Document:

exv4w2

Exhibit 4.2

PRECISION DRILLING TRUST

EMPLOYEE TRUST UNIT OPTION PLAN

·, 2009

 

 

PRECISION DRILLING TRUST

EMPLOYEE TRUST UNIT OPTION PLAN

	1.	 	The Plan
	 
	 	 	A trust unit option plan pursuant to which Options to purchase Trust Units may be granted to
the officers and key employees of the Precision Group is hereby established on the terms set
forth below.
	 
	2.	 	Purpose
	 
	 	 	The purpose of this Plan is to advance the interests of the Precision Group by encouraging
the officers and key employees of the Precision Group to acquire Trust Units, thereby (i)
increasing the proprietary interests of such persons in the Trust, (ii) aligning the
interests of such persons with the interests of the unitholders of the Trust generally,
(iii) encouraging such persons to remain associated with the Precision Group and (iv)
furnishing such persons with an additional incentive in their efforts on behalf of the
Precision Group.
	 
	3.	 	Defined Terms
	 
	3.1	 	Where used herein, the following terms shall have the following meanings, respectively:
	 
	 	 	“Black-Out Period” means the period of time when, pursuant to any policies of the Trust, any
securities of the Trust may not be traded by certain Persons as designated by the Trust,
including any holder of an Option;
	 
	 	 	“Board” means the board of directors of the Corporation;
	 
	 	 	“Canadian Option” means an Option pursuant to which the Option Price is stated and payable
in Canadian dollars;
	 
	 	 	“Canadian SIFT Rules” means the rules provided for by the ITA
concerning “Specified
Investment Flow-Through” or “SIFT” entities;
	 
	 	 	“Cause” means, unless otherwise defined in the applicable agreement evidencing the grant of
an Option hereunder, any act or omission that would entitle the Employer to terminate the
Participant’s employment without notice or compensation under the common law for just cause,
including, without in any way limiting its meaning under the common law:

	 	(i)	 	any improper conduct by the Participant which is materially detrimental to the
Employer; or
	 
	 	(ii)	 	the willful failure of the Participant to properly carry out his or her duties
on behalf of the Employer or to act in accordance with the reasonable direction of the
Employer;

 

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	 	 	“Change of Control” means the occurrence of any of:

	 	(i)	 	any transaction at any time and by whatever means pursuant to which any Person
or any group of two or more Persons acting jointly or in concert (other than the Trust
or the Corporation or any wholly-owned subsidiary of the Trust or the Corporation)
hereafter acquires the direct or indirect “beneficial ownership” (as defined in the
Business Corporations Act (Alberta)) of, or acquires the right to exercise control or
direction over, securities of the Trust or the Corporation representing 50% or more of
the then issued and outstanding voting securities of the Trust or the Corporation, as
the case may be, in any manner whatsoever, including, without limitation, as a result
of a takeover bid, an issuance or exchange of securities, an amalgamation of the Trust
or the Corporation with any other entity, an arrangement, a capital reorganization or
any other business combination or reorganization;
	 
	 	(ii)	 	the sale, assignment or other transfer of all or substantially all of the
assets of the Trust or the Corporation to a Person or any group of two or more Persons
acting jointly or in concert (other than a wholly-owned subsidiary of the Trust or the
Corporation or in connection with an income or royalty trust reorganization);
	 
	 	(iii)	 	the dissolution or liquidation of the Corporation or the Trust, as the case
may be, except in connection with the distribution of assets of the Trust or the
Corporation to one or more Persons which were wholly-owned subsidiaries of the Trust or
the Corporation prior to such event or in connection with an income trust or royalty
trust reorganization;
	 
	 	(iv)	 	the occurrence of a transaction requiring approval of the Trust’s unitholders
whereby the Trust or the Corporation is acquired through consolidation, merger,
exchange of securities, purchase of assets, amalgamation, statutory arrangement or
otherwise by any Person or any group of two or more Persons acting jointly or in
concert (other than an exchange of securities with a wholly-owned subsidiary of the
Trust or the Corporation or an income or royalty trust reorganization); or
	 
	 	(v)	 	the Board passes a resolution to the effect that an event comparable to an
event set forth in this definition has occurred;

	 	 	provided that an event described in this definition shall not constitute a Change of Control
where such event occurs as a result of a Permitted Reorganization;
	 
	 	 	“Code” means the U.S. Internal Revenue Code of 1986, as amended;
	 
	 	 	“Constructive Dismissal” has the meaning ascribed thereto pursuant to the common law, unless
otherwise defined in the applicable agreement evidencing the grant of an Option hereunder,
and shall include, without in any way limiting its meaning under the common law, any
material change (other than a change which is clearly consistent with a promotion) imposed
by the Employer without the Participant’s consent to the Participant’s title,
responsibilities or reporting relationships, or a reduction of the Participant’s

 

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	 	 	compensation except where such reduction is applicable to all officers, if the Participant
is an officer, or all employees, if the Participant is an employee, of the Employer;
	 
	 	 	“Continuing Entity” has the meaning set out in Section 10.1;
	 
	 	 	“Continuing Entity Options” has the meaning set out in Section 10.1;
	 
	 	 	“Control Period” means the period commencing on the date of the Change of Control and ending
180 days after the date of the Change of Control;
	 
	 	 	“Corporation” means Precision Drilling Corporation and includes any successor corporation
thereto;
	 
	 	 	“Date of Grant” of an Option means the date an Option is granted to a Participant under the
Plan;
	 
	 	 	“Disability” means where the Participant:

	 	(i)	 	is to a substantial degree unable, due to illness, disease, affliction, mental
or physical disability or similar cause, to fulfill his obligations as an officer or
employee of the Employer either for any consecutive 12 month period or for any period
of 18 months (whether or not consecutive) in any consecutive 24 month period; or
	 
	 	(ii)	 	is declared by a court of competent jurisdiction to be mentally incompetent or
incapable of managing his affairs;

	 	 	"Employer” means with respect to a Participant, the entity in the Precision Group that
employs the Participant or that employed the Participant immediately prior to his or her
Termination Date;
	 
	 	 	“Fair Market Value” means, on any particular date, the fair market value of a Trust Unit as
determined by the Board in accordance with the following:

	 	(i)	 	in respect of a Trust Unit issuable upon the exercise of a Canadian Option, the
Fair Market Value shall mean the weighted average trading price of a Trust Unit on the
TSX during the last five trading days prior to that particular date on which at least a
board lot of Trust Units has so traded or, if a board lot has not traded on a
particular day, the average of the bid and asked prices; provided, however, that if the
Trust Units are not then listed and posted for trading on the TSX, then the Fair Market
Value shall mean the weighted average trading price of a Trust Unit on the NYSE during
the last five trading days prior to that particular date on which at least a board lot
of Trust Units has so traded or, if a board lot has not traded on a particular day, the
average of the bid and asked prices converted to Canadian dollars using the Noon Buying
Rate; and provided further, that if the Trust Units are not then listed and posted for
trading on the NYSE, then the Fair Market Value shall mean the weighted average trading
price of a Trust Unit on such stock exchange in Canada or the United States on which
the Trust Units are

 

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	 	 	 	then listed and posted for trading during the last five trading days prior to that
particular date (and, if in United States dollars, converted to Canadian dollars
using the Noon Buying Rate) or, if the Trust Units are not then listed and posted
for trading on any stock exchange in Canada or the United States, then the Fair
Market Value shall mean the fair market value per Trust Unit (in Canadian dollars)
as determined by the Board in its sole discretion and to the extent applicable, in
accordance with Section 409A of the Code;
	 
	 	(ii)	 	in respect of a Trust Unit issuable upon the exercise of a U.S. Option, the
Fair Market Value shall mean the weighted average trading price of a Trust Unit on the
NYSE during the last five trading days prior to that particular date on which at least
a board lot of Trust Units has so traded or, if a board lot has not traded on a
particular day, the average of the bid and asked prices; provided, however, that if the
Trust Units are not then listed and posted for trading on the NYSE, then the Fair
Market Value shall mean the weighted average trading price of a Trust Unit on the TSX
during the last five trading days prior to that particular date on which at least a
board lot of Trust Units has so traded or, if a board lot has not traded on a
particular day, the average of the bid and asked prices converted to United States
dollars using the Noon Buying Rate; and provided further, that if the Trust Units are
not then listed and posted for trading on the TSX, then the Fair Market Value shall
mean the weighted average trading price of a Trust Unit on such stock exchange in
Canada or the United States on which the Trust Units are then listed and posted for
trading during the last five trading days prior to that particular date (and, if in
Canadian dollars, converted to United States dollars using the Noon Buying Rate) or, if
the Trust Units are not then listed and posted for trading on any stock exchange in
Canada or the United States, then the Fair Market Value shall mean the fair market
value per Trust Unit (in United States dollars) as determined by the Board in its sole
discretion and to the extent applicable, in accordance with Section 409A of the Code;
and
	 
	 	(iii)	 	the Fair Market Value of a Trust Unit shall be rounded up to the nearest whole
cent;

	 	 	“Insider” means an insider as defined in the TSX Company Manual, as amended from time to
time;
	 
	 	 	“ITA” means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, including
the regulations promulgated thereunder, as amended from time to time;
	 
	 	 	“Leave of Absence” means any period during which, pursuant to the prior written approval of
the Participant’s Employer, the Participant is considered to be on an approved leave of
absence but does not provide any services to his or her Employer;
	 
	 	 	“Noon Buying Rate” means the noon buying rate for the applicable currency published by the
Bank of Canada on the relevant date;
	 
	 	 	“NYSE” means the New York Stock Exchange;

 

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	 	 	“Option” means an option to purchase Trust Units granted in accordance with the Plan by the
Trust to an officer or other key employee of the Precision Group, subject to the provisions
contained herein;
	 
	 	 	“Option Price” means, in respect of any particular Option, the price per Trust Unit at which
Trust Units may be purchased under that Option, as the same may be adjusted in accordance
with Article 8 hereof;
	 
	 	 	“Participant” means an officer or other key employee of the Precision Group to whom an
Option has been granted and which Option, or portion thereof, remains unexercised and has
not been surrendered;
	 
	 	 	“Permitted Reorganization” means a reorganization of the Precision Group in circumstances
where the unitholdings, shareholdings or ultimate ownership remains substantially the same
upon completion of the reorganization, and includes a reorganization, in a transaction or
series of related transactions, of the Trust for the purposes of avoiding the application of
the Canadian SIFT Rules and any related tax or trust, corporate or partnership
reorganization or restructuring including, without limitation, the contemporaneous or, to
the extent entered into in connection with such reorganization or restructuring, subsequent
termination or winding-up of the Trust;
	 
	 	 	“Person” means any individual, sole proprietorship, partnership, firm, entity,
unincorporated association, unincorporated syndicate, unincorporated organization, trust,
body corporate, agency and, where the context requires, any of the foregoing when they are
acting as trustee, executor, administrator or other legal representative;
	 
	 	 	“Plan” means this Trust Unit Option Plan of the Trust, as set out herein, as the same may be
amended or varied from time to time;
	 
	 	 	“Precision Group” means the Trust and any corporations which the Trust controls, within the
meaning of the ITA, and includes, for greater certainty, the Corporation;
	 
	 	 	“Restricted Options” has the meaning set out in Section 5.9;
	 
	 	 	”Retirement” means the normal retirement of the Participant from employment with the
Employer or the early retirement of the Participant pursuant to any applicable retirement
plan of the Employer;
	 
	 	 	“Substitution Event” means a Change of Control pursuant to which the Trust Units are
converted into, or exchanged for, other property, whether in the form of securities of
another entity, cash or otherwise;
	 
	 	 	“Termination Date” means the Participant’s last day of active employment with the Employer,
regardless of the reason for the termination of employment;
	 
	 	 	“Trust” means Precision Drilling Trust, a mutual fund trust within the meaning of the ITA,
and includes any successor mutual fund trust thereto, and any reference in this Plan to
action by the Trust means action by or under the authority delegated to the Corporation

 

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		 	or the Board or any Person or committee that has been designated for the purpose by the
Corporation;
	 
	 	 	“Trust Units” means the trust units of the Trust as presently constituted, each of which
represents an equal undivided beneficial interest in the Trust and any distributions from
the Trust, or any trust units into which such trust units are changed, reclassified,
subdivided, consolidated or converted or which are substituted for such trust units, or as
such trust units may further be changed, reclassified, subdivided, consolidated, converted
or substituted;
	 
	 	 	“TSX” means The Toronto Stock Exchange;
	 
	 	 	“U.S. Option” means an Option pursuant to which the Option Price is stated and payable in
United States dollars; and
	 
	 	 	“U.S. Taxpayer” means a person who is a citizen or permanent resident of the United States
for the purposes of the Code or for whom Options granted under the Plan would otherwise be
subject to United States federal income taxation under the Code.
	 
