Domestic home
video revenues are recognized based on unit sales reported for new releases each
month by the Company's distributor and a distribution agreement for backlist
titles. International television revenues are recognized either upon
identification of programming scheduled for networks, delivery of programming to
customers and/or upon the commencement of the license term.
Cash Equivalents: Cash equivalents are temporary cash investments with an
original maturity of three months or less at date of purchase and are stated at
cost, which approximates market value.
Inventories: Inventories are stated at the lower of cost (average cost, specific
cost and first-in, first-out) or market.
Property and Equipment: Property and equipment is stated at cost. Depreciation
is provided on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated on a straight-line basis over the
shorter of their estimated useful lives or the terms of the related leases.
Repair and maintenance costs are expensed as incurred, and major betterments are
capitalized. Sales and retirements of depreciable property and equipment are
recorded by removing the related cost and accumulated depreciation from the
accounts. Gains or losses on sales and retirements of property and equipment are
included in income.
Deferred Subscription Acquisition Costs: Costs associated with the promotion of
magazine subscriptions, which consist primarily of postage, costs to produce
direct-mail solicitation materials and other costs to attract and renew
subscribers, are deferred and amortized over the period during which the future
benefits are expected to be received. This is consistent with the provisions of
Statement of Position 93-7, Reporting on Advertising Costs, which the Company
adopted in fiscal 1995. See Note I.
Programming Costs and Amortization: Programming costs include original
programming and film acquisition costs, which are capitalized and amortized. The
portion of original programming costs assigned to the domestic pay television
market is amortized on the straight-line method over three years. The portion of
original programming costs assigned to each of the worldwide home video and
international television markets are amortized using the individual-film-
forecast-computation method. Film acquisition costs are assigned to the domestic
pay television market and are principally amortized on the straight-line method
over the license term, generally three years. Management believes that this
method provides a reasonable matching of expenses with total estimated revenues
over the periods that revenues associated with films and programs are expected
to be realized. Film and program amortization is adjusted periodically to
reflect changes in the estimates of amounts of related future revenues. Film and
program costs are stated at the lower of unamortized cost or estimated net
realizable value as determined on a specific identification basis. Based on
management's estimate of future total gross revenues as of June 30, 1996,
substantially all unamortized programming costs applicable to released programs
are expected to be amortized during the next three years. See Note H.
Intangible Assets: Trademark acquisition costs are capitalized and amortized on
the straight-line method over 40 years. Trademark defense, registration and
renewal costs are capitalized and amortized on the straight-line method over 15
years. Other intangible assets are comprised substantially of goodwill, which is
amortized generally over 40 years. Accumulated amortization of intangible assets
was $10,062,000 and $8,279,000 at June 30, 1996 and 1995, respectively.
Income (Loss) per Common Share: Income (loss) per common share was computed on
the basis of the weighted average number of shares of both Class A and Class B
common stock outstanding during each period.
Foreign Exchange Forward Contracts: The Company utilizes forward contracts to
minimize the impact of currency movements on royalties received denominated in
Japanese yen and German marks. The terms of these contracts are generally one
year or less. Gains and losses related to these agreements are recorded in
income as part of, and concurrent with, the transaction. As of June 30, 1996 and
1995, the Company had approximately $2,300,000 and $2,450,000, respectively, in
outstanding contracts. The difference between these contracts' values and the
fair market value of these instruments at June 30, 1996 and 1995 in the
aggregate was not material.
Minority Interest: The Company owns a 90% interest in VIPress Poland Sp. z o.o.
("VIPress"), which publishes the Polish edition of Playboy magazine. The
financial statements of VIPress are included in the Company's financial
statements. The minority interest in the results of operations is included in
nonoperating expense in the Consolidated Statements of Operations and the
minority interest in the equity of VIPress is included in "Other noncurrent
liabilities" in the Consolidated Balance Sheets.
Foreign Currency Translation: Assets and liabilities in foreign currencies are
translated into U.S. dollars at the exchange rate existing at the balance sheet
date. The net exchange differences resulting from these translations are
recorded as a separate component of shareholders' equity. Revenues and expenses
are translated at average rates for the period.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
(B) RESTRUCTURING EXPENSES
A $2,450,000 charge was recorded in the first quarter of fiscal 1994 related to
a reduction in the Company's workforce of approximately 10%. This
36
<PAGE>
charge primarily related to employee termination payments associated with
approximately 60 positions that were eliminated through a combination of early
retirement, attrition and layoffs. An additional $425,000 charge, primarily
related to employee termination payments, was recorded in the third quarter of
fiscal 1994 due to further reductions in overhead costs. Employee termination
payments of approximately $50,000, $615,000 and $2,140,000, respectively, were
made in fiscal 1996, 1995 and 1994 related to the restructurings.