	4.	 	Administration of the Plan
	 
	4.1	 	The Plan shall be administered by the Corporation. The Trust shall effect the grant of
Options under the Plan, in accordance with determinations made by the Board pursuant to the
provisions of the Plan, including as to:

	 	(a)	 	the officers and other key employees of the Precision Group to whom Options
will be granted;
	 
	 	(b)	 	the number of Trust Units which shall be the subject of each Option;
	 
	 	(c)	 	the Option Price in respect of each Option (subject to Section 5.7 hereof); and
	 
	 	(d)	 	any and all terms and conditions in addition to (and not inconsistent with)
those contained herein which are to be attached to any or all such Options including,
without limitation, whether the Options shall be Canadian Options or U.S. Options;

	 	 	by the execution and delivery of instruments in writing in such form or forms as shall have
been approved by the Board.
	 
	4.2	 	The Board may from time to time adopt such policies, guidelines, rules and regulations for
administering the Plan as it may deem proper and in the best interests of the Trust and may,
subject to applicable law, delegate any of its powers hereunder to a committee of the Board.
To the extent the Board considers it desirable to meet the requirements of the
performance-based compensation exception of Section 162(m) of the Code, the Plan shall be
administered by a committee of two or more “outside directors” (within the meaning of Section
162(m) of the Code).

 

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	5.	 	Granting of Options
	 
	5.1	 	The Board from time to time may grant Options to such officers and other key employees of the
Precision Group as the Board shall determine; provided, however, that Options may be granted
to an officer or other key employee of the Precision Group who is a U.S. Taxpayer only if the
corporation or entity (that is part of the Precision Group) for which he or she provides
services would, together with the Trust, be classified as the “service recipient” (as defined
in Section 409A of the Code) with respect to such officer or other key employee. Each grant
of an Option shall be made by virtue of the employment of the Participant with the Precision
Group and subject to the terms and conditions contained herein and may be subject to
additional terms and conditions (not inconsistent herewith) determined by the Board from time
to time. Unless otherwise provided in the applicable agreement evidencing the grant of an
Option hereunder, all Options shall vest and become exercisable as follows:

	 	(a)	 	1/3 of the Options shall vest on the first anniversary of the Date of Grant;
	 
	 	(b)	 	an additional 1/3 of the Options shall vest on the second anniversary of the
Date of Grant; and
	 
	 	(c)	 	the final 1/3 of the Options shall vest on the third anniversary of the Date of
Grant.

	5.2	 	Options granted to any Participant shall be approved by the unitholders of the Trust if the
rules of any stock exchange on which the Trust Units are listed require such approvals.
	 
	5.3	 	Unless prohibited by applicable law or rules of a stock exchange on which the Trust Units are
listed for trading, Canadian Options or U.S. Options may be granted to a Participant without
regard to such Participant’s domicile or residence for tax purposes. United States taxpayers
that are Participants may receive Canadian Options and Canadian taxpayers that are
Participants may receive U.S. Options.
	 
	5.4	 	The aggregate number of Trust Units reserved by the Trust for issuance under this Plan and
all other security based compensation arrangements of the Trust shall not exceed 11,103,253
Trust Units, the aggregate number of Trust Units so reserved for issuance in any one fiscal
year shall not exceed 1% of the issued and outstanding Trust Units and the aggregate number of
Trust Units so reserved for issuance to any one individual shall not exceed 2% of the issued
and outstanding Trust Units. The proportion of Trust Units reserved by the Trust for issuance
under this Plan in any one fiscal year to any one individual shall not exceed 25% of the Trust
Units so reserved for issuance under this Plan during such fiscal year.
	 
	5.5	 	(a) The number of Trust Units issuable to Insiders of the Trust or the Corporation, at any
time, under all security based compensation arrangements of the Trust, including the Plan,
cannot exceed 10% of the issued and outstanding Trust Units; and

 

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	 	(b)	 	The number of Trust Units issued to Insiders of the Trust or the Corporation,
within any one year period, under all security based compensation arrangements of the
Trust, including the Plan, cannot exceed 10% of the issued and outstanding Trust Units.

	5.6	 	If any Option granted under this Plan shall expire or terminate for any reason without having
been exercised or surrendered in full, any unpurchased Trust Units to which such Option
relates shall be available for the purposes of the granting of Options under this Plan.
	 
	5.7	 	The Board shall, at the time an Option is granted under this Plan, fix the Option Price in
respect of such Option and such Option Price shall not be less than the Fair Market Value on
the Date of Grant. If the Option is a Canadian Option, the Option Price shall be stated and
payable in Canadian dollars, and if the Option is a U.S. Option, the Option Price shall be
stated and payable in United States dollars.
	 
	5.8	 	Subject to Section 5.9, an Option must be exercised or surrendered within a period of time
not exceeding seven years from the Date of Grant (or such shorter period of time as the Board
may determine and specify in connection with the grant of the Option), otherwise the Option
shall expire immediately after the applicable period.
	 
	5.9	 	Except if not permitted by the TSX or NYSE, if any Options may not be exercised due to any
Black-Out Period being in effect at any time within the 3 business day period prior to the
normal expiry date of such Options (the “Restricted Options”), the expiry date of all
Restricted Options shall be extended for a period of 7 business days following the end of the
Black-Out Period (or such longer period as permitted by the TSX or NYSE and approved by the
Board).
	 
	6.	 	Exercise or Surrender of Options
	 
	6.1	 	Subject to the provisions of this Plan and the terms and conditions of the Option, an Option
or any portion thereof may be exercised from time to time by delivery to the Trust c/o the
Corporation at its registered office of a notice in writing signed by the Participant or, in
the case of the Participant’s death or incapacity, the Participant’s legal personal
representative. This notice shall state the intention of the Participant, or, in the case of
the Participant’s death or incapacity, the Participant’s legal personal representative, to
exercise the Option or a portion thereof and the number of Trust Units in respect of which the
Option is then being exercised, and must be accompanied by payment to the Trust in full of the
applicable Option Price (including any applicable withholding tax) in the currency in which
the Option Price is denominated for the Trust Units which are the subject of the exercise.
	 