(C) UNUSUAL ITEMS
The $1,676,000 net charge for unusual items in fiscal 1994 consisted of a
$1,199,000 market value adjustment for a documentary film, Hugh Hefner: Once
Upon a Time; the establishment of a $372,000 reserve related to programming of
O.J. Simpson: Minimum Maintenance Fitness for Men; a $355,000 write-off of photo
inventory that would not be published in Playboy magazine; and a $200,000 real
estate tax obligation related to the Company's former office space in Los
Angeles, California; partially offset by a $450,000 benefit related to an
insurance settlement.
(D) INVESTMENT INCOME (EXPENSE), NET
Investment expense, net for the year ended June 30, 1994 included a net loss of
$150,000 related to the maturity of options on four offsetting interest rate
swap agreements entered into late in fiscal 1993. These agreements each had a
notional principal amount of $200 million and expired on July 13, 1993.
(E) INCOME TAXES
The income tax provision consisted of the following for the years ended June 30
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 241 $ 115 $ --
State 67 65 68
Foreign 1,490 998 1,055
- -------------------------------------------------------------------------------
Total current 1,798 1,178 1,123
- -------------------------------------------------------------------------------
Deferred:
Federal 2,399 629 --
State -- -- --
Foreign -- -- --
- -------------------------------------------------------------------------------
Total deferred 2,399 629 --
- -------------------------------------------------------------------------------
Total income tax provision $4,197 $1,807 $1,123
===============================================================================
</TABLE>
The income tax provision differed from a provision computed at the U.S.
statutory tax rate as follows for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate tax provision $2,871 $ 828 $(5,182)
Increase (decrease) in taxes resulting from:
Foreign withholding tax on licensing income 1,448 998 1,055
State income taxes 67 65 68
Nondeductible expenses 129 341 238
Tax benefit of domestic losses not recognized -- -- 4,944
Tax benefit of foreign taxes paid or accrued (356) (339) --
Other 38 (86) --
- -------------------------------------------------------------------------------
Total income tax provision $4,197 $1,807 $ 1,123
===============================================================================
</TABLE>
The U.S. statutory tax rate for fiscal 1994 through 1996 was 34%.
Effective July 1, 1993, the Company changed its method of accounting for
income taxes by adopting the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("Statement 109"). Statement 109
required a change from the deferred method of accounting for income taxes under
APB Opinion No. 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates expected to apply in the years in which the
temporary differences are expected to reverse.
The adoption of Statement 109 resulted in the recognition of $7.5 million,
or $0.38 per share, of deferred federal tax benefits. This amount is included in
the net loss for the fiscal year ended June 30, 1994 as "Cumulative effect of
change in accounting principle." In the Consolidated Balance Sheet at June 30,
1995, $0.4 million of the $6.9 million net deferred tax asset is included in
"Other current assets" and $6.5 million is segregated as "Net deferred tax
assets." In the Consolidated Balance Sheet at June 30, 1996, $0.3 million of the
$4.5 million net deferred tax asset is included in "Other current assets" and
$4.2 million is segregated as "Net deferred tax assets."
The significant components of the Company's deferred tax assets and
deferred tax liabilities as of June 30, 1995 and 1996 are presented below (in
thousands):
<TABLE>
<CAPTION>
June 30, Net June 30,
1995 Change 1996
- -------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Net operating loss carryforwards $ 16,248 $(3,514) $ 12,734
Capital loss carryforwards 10,512 -- 10,512
Tax credit carryforwards 6,310 (459) 5,851
Other deductible temporary differences 8,888 967 9,855
- -------------------------------------------------------------------------------
Total gross deferred tax assets 41,958 (3,006) 38,952
Valuation allowance (28,573) 602 (27,971)
- -------------------------------------------------------------------------------
Gross deferred tax assets 13,385 (2,404) 10,981
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred subscription acquisition costs (3,708) 23 (3,685)
Other taxable temporary differences (2,806) (18) (2,824)
- -------------------------------------------------------------------------------
Gross deferred tax liabilities (6,514) 5 (6,509)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 6,871 $(2,399) $ 4,472
===============================================================================
</TABLE>
In addition to the federal tax benefits in the table above, the Company has net
operating loss carryforwards available in various states, none of which are
reflected in the net deferred tax assets in the Consolidated Balance Sheets at
June 30, 1996 and 1995.
Realization of the net deferred tax asset is dependent upon the Company's
ability to generate taxable income in future years. The recognition of benefits
in the financial statements is based upon projections by management of future
operating income and the anticipated reversal of temporary differences that will
result in taxable income. Projections of future earnings were based on adjusted
historical earnings.
In order to fully realize the net deferred tax asset of $4.5 million at
June 30, 1996, the Company will need to generate future taxable income of
approximately $13.2 million. Management believes that it is more likely than
not that the required amount of taxable income will be realized. Management
will periodically reconsider the assumptions utilized in the projection of
future earnings and, if warranted, increase or decrease the amount of deferred
tax benefits recognized through an adjustment to the valuation allowance.