	6.2	 	As an alternative to the exercise of an Option pursuant to Section 6.1, a Participant shall
be entitled, at his or her election, to surrender for cancellation, unexercised, any vested
Option which is otherwise then exercisable and, in consideration for such surrender for
cancellation, to receive a cash payment in an amount equal to the positive difference, if any,
obtained by subtracting the aggregate Option Price of the surrendered Option from

 

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	 	 	the then current Fair Market Value of the Trust Units subject to the surrendered Option,
less applicable source withholdings. The Board has the sole discretion to consent or
disapprove of the election of the Participant to surrender any vested Option pursuant to
this Section 6.2. If the Board disapproves of the election, the Participant may (i)
exercise the Option under Section 6.1, or (ii) retract the request to surrender such Option
and retain the Option. If the Board approves of the election, the Board shall make the cash
payment to the Participant in respect of the surrendered Option within 30 days. Any cash
payment in accordance with this Section 6.2 shall be payable in Canadian dollars, if made
with respect to a Canadian Option, and in United States dollars, if made with respect to a
U.S. Option.
	 
	7.	 	Non-Assignability of Options
	 
	 	 	Each Option granted to a Participant is non-assignable and non-transferable except pursuant
to laws of succession and, except in the case of the Participant’s death or incapacity,
shall be exercisable or surrendered only by the Participant.
	 
	8.	 	Adjustments
	 
	8.1	 	Appropriate adjustments in the number of Trust Units subject to the Plan and, with respect to
Options granted or to be granted, in the respective numbers of Trust Units optioned and in the
respective Option Prices, shall be made by the Board to give effect to adjustments in the
number of Trust Units resulting from subdivisions or consolidations of the Trust Units or the
payment of distributions in kind of Trust Units by the Trust (other than distributions in kind
of Trust Units paid in lieu of cash distributions in the ordinary course) or to give effect to
reclassifications or conversions of the Trust Units or any other relevant changes in the
authorized or issued capital of the Trust or any other event in respect of which, in the
opinion of the Board, such an adjustment would be necessary to preserve the Participant’s
rights hereunder and under the Options, in all such cases which occur subsequent to the
approval of the Plan by the Board; provided that no Option shall be adjusted to result in the
issuance of a fractional Trust Unit and all fractions shall be rounded down; provided further
that an Option, which is intended to be exempt from Section 409A of the Code, shall be
adjusted in accordance with Section 409A in order to remain exempt from Section 409A.
	 
	9.	 	Termination of Employment
	 
	9.1	 	Subject to Sections 9.2, 9.3, 9.4, 9.5, 9.6 and 9.7, and to the terms of any particular
Option, all rights to purchase Trust Units pursuant to an Option or to surrender such Option
shall expire and terminate immediately upon the Participant holding such Option ceasing to be
an officer or employee of the Precision Group, provided that if such employment of the
Participant is terminated for Cause, such rights shall terminate immediately upon notification
being given to the Participant of such termination for Cause.
	 
	9.2	 	If, before the expiry of an Option in accordance with the terms thereof, the Participant
holding such Option shall cease to be an officer or employee of the Precision Group by

 

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	 	 	reason of the death of the Participant, the unexercised part of such Option shall become
fully vested and may be exercised or surrendered (including such part, if any, thereof
which, but for this Section 9.2, would not otherwise be able to be exercised or surrendered)
at any time within 12 months of the Participant’s Termination Date unless otherwise provided
in the terms of a particular Option. Any Option that remains unexercised shall be
immediately forfeited upon the expiration of such 12 month period.
	 
	9.3	 	If, before the expiry of an Option in accordance with the terms thereof, the Participant
holding such Option shall cease to be an officer or employee of the Precision Group by reason
of Disability or Leave of Absence, such Option shall continue to vest in accordance with its
terms and may be exercised (if such Option is fully vested) or surrendered until the normal
expiry of the Option in accordance with its terms.
	 
	9.4	 	If, before the expiry of an Option in accordance with the terms thereof, the Participant
holding such Option shall cease to be an officer or employee of the Precision Group by reason
of Retirement, such Option shall continue to vest in accordance with its terms and may be
exercised (if such Option is fully vested) or surrendered at any time within 24 months of the
Participant’s Termination Date unless otherwise provided in the terms of a particular Option.
Any Option that remains unexercised shall be immediately forfeited upon the expiration of such
24 month period.
	 
	9.5	 	If, before the expiry of an Option in accordance with the terms thereof, the Participant
holding such Option shall cease to be an officer or employee of the Precision Group by reason
of voluntary resignation (i) the unvested part of the Option shall be cancelled immediately
and may not be exercised or surrendered and (ii) the vested part of such Option may be
exercised or surrendered at any time within 30 days of the Participant’s Termination Date, but
only to the extent that the Participant was entitled to exercise or surrender such Option at
the Participant’s Termination Date. Any Option that remains unexercised shall be immediately
forfeited upon the expiration of such 30 day period.
	 
	9.6	 	If, before the expiry of an Option in accordance with the terms thereof, the Participant
holding such Option shall cease to be an officer or employee of the Precision Group by reason
of termination other than for Cause, such Option shall continue to vest in accordance with its
terms and may be exercised (if such Option is fully vested) or surrendered at any time within
90 days of the Participant’s Termination Date. Any Option that remains unexercised shall be
immediately forfeited upon the expiration of such 90 day period.
	 
	9.7	 	If, before the expiry of an Option in accordance with the terms thereof, a Change of Control
shall occur and the Participant shall cease to be an officer or employee of the Employer by
reason of termination:

	 	(a)	 	by the Employer or by the entity that has entered into a valid and binding
agreement with the Trust, the Corporation and/or other members of the Precision Group
to effect the Control Change at any time after such agreement is entered into or during
the Control Period and such termination was for any reason other than for Cause; or

 

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	 	(b)	 	by the Participant within 30 days after an act of Constructive Dismissal,
provided such act of Constructive Dismissal occurs during the Control Period;

	 	 	the Participant’s Options shall become fully vested and may be exercised or surrendered by
the Participant (including such part, if any, thereto which, but for this Section 9.7, would
not otherwise be able to be exercised or surrendered) at any time within 90 days of the
Participant’s Termination Date. Any Option that remains unexercised shall be immediately
forfeited upon the expiration of such 90 day period.
	 