At June 30, 1996, the Company had operating loss carryforwards of $37.5
million with $0.8 million expiring in 2001, $8.9 million expiring in 2003, $8.2
million expiring in 2004, $2.1 million expiring in 2007, $1.1 million expiring
in 2008 and $16.4 million expiring in 2009. The Company had capital loss
carryforwards of $30.9 million with $1.0 million expiring in
37
<PAGE>
1998 and $29.9 million expiring in 1999. The Company had operating loss
carryforwards of $25.8 million for alternative minimum tax purposes, with $1.9
million expiring in 2003, $5.7 million expiring in 2004, $1.5 million expiring
in 2007, $0.7 million expiring in 2008 and $16.0 million expiring in 2009. In
addition, foreign tax credit carryforwards of $3.3 million and investment tax
credit carryforwards of $2.0 million are available to reduce future U.S. federal
income taxes. The foreign tax credit carryforwards expire in 1998 through 2001,
and the investment tax credit carryforwards expire in 1997 through 2001.
(F) DISCONTINUED OPERATIONS
During fiscal 1982, the Company discontinued its resort hotel operations. The
net current liabilities related to these discontinued operations have been
segregated in the Consolidated Balance Sheets at June 30, 1996 and 1995 as
"Reserves for losses on disposals of discontinued operations." Changes in
management's estimates of the Company's remaining liabilities in connection with
these discontinued operations resulted in a loss on disposal of discontinued
operations of $620,000 in fiscal 1994. There was no income tax effect as the
benefit was offset by a corresponding change in the valuation allowance related
to the net deferred tax asset established with the adoption of Statement 109.
In January 1993, the Company received a General Notice from the United
States Environmental Protection Agency (the "EPA") as a "potentially responsible
party" ("PRP") in connection with a site identified as the Southern Lakes Trap &
Skeet Club, apparently located at the Resort-Hotel in Lake Geneva, Wisconsin
(the "Resort"), formerly owned by a subsidiary of the Company. The Resort was
sold by the Company's subsidiary to LG Americana-GKP Joint Venture in 1982. Two
other entities were also identified as PRPs in the notice. The notice relates to
actions that may be ordered taken by the EPA to sample for and remove
contamination in soils and sediments, purportedly caused by skeet shooting
activities at the Resort property. During fiscal 1994, the EPA advised the
Company of its position that the area of land requiring remediation is
approximately twice the size of the initial site. As a result, the Company
increased its reserve for this matter, which resulted in the previously
discussed $620,000 loss on disposal of discontinued operations in fiscal 1994.
The Company believes that it has established adequate reserves, which totaled
$707,000 at June 30, 1996, to cover the eventual cost of its anticipated share
(based on an agreement with one of the other PRPs) of any remediation that may
be agreed upon. The Company is also reviewing available defenses, insurance
coverage and claims it may have against third parties.
A claim had been made against the Company for indemnity arising out of the
contract under which the Company sold its United Kingdom gaming operations in
fiscal 1982. The extent of the indemnity was in dispute and was being litigated.
In May 1993, the Company settled the dispute for $1,173,000. The Company was
entitled to a United Kingdom tax refund equal to 30% of the amount paid, and, in
July 1993, received $630,000 representing such taxes and related interest. The
net settlement amount of $543,000 was previously reserved.
(G) INVENTORIES
Inventories consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Paper $10,771 $ 7,342
Editorial and other prepublication costs 6,566 6,193
Merchandise finished goods 6,162 7,893
- -------------------------------------------------------------------------------
Total inventories $23,499 $21,428
===============================================================================
</TABLE>
(H) PROGRAMMING COSTS
Current programming costs consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Released, less amortization $24,040 $23,898
Completed, not yet released 9,833 5,842
- -------------------------------------------------------------------------------
Total current programming costs $33,873 $29,740
===============================================================================
</TABLE>
Noncurrent programming costs consist of programs in the process of production.
The Company revised its amortization method for licensed film costs during
the fourth quarter of fiscal 1994 as a result of its decision to offer Playboy
Television on a 24-hour basis, which resulted in a change in the scheduling of
licensed films. Licensed films are aired throughout the term of the license
period, and related costs are primarily amortized over such period, generally
three years. This change in accounting estimate resulted in a decrease in
programming expense of $870,000 for the fiscal year ended June 30, 1995. This
change in accounting estimate resulted in a net increase in the Company's net
income of $574,000, or $0.03 per share (net of related taxes of $296,000), for
the fiscal year ended June 30, 1995.
(I) ADVERTISING COSTS
Effective July 1, 1994, the Company adopted the provisions of Statement of
Position 93-7, Reporting on Advertising Costs.
The Company expenses advertising costs as incurred, except for direct-
response advertising. Direct-response advertising consists primarily of costs
associated with the promotion of magazine subscriptions and the distribution of
catalogs for use in the Company's Catalog Group. The capitalized direct-response
advertising costs are amortized over the period during which the future benefits
are expected to be received, principally six to 12 months.
At June 30, 1996 and 1995, advertising costs of $6.9 million and $6.4
million, respectively, were deferred and included in "Deferred subscription
acquisition costs" and "Other current assets" in the Consolidated Balance
Sheets. For the fiscal years ended June 30, 1996, 1995 and 1994, the Company's
advertising expense was $44.4 million, $43.5 million and $43.2 million,
respectively.