	9.8	 	This Plan does not confer upon a Participant any right with respect to continuation as an
officer or employee with the Precision Group nor does it interfere in any way with the right
of the Participant or the Precision Group to terminate the Participant’s employment at any
time.
	 
	9.9	 	Options shall not be affected by any change of employment of the Participant so long as the
Participant continues to be employed by the Precision Group.
	 
	10.	 	Substitution Event
	 
	10.1	 	Unless Section 10.2 applies, upon the occurrence of a Substitution Event or a Permitted
Reorganization, where the surviving or acquiring entity (the “Continuing Entity”) is a
corporation or a “mutual fund trust” (within the meaning of the ITA), then the Continuing
Entity shall substitute or replace similar options to purchase securities in the Continuing
Entity (“Continuing Entity Options”) for the Options outstanding under this Plan on
substantially the same terms and conditions as this Plan. For greater certainty, no
consideration other than Continuing Entity Options shall be received and the excess of the
aggregate fair market value of the securities of the Continuing Entity subject to the
Continuing Entity Options immediately after the substitution or replacement over the aggregate
option price of such securities under the Continuing Entity Options shall not exceed the
excess of the aggregate Fair Market Value of the Trust Units subject to the outstanding
Options immediately before such substitution or replacement over the aggregate Option Price of
such Trust Units. Any such substitution or replacement shall, at all times, be made in
compliance with the provisions of subsection 7(1.4) of the ITA and Section 409A of the Code.
	 
	10.2	 	In the event that:

	 	(a)	 	the Continuing Entity does not (or, upon the occurrence of the Substitution
Event or Permitted Reorganization, will not) substitute or replace Continuing Entity
Options for the Options outstanding under this Plan on the same terms as described in
Section 10.1;
	 
	 	(b)	 	the Board determines, acting reasonably, that such substitution or replacement
is not practicable;
	 
	 	(c)	 	the Board determines, acting reasonably, that such substitution or replacement
would give rise to adverse tax results, under the ITA or the Code, to holders of
Options; or

 

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	 	(d)	 	the securities of the Continuing Entity are not (or, upon the occurrence of the
Substitution Event or Permitted Reorganization, will not be) listed and posted for
trading on a recognizable stock exchange;

	 	 	the outstanding Options shall become fully vested and may be exercised or surrendered by the
Participant (including such part, if any, thereto which, but for this Section 10.2, would
not otherwise be able to be exercised or surrendered) at any time after the Participant
receives written notice from the Board of such accelerated vesting and prior to the
occurrence of the Substitution Event or Permitted Reorganization; provided, however, that
such vesting, exercise or surrender shall be, unless otherwise determined in advance by the
Board, effective immediately prior to, and shall be conditional on, the consummation of such
Substitution Event or Permitted Reorganization. Any Options that have not been exercised or
surrendered pursuant to this Section 10.2 shall be forfeited and cancelled without
compensation to the holder thereof upon the consummation of such Substitution Event or
Permitted Reorganization.
	 
	11.	 	Decisions of the Board
	 
	11.1	 	All decisions and interpretations of the Board respecting the Plan or any Options shall be
conclusive and binding on the Trust and the Participants and their respective legal personal
representatives.
	 
	12.	 	Amendment or Discontinuance of Plan
	 
	12.1	 	Subject to the policies, rules and regulations of any lawful authority having jurisdiction
over the Trust (including any exchange on which the Trust Units are listed for trading), the
Board may at any time, without further action by, or approval of, the holders of Trust Units,
amend this Plan or any Option granted under this Plan in such respects as it may consider
advisable and, without limiting the generality of the foregoing, it may do so to:

	 	(a)	 	ensure that Options granted under this Plan will comply with any provisions
respecting trust unit options in the income tax or other laws in force in any country
or jurisdiction of which a Person to whom an Option has been granted may from time to
time perform services or be resident;
	 
	 	(b)	 	make amendments of a procedural or “housekeeping” nature;
	 
	 	(c)	 	change the termination provisions of an Option granted under the Plan which
does not entail an extension of the expiry date of the Option beyond the original
expiry date of the Option; or
	 
	 	(d)	 	terminate this Plan.

	 	 	Any such amendments shall, if made, become effective on the date selected by the Board. The
Board may not, however, without the consent of the Option holder, except as permitted by
provisions of Articles 8 or 10 hereof, alter or impair any of the rights or obligations
under any Option theretofore granted.

 

-13-

	12.2	 	Notwithstanding Section 12.1, approval of the holders of Trust Units will be required in
order to:

	 	(a)	 	increase the maximum number of Trust Units reserved for issuance under the
Plan;
	 
	 	(b)	 	reduce the Option Price in respect of any Option;
	 
	 	(c)	 	extend the period of time during which an Option must be exercised or
surrendered;
	 
	 	(d)	 	increase any limit on grants of Options to Insiders of the Trust or the
Corporation set out in the Plan;
	 
	 	(e)	 	add any form of financial assistance by the Trust or the Corporation for the
exercise of any Option;
	 
	 	(f)	 	expand the circumstances under which Options may be assigned or transferred as
permitted by Article 7 hereof;
	 
	 	(g)	 	amend the class of eligible participants under the Plan;
	 
	 	(h)	 	amend this Article 12; or
	 
	 	(i)	 	grant additional powers to the Board to amend the Plan or any Option without
the approval of holders of Trust Units.

	13.	 	Government Regulation
	 
	13.1	 	The Trust’s obligation to issue and deliver Trust Units on the exercise of any Option is
subject to:

	 	(a)	 	the satisfaction of all requirements under applicable securities laws in
respect thereof and obtaining all regulatory approvals as the Trust shall determine to
be necessary or advisable in connection with the authorization, issuance or sale of
such Trust Units;
	 
	 	(b)	 	the admission of such Trust Units to listing on any stock exchange on which
Trust Units may then be listed;
	 
	 	(c)	 	the receipt from the Participant of such representations, agreements and
undertakings as to future dealings in such Trust Units as the Trust determines to be
necessary or advisable in order to safeguard against the violation of the securities or
income tax laws of any jurisdiction; and
	 
	 	(d)	 	the Board being satisfied that, upon the issuance of any Trust Units pursuant
to the exercise of any Option, the Trust will continue to be in compliance with the
provisions of the subsection 132(7) of the ITA (as amended from time to time and

 

-14-

	 	 	 	any successor provision thereto) relating to the Trust’s continued satisfaction of
the requirements to constitute a mutual fund trust within the meaning of the ITA.

	 	 	The Trust shall take all reasonable steps to obtain such approvals and registrations as may
be necessary for the issuance of such Trust Units in compliance with applicable securities
laws and for the listing of such Trust Units on any stock exchange on which Trust Units are
then listed.
	 
	13.2	 	The Precision Group may withhold from any amount payable to a Participant, either under this
Plan, or otherwise, such amount as may be necessary so as to ensure that the Precision Group
will be able to comply with the applicable provisions of any federal, provincial or local law
relating to the withholding of tax or other required deductions, including on the amount, if
any, includable in the income of a Participant.
	 
	14.	 	Participant’s Rights
	 
	 	 	A Participant shall not have any rights as a unitholder of the Trust in respect of any Trust
Units issuable pursuant to an Option until the issuance of Trust Units upon the exercise of
the Option or a portion thereof, and then only with respect to the Trust Units so issued.
For greater certainty, a Participant shall not have the right or be entitled to exercise any
voting rights, receive distributions or have or be entitled to any other rights as a
unitholder of the Trust in respect of any Options.
	 
	15.	 	Approvals
	 
	15.1	 	If Trust Units cannot be issued to a Participant upon the exercise of an Option for any
reason which, in the opinion of the Board, acting reasonably, would result in undue expense to
the Trust as a result of the Trust being required to comply with non-Canadian regulatory
requirements, the obligation of the Trust to issue such Trust Units shall terminate and any
funds paid to the Trust in connection with the exercise of such Option will be returned to the
relevant Participant as soon as practicable. In such circumstances, such Participant shall be
deemed to have elected to surrender the Option in accordance with Section 6.2 and such
Participant shall be paid the amount specified in that Section.
	 
	15.2	 	If Trust Units cannot be issued to a Participant upon the exercise of an Option due to a
decision by the Board that the condition in Section 13.1(d) would be, or is at risk of being,
violated as a consequence of such issuance, the obligation of the Trust to issue such Trust
Units shall terminate and any funds paid to the Trust in connection with the exercise of such
Option shall be returned to the relevant Participant as soon as practicable. In such
circumstances, such Participant shall be deemed to have elected to surrender the Option in
accordance with Section 6.2 and such Participant shall be paid the amount specified in that
Section.
	 
	16.	 	Effective Date
	 
	 	 	This Plan is effective from ___, 2009.Exhibit 10.32

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

AFFILIATION AGREEMENT

 

THIS AFFILIATION AGREEMENT (the “Agreement”)
dated as of January 1, 2000 (the “Effective Date”) is by and between New
Frontier Media, Inc., a Colorado corporation (“Network”), and TIME WARNER
CABLE, a division of Time Warner Entertainment Company, L.P., a Delaware
partnership (“Affiliate”).

 

The parties, intending to be
legally bound, hereby agree as follows:

 

1.                                       CERTAIN DEFINITIONS AND
REFERENCES

 

(a)                                  Certain
Definitions. As used herein, the following terms have the
meanings indicated:

 

“Net Revenue”
means [***] provided by a System (“Deductions”), provided that such Deductions
shall not exceed [***] percent ([***]%) of the [***] from which it is deducted.

 

“Operating
Area” means that geographic area within which a System (as defined
herein) is authorized by the appropriate governmental agency, authority or
instrumentality (if required) to operate an audio or video distribution
facility and is operating or is obligated to operate or become operational.

 

“Pay Per View
Purchase” means the purchase of the Service by, and broadcast to, a
Subscriber via a System on a transactional “[***]” basis, “[***]” basis or a
[***] “[***] basis” (i.e., a [***] hour or “safe harbor” block of time, as that
term is defined in Section 505 of the Telecommunications Act of 1996, e.g.,
10:00 p.m. to 6:00 a.m.).

 

“Service”
means the commercial free encrypted adult entertainment satellite-delivered pay
television service known as PleasureTM which is a twenty four (24) hour per day
pay video programming service that consists of, and throughout the Term (as
defined herein) shall consist of (i) [***] adult films, events and
programs that are [***] (or “[***]”) in the degree of explicitness of
programming currently featured on competing adult cable television services
such as [***] and [***]; and (ii) promotionals and/or interstitial
programming which advertises the Service (such as pay-per-view features and highlights),
or the services of Network’s affiliates and joint ventures which it owns or
controls, provided, however, that such programming shall not exceed [***] in
any [***] period, and provided further that such commercials shall not
advertise any other programming or service that is not available in such System
to Subscribers.

 

“Subscriber”
means a person or entity to whom the Service is distributed via a System
hereunder, excluding any commercial establishment or facility which charges an
admission fee, cover charge, minimum or like sum.

 

“Subscription
Purchase” means the purchase of the Service by, and broadcast to, a
Subscriber via a System on a [***] basis and/or any other basis that does not
constitute a Pay Per View Purchase.

 

1

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

“System”
means a cable television system or group of cable television systems (whether
designated as a division or otherwise) that is owned or managed by a Time
Warner Company (as defined herein) and has executed a Launch Authorization Form substantially
in the form as that attached hereto as Exhibit A.

 

“Term”
shall have the meaning set forth in Section 3 of the Agreement.

 

“Time Warner
Company” means Affiliate, Time Warner Inc. (“TWI”), Time Warner
Entertainment Company, L.P. (“TWE”), Time Warner
Entertainment-Advance/Newhouse, L.P. (“TWEAN”), TWI Cable Inc. (“TWIC”) or
Paragon Communications, or any other corporation, partnership, joint venture,
trust, joint stock company, association, unincorporated organization (including
a group acting in concert) or other entity of which Affiliate, TWI, TWE, TWEAN,
TWIC or Paragon Communications, directly or indirectly owns at least 25% of the
equity.