(J) LONG-TERM FINANCING OBLIGATIONS
Long-term financing obligations consisted of the following at June 30
(in thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
10% note due in installments through 1997, net of
unamortized discount of $13 and $30, respectively,
based upon imputed interest rate of 13% $ 687 $1,020
Less current maturities, net of unamortized discount
of $10 and $17, respectively (340) (333)
- -------------------------------------------------------------------------------
Total long-term financing obligations $ 347 $ 687
===============================================================================
</TABLE>
The amount of scheduled annual maturities of long-term debt for each of fiscal
1997 and 1998 is $350,000. The carrying value of this debt approximates the fair
market value.
38
<PAGE>
Under the terms of the Company's revolving credit agreement with two
domestic banks, the line of credit decreased from $30.0 million to $19.5 million
in December 1995. In March 1996, the Company and its banks amended the agreement
which increased the line of credit from $19.5 million to $35.0 million and
extended the maturity date of the line to March 1999. The credit agreement
provides for interest based on fixed spreads over specified index rates and for
commitment fees based on a combination of the unused portion of the total line
of credit and cash balances. The credit agreement, which covers short-term
borrowings and the issuance of letters of credit, remains collateralized by
substantially all of the Company's assets and requires the Company to maintain
financial covenants pertaining to net worth, leverage and cash flow.
Additionally, there are limitations on other indebtedness and investments and
cash dividends are prohibited. The carrying value of these borrowings
approximates the fair market value of the debt.
At June 30, 1996, short-term borrowings of $5.0 million and letters of
credit of $5.4 million were outstanding compared to short-term borrowings and
letters of credit outstanding at June 30, 1995 of $5.0 million and $5.5 million,
respectively. The weighted average interest rates on the short-term borrowings
outstanding at June 30, 1996 and 1995 were 7.77% and 8.70%, respectively.
(K) STOCK PLANS
The Company has two plans under which stock options or shares may be granted:
the 1991 Non-Qualified Stock Option Plan for Non-Employee Directors (the
"Directors' Plan") and the 1995 Stock Incentive Plan, which was approved by
stockholders of the Company on November 14, 1995. Previously, stock options were
also granted under the 1989 Stock Option Plan (the "1989 Option Plan"). However,
at this time, there are no shares available for future grant under this plan.
The 1989 Option Plan authorized the grant of nonqualified stock options to
key employees to purchase up to 342,500 shares of Class A stock and 1,027,500
shares of Class B stock at a price that was equal to the fair market value at
date of grant. The remaining 103,000 Class B options available for future grants
under the 1989 Option Plan were transferred into the 1995 Stock Incentive Plan
and the remaining 175,100 Class A options were cancelled. The Directors' Plan
provides for the grant of nonqualified stock options to each nonemployee
director to purchase shares of Class B stock at a price that is equal to the
fair market value at date of grant. Options to purchase an aggregate of 80,000
shares of Class B stock may be granted under the Directors' Plan. The 1995 Stock
Incentive Plan, which currently provides for Non-Qualified Stock Option,
Incentive Stock Option and Restricted Stock Agreements, authorizes the issuance
of a total of 1,803,000 shares of Class B stock, which includes the previously
mentioned 103,000 shares that were transferred from the 1989 Option Plan and an
additional 600,000 shares authorized in June 1996, which are subject to
stockholder approval. The Non-Qualified and Incentive Stock Option Agreements
authorize the grant of options to key employees to purchase shares of Class B
stock at a price that is not less than the fair market value at date of grant.
Options under the three plans are generally for a term of ten years and are
generally exercisable in cumulative annual installments of 25% each year,
beginning on the first anniversary of the date such options were initially
granted. The Restricted Stock Agreement provides for the issuance of Class B
stock to key employees subject to certain restrictions that lapse upon the
Company meeting specified operating income objectives pertaining to a fiscal
year. Such operating income objectives are set at $7.5 million, $10.0 million,
$15.0 million and $20.0 million. However, all vesting requirements will lapse
automatically and any remaining restricted stock will vest on June 30, 2005.
The first operating income objective of $7.5 million was met in fiscal 1996, and
121,564 shares of restricted stock vested in August 1996. Compensation expense
recognized in fiscal 1996 and 1995 in connection with the 1995 Stock Incentive
Plan was $972,000 and $228,000, respectively.
At June 30, 1996, options to purchase 115,000 shares of Class A stock and
617,752 shares of Class B stock were exercisable under the 1989 Option Plan,
options to purchase 30,000 shares of Class B stock were exercisable under the
Directors' Plan, and options to purchase 99,375 shares of Class B stock were
exercisable under the 1995 Stock Incentive Plan. The Board of Directors has
reserved treasury shares for issuance upon exercise of options under the 1989
Option Plan. Shares issued upon exercise of options granted or shares awarded
under the Directors' Plan or the 1995 Stock Incentive Plan may be either
treasury shares or newly issued shares. At June 30, 1996, 906,750 shares of
Class B stock were available for future grants of options under the Directors'
Plan and the 1995 Stock Incentive Plan. Transactions under such plans are
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Stock Options Outstanding
- --------------------------------------------------------------------------------
Shares Price Range
--------------------------------------------------
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Outstanding at June 30, 1993 185,000 977,500 4.88-7.38 4.00-8.50
Granted - 100,000 - 6.88-9.38
Exercised (8,400) (62,500) 6.69 5.38-6.13
Canceled - (21,250) - 5.50-7.63
- --------------------------------------------------
Outstanding at June 30, 1994 176,600 993,750 4.88-7.38 4.00-9.38
Granted - 496,250 - 8.25-10.04
Exercised (4,500) (20,000) 6.69 5.38-6.13
Canceled (22,100) (161,250) 6.69 5.38-9.38
- --------------------------------------------------
Outstanding at June 30, 1995 150,000 1,308,750 4.88-7.38 4.00-10.04
Granted - 40,000 - 8.88-10.63
Exercised (35,000) (159,750) 4.88 4.00-9.13
Canceled - (42,500) - 9.13
- --------------------------------------------------
Outstanding at June 30, 1996 115,000 1,146,500 6.69-7.38 4.38-10.63
================================================================================
- --------------------------------------------------------------------------------
Restricted Stock Awards Outstanding
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Outstanding at June 30, 1994 -
Awarded 516,250
Vested -
Canceled -
- --------------------------------------------------------------------------------
Outstanding at June 30, 1995 516,250
Awarded 20,000
Vested -
Canceled (50,000)
- --------------------------------------------------------------------------------
Outstanding at June 30, 1996 486,250
================================================================================
</TABLE>
Certain incentive stock options granted in fiscal 1995 have been determined to
carry an option price of 110%, and not 100%, of the fair market value on the
date of grant.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123") in fiscal 1997. It is the Company's intention to adopt only
the disclosure requirements of Statement 123.
(L) ACQUISITIONS
On March 29, 1996 the Company acquired an additional 45% interest in VIPress for
approximately $315,000, including approximately $85,000 in acquisition costs.
Subsequent to this purchase, the Company owns 90% of the capital stock of
VIPress, which publishes the Polish edition of Playboy magazine.The acquisition
was accounted for under the purchase method and, accordingly, the results of
VIPress since the date of acquisition have been included in the Company's
Consolidated Statements of Operations.
39
<PAGE>
Prior to acquiring the additional 45% interest, the investment was accounted for
under the equity method and as such, the Company's proportionate share of net
income from VIPress prior to the acquisition is included in nonoperating
expense. The acquisition resulted in goodwill of approximately $106,000 which
will be amortized over five years. The Company's 90% interest may be reduced to
a minimum of 80% by the end of fiscal year 2000 as a result of shares that may
be sold for a nominal amount to two managing minority partners generally
pursuant to an incentive plan that requires certain performance objectives to be
met. Pro forma results reflecting this acquisition, assuming it had been made at
the beginning of each period presented, would not be materially different from
the results reported.
The Company has an option to acquire the remaining 80% interest in duPont
Publishing, Inc. ("duPont") at a price based on fair market value as of December
31, 1999. duPont is the publisher of two magazines, duPont Registry, A Buyers
Gallery of Fine Automobiles and A Buyers Gallery of Fine Homes. Previously, the
Company was required to make loans to duPont to fund its working capital
requirements. These loans, which bear interest at a rate of 1% over the prime
rate, amounted to $125,000 and $295,000 at June 30, 1996 and 1995, respectively.
In July 1988, the Company acquired 80% of the common stock of Critics'
Choice Video, Inc., a national direct marketer of theatrical and special-
interest videocassettes, for $125,000. The Company purchased the remaining 20%
of Critics' Choice Video, Inc. common stock effective July 1, 1993 for $3.0
million, which consisted of $1.5 million in cash and one-year promissory notes
totaling $1.5 million, which were paid July 1, 1994. The acquisition was
accounted for using the purchase method. The excess cost of $2.4 million is
being amortized over 40 years.
(M) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes was as follows during the years ended
June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 610 $ 774 $ 566
Income taxes 1,851 1,064 510
- --------------------------------------------------------------------------------
</TABLE>
The Company was entitled to a United Kingdom tax refund equal to 30% of the
amount paid pursuant to the settlement in May 1993 of litigation related to its
discontinued United Kingdom gaming operations. Cash paid for income taxes in
fiscal 1994 was net of $630,000 representing such refund and related interest.
See Note F.
During the fiscal year ended June 30, 1994, the Company had noncash
investing and financing activities related to its July 1988 purchase of an 80%
interest in Critics' Choice Video, Inc. See Note L.
(N) LEASE COMMITMENTS
The Company's principal lease commitments are for office space, the satellite
transponder used in its pay television operations, and furniture and equipment.