 

(b)                                 Certain
References. As used herein, references “person” shall mean an
individual or a corporation, partnership, joint venture, trust, joint stock
company, association, incorporated organization (including a group acting in
concert) or other entity.

 

2.                                       RIGHTS

 

(a)                                  Grant
of Rights. During the Term (as defined herein), Network
hereby grants to Affiliate, and Affiliate hereby accepts from Network:

 

(i)                                     the non-exclusive right but
not the obligation to exhibit and distribute the Service (whether in its current
analog format or in any other format, whether digitized, compressed, modified,
replaced, or otherwise manipulated) via cable or other transmission service to
any person in an Operating Area;

 

(ii)                                  the non-exclusive right to
exhibit and distribute the Service (whether in its current format or in any
other format, whether digitized, compressed, modified, replaced or otherwise
manipulated) to satellite master antenna television systems (“SMATVs”),
multipoint distribution services (“MDSs”), multichannel multipoint distribution
services (“MMDSs”), equipment owned or operated by the owners or residents of
individual dwelling units for private viewing capable of receiving audio/visual
signals and/or programming directly via satellite (including, without limitation,
C-Band and Ku-Band signals), as suitably modified, manipulated, compressed or
replaced now or in the future (“TVRO”) and all other methods of distributing or
receiving audio/visual signals and/or programming in an Operating Area, and in
any county adjacent to a System’s Operating Area excluding (x) traditional
broadcast television, (y) subject to Section 5(j), VCR cassettes, DVD
disks, and similar recorded media, including technological advances or
replacements and (z) the Internet (“Other Distribution Methods”); and

 

2

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

(iii)                               the non-exclusive right to
exhibit and distribute the Service nationwide to TVRO or DBS, including
tier-bit access rights.

 

(b)                                 Sublicense
and Bulk Distribution Rights. During the Term, Affiliate
shall have the right to sublicense its rights hereunder within an Operating
Area and any county adjacent to a System’s Operating Area to third party
distributors of cable television programming or services to SMATV, MDS, MMDS,
TVRO or Other Distribution Methods. During the Term, each System shall have the
right to distribute the Service on a [***] basis to multiple unit dwelling
complexes, including, without limitation, apartment complexes, condominiums,
cooperatives, hotels and motels.

 

(c)                                  Addition
and Deletion of Systems. Affiliate shall have the
unilateral right at any time and from time to time during the Term to add or
delete Systems, by giving prior written notice to Network; such deletions shall
be effective [***] after the date of such notice to Network and such additions
shall be effective as of the date specified in the notice. The division of
Affiliate in Chasworth, California, which entered into an agreement with
Network on               , 1999, may, at
its option, terminate its agreement with Network and become a System under this
Agreement.

 

3.                                       TERM

 

The term of this Agreement
shall be [***], commencing upon the Effective Date (the “Term”).

 

4.                                       CONTENT OF THE SERVICE

 

(a)                                  Service
Description. The Service shall consist at all times solely of
[***] adult films, events and programs that depict [***] and [***] situations,
and shall not depict [***]. The Service shall, at all times during the Term
adhere to and comply with the definition contained in Section 1(a) of
this Agreement and with the [***] editing and content standards described in Exhibit B
and shall consist of programming similar in all material respects, to that
described on the program schedule attached hereto as Exhibit C. The
programming included in the Service shall be [***] (or “[***]”) in the degree
of explicitness of programming currently featured on competing adult services
cable television services such as [***] and [***]. The Service shall not
include: (i) any “[***]” or any programming constituting the direct on-air
[***]; (ii) any [***]; or (iii) any [***] for [***] or any other
similar services. Network agrees that, during each [***] of the Term, it shall
send [***] copy of its [***] program schedule, to the extent available, to
Affiliate, in care of: Director of Programming.

 

(b)                                 Vertical
Blanking Interval. Network represents that all of the signal
distribution capacity contained within the analog bandwidth of the signal for
the Service and the appropriate equivalent portion of the digital signal for
the Service (including, without limitation, an MPEG private data stream) (other
than traditional television video and audio signals), including, without
limitation, the vertical blanking interval and audio subcarriers and any other
portions of the bandwidth that may be created or made useable as a result of
the digitization or compression or other non-analog formatting of the signal
(collectively, “Non-Traditional and VBI Signals”), is not essential to or a
part of the Service or necessary for the delivery or 

 

3

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

distribution of the Service.
Network agrees that any and all rights in and to any and all Non-Traditional
and VBI Signals and the use thereof are and will be held exclusively by
Affiliate and the Systems and that nothing contained herein shall restrict
Affiliate or the Systems from using any and all Non-Traditional and VBI Signals
by any means or for any purpose so long as such use does not degrade or
interfere with the quality of the video and audio signal for the Service.
Network may use the vertical blanking interval for the purpose of providing
closed-captioning for the hearing impaired, one (1) second language audio,
programs ratings information or other data required to be embedded by law,
provided that there is no charge to Subscribers, Affiliate or any System in
connection with the provision or receipt of such information.

 

(c)                                  Ownership
of and Responsibility for the Service. Network represents and
warrants that it has and will have the right to grant the licenses granted
herein, free and clear of all liens, restrictions, charges, claims and
encumbrances, that it has obtained and will maintain all licenses, permits,
exemptions, authorizations and consents necessary to fully perform this
Agreement and that neither the Service nor any programming contained therein (i) is
or will be obscene, or defamatory and unprivileged, or (ii) violates or
infringes or will violate or infringe the civil or property rights, copyrights
(including, without limitation, music synchronization and performance rights
and dramatic and non-dramatic music rights), trademark rights, patent rights or
rights of privacy of any person.

 

(d)                                 Service
Provided in its Entirety. During the Term, Network
shall provide the Service in its entirety to Affiliate. When the phrase “in its
entirety” is used in this Section 4(d), it means that each Subscriber of
Affiliate receiving the Service shall be able to receive, at all points in
time, 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 a 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 of such programming
it desires to receive and utilize at any System, which programming it desires
to subdistribute as permitted by this Agreement, and/or which programming it
will authorize for reception by satellite subscribers who are customers of
Affiliate or an affiliate of Affiliate.