The office leases provide for the Company's payment of its proportionate share
of operating expenses and real estate taxes in addition to monthly base rent.
The Company's corporate headquarters is under terms of a 15-year lease,
which commenced September 1, 1989. In fiscal 1992, the Entertainment Group
relocated its Los Angeles office under terms of a ten-year lease, which
commenced April 1, 1992. In fiscal 1993, the Publishing Group relocated its New
York office under a lease with a term of approximately 11 years, which commenced
April 1, 1993. In fiscal 1994, the Publishing Group relocated its Los Angeles
photo studio under terms of a ten-year lease, which commenced January 1, 1994.
These leases provide for base rent abatements; however, rent expense is being
charged to operations on a straight-line basis over the terms of the leases.
This resulted in liabilities of $5.7 million at both June 30, 1996 and 1995,
which are included in "Other noncurrent liabilities" in the Consolidated Balance
Sheets. In addition, during fiscal 1993, the Company entered into a five-year
lease, which includes a purchase option, for the Catalog Group's current
suburban Chicago operations facility. Due to the growth of the catalog business,
in fiscal 1998 the Company will be leasing a larger facility in the same Chicago
suburb to replace the existing facility.
In December 1992, the Company executed a lease for its current satellite
transponder that became effective January 1, 1993. This operating lease is for a
term of approximately nine years and includes a purchase option. A $5.0 million
letter of credit was issued under the Company's revolving line of credit for the
benefit of the lessor to secure the Company's obligations under this lease. This
letter of credit can be irrevocably released based upon achievement of certain
criteria related to annual financial data.
During fiscal 1993, the Company began to lease certain furniture and
equipment for use in its operations. The leases are for terms of two to five
years and include end-of-lease purchase options.
Rent expense was as follows for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent expense $9,177 $8,854 $8,841
Contingent rent expense - - 344
- --------------------------------------------------------------------------------
Total 9,177 8,854 9,185
Sublease income - - (1,364)
- --------------------------------------------------------------------------------
Net rent expense $9,177 $8,854 $7,821
================================================================================
</TABLE>
The minimum commitment at June 30, 1996, under operating leases with
noncancelable terms in excess of one year, was as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Year ending June 30 Leases
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 8,825
1998 8,244
1999 7,195
2000 7,428
2001 7,656
Later years 13,237
- --------------------------------------------------------------------------------
Total minimum lease payments $52,585
================================================================================
</TABLE>
(O) CABLE TELEVISION
Effective April 1, 1986, the Company assumed marketing and distribution
responsibilities for The Playboy Channel and other North American Playboy pay
television products (the "Service") from its former distributor, Rainbow
Programming Services Company ("Rainbow"). The termination agreement provided for
the assignment to the Company of all distribution contracts with cable system
operators and others that carried the Service.
Under the termination agreement, Rainbow was to receive a monthly royalty
of 5% of revenues received by the Company for the Service, subject to a minimum
royalty based on number of subscribers, as long as the Service is in operation.
These royalty payments were discontinued April 30, 1996, when the agreement
ended. The agreement provided for noncompetition in the North American
distribution and production of an adult-oriented pay television service by
Rainbow as long as royalty payments were being made.
40
<PAGE>
(P) SEGMENT INFORMATION
The four industry segments in which the Company currently operates are as
follows: Publishing, Entertainment, Product Marketing and Catalog. Publishing
Group operations include the publication of Playboy magazine; Playboy-related
businesses, including newsstand specials and calendars, foreign editions of
Playboy magazine, and new media and ancillary businesses; and the production of
the Playboy Jazz Festival. Entertainment Group operations include the production
and marketing of programming through Playboy Television, other domestic
television, international television and worldwide home video businesses as well
as the co-production of feature-length movies. Product Marketing Group
operations include licensing the manufacture, sale and distribution of consumer
products carrying one or more of the Company's trademarks and the licensing of
artwork owned by the Company. Catalog Group operations include the direct
marketing of three catalogs: Critics' Choice Video, Collectors' Choice Music and
Playboy. Financial information relating to industry segments for fiscal 1996,
1995 and 1994 is presented on page 24 and is an integral part of these
consolidated financial statements.
(Q) EMPLOYEE BENEFIT PLAN
The Company's Employees Investment Savings Plan (the "Savings Plan"), a defined
contribution plan, covers all employees who have completed a full year of
service of at least 1,000 hours. The Company's discretionary contribution to the
Savings Plan is distributed to each eligible employee's account in an amount
equal to the ratio of each eligible employee's compensation to the total
compensation paid to all such employees. The fiscal 1996 and 1995 contributions
were approximately $620,000 and $200,000, respectively. No such contribution was
made in fiscal 1994.
During fiscal 1996, 1995 and 1994, the Company matched employee
contributions to the Savings Plan to a maximum of 2 3/4% of each participating
employee's eligible compensation, subject to Internal Revenue Service
limitations. For fiscal 1997, the maximum match will be 3 1/2% of such
compensation. The Company's matching contributions in fiscal 1996, 1995 and 1994
related to this program were approximately $630,000, $630,000 and $670,000,
respectively.
Effective October 1, 1992, the Company established a Deferred Compensation
Plan, which permits certain employees and directors to annually elect to defer a
portion of their compensation. The Deferred Compensation Plan is available to
approximately 60 of the Company's most highly compensated employees and all
nonemployee directors. Employee participants may defer between 5% and 15% (in 1%
increments) of salary, and up to 50% (in 10% increments) of payments due under
Executive Incentive Compensation Plans or sales commissions. Directors may defer
between 25% and 100% (in 25% increments) of their annual retainer and meeting
fees. Amounts deferred under this plan are credited with interest each quarter
at a rate equal to the preceding quarter's average composite yield on corporate
bonds as published by Moody's Investor's Service, Inc. All amounts deferred and
interest credited are 100% vested immediately and are general unsecured
obligations of the Company. Such obligations totaled $1,186,000 and $797,000 at
June 30, 1996 and 1995, respectively, and are included in "Other noncurrent
liabilities" in the Consolidated Balance Sheets.
Effective July 1, 1996 the Company established an Employee Stock Purchase
Plan, which is subject to stockholder approval, to provide substantially all
regular full and part-time employees an opportunity to purchase shares of its
Class B common stock through payroll deductions up to the lower of 10% of base
salary, or $25,000 of fair market value of Class B common stock per calendar
year (as required by the Internal Revenue Service). The funds will be withheld
and then used to acquire stock on the last trading day of each quarter, based on
the closing price less a 15% discount.
(R) CONTINGENCIES
Playboy Television's programming is delivered primarily through a communications
satellite transponder. The Company's current transponder lease, effective
January 1, 1993, contains protections typical in the industry against
transponder failure, including access to spare transponders on the same
satellite as well as transponders on another satellite currently in operation.
Access to the transponder may be denied under certain narrowly defined
circumstances relating to violations of law or threats to revoke the license of
the satellite owner to operate the satellite based on programming content.
However, the Company has the right to challenge any such denial and believes
that the transponder will continue to be available to it through the end of the
expected life of the satellite (currently estimated to be in 2004).
The Company believes that if Section 505 of the Telecommunications Act of
1996 were to be enforced, the Company's revenues attributable to its domestic
pay television services could be materially adversely affected due to reduced
cable carriage and/or reduced buy rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company believes that it has established adequate reserves in
connection with the General Notice received from the EPA in January 1993 related
to its discontinued resort hotel operations. See Note F.
(S) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended June 30, 1996 and 1995 (in thousands, except per share amounts):
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------
1996 Sept. 30 Dec. 31 Mar. 31 June 30 Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $62,263 $71,618 $66,257 $76,449 $276,587
Gross profit 8,579 11,120 9,555 13,086 42,340
Operating income 1,440 2,854 1,835 3,364 9,493
Income before
extraordinary item and
cumulative effect
of change in ac-
counting principle 1,012 1,138 676 1,426 4,252
Net income 1,012 1,138 676 1,426 4,252
Income before
extraordinary item and
cumulative effect
of change in ac-
counting principle
per common share 0.05 0.06 0.03 0.07 0.21
Net income per
common share 0.05 0.06 0.03 0.07 0.21
Common stock price
Class A high 9 5/8 9 1/2 11 15 3/4
Class A low 7 7/8 8 5/8 8 3/8 10
Class B high 9 3/8 9 1/4 11 1/8 16 1/2
Class B low $ 7 3/8 $ 7 1/2 $ 7 1/2 $ 9 7/8
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------
1995 Sept. 30 Dec. 31 Mar. 31 June 30 Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $57,218 $64,663 $58,025 $67,343 $247,249
Gross profit* 6,489 8,227 6,912 11,294 32,922
Operating income (loss) (864) 1,291 236 2,394 3,057
Income (loss) before
extraordinary item and
cumulative effect
of change in ac-
counting principle (1,228) 1,001 (347) 1,203 629
Net income (loss) (1,228) 1,001 (347) 1,203 629
Income (loss) before
extraordinary item and
cumulative effect
of change in ac-
counting principle
per common share (0.06) 0.05 (0.02) 0.06 0.03
Net income (loss) per
common share (0.06) 0.05 (0.02) 0.06 0.03
Common stock price
Class A high 8 7/8 9 7/8 9 1/2 8 3/8
Class A low 6 1/8 7 1/2 8 1/8 7 5/8
Class B high 9 1/8 10 3/4 10 5/8 8 1/4
Class B low $ 6 1/8 $ 7 1/4 $ 7 5/8 $ 7 3/8
</TABLE>
*Amounts cannot be calculated from the Company's respective Quarterly Reports on
Form 10-Q filed in fiscal 1995 as a result of certain reclassifications between
"Cost of sales" and "Selling and administrative expenses" in the Consolidated
Statements of Operations.
The operating loss for the first quarter of fiscal 1995 and operating income
for the second, third and fourth quarters of fiscal 1995 included reductions in
programming expense of $220,000, or $0.02 per share; $281,000, or $0.01 per
share; $200,000, or $0.01 per share; and $169,000, or $0.00 per share,
respectively, resulting from a change in accounting estimate. See Note H.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Playboy Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Playboy
Enterprises, Inc. and its Subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Playboy
Enterprises, Inc. and its Subsidiaries as of June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
August 1, 1996
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The consolidated financial statements and all related financial information
herein are the responsibility of the Company. The financial statements, which
include amounts based on judgments, have been prepared in accordance with
generally accepted accounting principles. Other financial information in the
annual report is consistent with that in the financial statements.
The Company maintains a system of internal controls that it believes provides
reasonable assurance that transactions are executed in accordance with
management's authorization and are properly recorded, that assets are
safeguarded and that accountability for assets is maintained. The system of
internal controls is characterized by a control-oriented environment within the
Company, which includes written policies and procedures, careful selection and
training of personnel, and internal audits.
Coopers & Lybrand L.L.P., independent accountants, have audited and reported on
the Company's consolidated financial statements. Their audits were performed in
accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors, composed of four nonmanagement
directors, meets periodically with Coopers & Lybrand L.L.P., management
representatives and the Company's internal auditor to review internal accounting
control and auditing and financial reporting matters. Both Coopers & Lybrand
L.L.P. and the internal auditor have unrestricted access to the Audit Committee
and may meet with it without management representatives being present.
/s/ Christie Hefner
Christie Hefner
Chairman and Chief Executive Officer
/s/ Rebecca S. Maskey
Rebecca S. Maskey
Senior Vice President, Finance
43
<PAGE>
Exhibit 21
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
EXHIBIT 21
PARENT AND SUBSIDIARIES
Hugh M. Hefner is a "parent" of the Company, as defined under the Securities
Exchange Act of 1934, as amended, by virtue of his stock ownership. Mr. Hefner
beneficially owned 69.95% of the outstanding voting stock of the Company as of
August 31, 1996.
The accounts of all of the subsidiaries are included in the Company's
Consolidated Financial Statements. Set forth below are the names of certain
active corporate subsidiaries of the Company as of June 30, 1996. Certain
subsidiaries are omitted because such subsidiaries considered individually or in
the aggregate would not constitute a significant subsidiary.
Indented names are subsidiaries of the company under which they are indented:
<TABLE>
<CAPTION>
Percent
Jurisdiction in Ownership
which Incorporated By Immediate
Name of Company or Organized Parent
- --------------- ------------------ -------------
<S> <C> <C>
Playboy Enterprises, Inc. (parent) Delaware
Lake Shore Press, Inc. Delaware 100%
Lifestyle Brands, Ltd. Delaware 100%
Playboy Models, Inc. Illinois 100%
Playboy Products and Services
International, B.V. The Netherlands 100%
Playboy Entertainment Group, Inc. Delaware 100%
After Dark Video, Inc. Delaware 100%
Alta Loma Productions, Inc. Delaware 100%
Cameo Films, Inc. Illinois 100%
Impulse Productions, Inc. Delaware 100%
Precious Films, Inc. California 100%
AdulTVision Communications, Inc. Delaware 100%
Mystique Films, Inc. California 100%
Women Productions, Inc. California 100%
Playboy Clubs International, Inc. Delaware 100%
Playboy Preferred, Inc. Illinois 100%
Critics' Choice Video, Inc. Illinois 100%
Special Editions, Ltd. Delaware 100%
Playboy Shows, Inc. Delaware 100%
Telecom International, Inc. Florida 100%
Playboy Gaming International, Ltd. Delaware 100%
Playboy Gaming Greece, Ltd. Delaware 100%
Playboy Properties, Inc. Delaware 100%
VIPress Poland Sp. z o.o Poland 90%
</TABLE>
<PAGE>
Exhibit 23
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
on Form S-8 (File Nos. 33-37666, 33-46113, 33-58145, 33-60631 and 333-06843) of
our report dated August 1, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Playboy Enterprises, Inc. as of
June 30, 1996 and 1995, and for the years ended June 30, 1996, 1995 and 1994,
which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
September 27, 1996
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,438
<SECURITIES> 0
<RECEIVABLES> 32,119
<ALLOWANCES> 3,009
<INVENTORY> 23,499
<CURRENT-ASSETS> 108,909
<PP&E> 37,404
<DEPRECIATION> 25,510
<TOTAL-ASSETS> 150,869
<CURRENT-LIABILITIES> 90,021
<BONDS> 347
<COMMON> 215
0
0
<OTHER-SE> 52,068
<TOTAL-LIABILITY-AND-EQUITY> 150,869
<SALES> 276,587
<TOTAL-REVENUES> 276,587
<CGS> 234,247
<TOTAL-COSTS> 267,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680
<INCOME-PRETAX> 8,449
<INCOME-TAX> 4,197
<INCOME-CONTINUING> 4,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,252
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
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