 

(e)                                  Affiliate’s
Right to Discontinue Service. If for any reason,
including, without limitation, causes beyond the control of Network, Affiliate,
in good faith, determines that the Service includes programming prohibited
herein and/or does not include programming of at least the quantity, quality,
type and content as required herein, [***], Network shall indemnify Affiliate
and each System in accordance with Section 12(a) of this Agreement.
If, for any reason, (i) Network’s breach of any obligation in this Section 4
is continuing [***], or (ii) Network breaches any obligation in this Section 4
on more than a single occasion, in addition to the indemnification provided by
Network hereunder pursuant to Section 12(a), Affiliate may, in its sole
discretion, pursue any other rights and remedies it may have hereunder in law
or in equity, including, without limitation, (x) terminating this
Agreement and ceasing to distribute the Service immediately upon written notice
to Network at any time after such second or subsequent violation pursuant to Section 13;
(y) discontinuing carriage of the Service on any or all Systems and
canceling the Launch Authorization Form(s) for such System or Systems,
effective at any time by giving Network [***] prior written notice; or (z) receiving
credit against the Fees (as 

 

4

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

defined herein) in the
proportion that the [***] of programming each [***] which either is prohibited
or deviates from the programming required herein bears to the total [***] the
Service is transmitted each [***]; such credit to be applied against the Fees
in any [***].

 

(f)                                    Embedded
Material. Subject to Section 4(b), or as otherwise
agreed in writing, Affiliate shall not be obligated to distribute any material
or information contained or embedded in or around any portion of the feed
(whether analog or digital) provided to Affiliate (the “Signal”) for the
Service that is not essential to and a part of the Service programming. Network
further agrees that it shall not embed any material or information into or
around any portion of the Signal that cannot be removed and/or blocked at any
System headend. Network further agrees that it shall provide Affiliate with
[***] prior written notice of its intention to embed any information in or
around such Signal prior to the commencement of such embedding or at the time
of execution of this Agreement if it is presently embedding such information.

 

(g)                                 Other
Exhibition and Distribution. Without Affiliate’s prior
written consent, Network shall not exhibit or distribute, and shall not grant
to any third party the right to exhibit or distribute, in any Operating Area,
all or any portion of the Service, or any programming comprising a portion of
the Service: (i) via the Internet or over any local or wide area computer
network serving more than [***] (unless such computer network is maintained by
Network for its own employees), whether for a fee or otherwise, including in
multimedia, interactive, three-dimensional or other augmented or enhanced
format, (ii) via any broadcast station or cable programming network other
than the Service; in either case, whether simulcast, time-shifted, repackaged
or distributed through any “video on demand” mechanism; provided, however,
that, subject to Section 11, the foregoing (ii) shall not restrict
Network from providing the Service to any multi-channel video programming
provider. Notwithstanding the foregoing, nothing contained herein shall prevent
Network from exhibiting or distributing, or granting any third party the right
to exhibit or distribute, in the manner set forth in the immediately preceding
sentence: (A) segments of [***] Programming (as defined herein) so long as
(1) no such [***] Programming segment is of a duration [***] than [***],
and (2) a program or show of [***] Programming is not exhibited or
distributed in its [***] as [***] during any [***]; or (B) segments of
[***] Programming (as defined herein) so long as (1) no such [***]
Programming segment is of a duration [***] than [***], (2) no more than
[***] of such [***] Programming segments exhibited or distributed during any
[***] are taken from the [***] program, and (3) the total duration of all
such [***] Programming segments exhibited or distributed during any [***] does
not exceed [***] per [***]. As used herein, “[***] Programming” shall mean
programming exhibited or distributed as part of the Service for the first time
at least [***] prior to the date on which distribution pursuant to this section
is made. As used herein, “[***] Programming” shall mean programming exhibited
or distributed as part of the Service within the [***] preceding the date on
which distribution pursuant to this section is made.

 

5.                                       DELIVERY AND DISTRIBUTION
OF THE SERVICE

 

(a)                                  Transmission
and Reception. Network shall, [***] (i) transmit analog and
digital signals for the Service via a domestic communications satellite(s) commonly
used for transmission of cable television programming signals, and (ii) fully
encode and scramble the satellite signal for the Service using DigiCipher II
Plus Technology, and shall include in such 

 

5

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together with
such request for confidential treatment.

 

satellite signal cue tones
and other data, utilizing technology, standards, practices and procedures which
are generally accepted throughout the cable television industry, and Affiliate
shall provide and operate or cause to be provided and operated all equipment
and facilities (including earth stations and decryption devices) necessary as
of the date hereof for the reception of such signal and the distribution of
such signal to Subscribers. Network represents that no facilities or equipment
are necessary for such reception and distribution which a cable television
system operator would not otherwise use in connection with the reception and
distribution of satellite signals transmitted by a majority of widely distributed
cable television programming.

 

(b)                                 Network’s
Signal Quality. Network shall deliver to each System and third
party distributor of the Service hereunder a video and audio signal for the
Service of a quality [***] as the quality of the video and audio signal
delivered with respect to other widely distributed adult entertainment pay
cable television programming. Without limiting the generality of the preceding
sentence, Network shall deliver to each System and each such third party
distributor a video and audio signal for the Service which meets or exceeds all
applicable standards under any applicable Federal or State law, rule,
regulation or order.

 

(c)                                  Affiliate’s
Signal Quality. Affiliate will cause the Systems to distribute to
their Subscribers a video and audio signal for the Service of a quality [***]
as the quality of the video and audio signal presently distributed by the
Systems with respect to other widely distributed cable television programming,
but in no event higher than the technical quality of the video and audio signal
received by the Systems from Network.

 

(d)                                 Digital
Signal. Network hereby grants Affiliate, and any affiliate
of Affiliate, the right to receive the signal of the Service, to digitize,
compress, modify, replace or otherwise technologically manipulate the signal,
and to transmit the signal as so altered (the “Altered Signal”) to a satellite,
or to locations within the continental United States designated by Affiliate
(in its sole and absolute discretion) for redistribution to terrestrial or
other reception sites capable of receiving and utilizing the Altered Signal
provided that no such alteration, transmission, redistribution, reception or
other use will cause a material adverse 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,
any affiliate’s of Affiliate, or any System’s rights under this Section 5(d).
In the event Network interferes with or otherwise prevents receipt,
digitization, compression, modification, replacement, utilization or
manipulation of the signal of the Service by Affiliate, any affiliate of Affiliate,
or any System pursuant to the terms of this Section 5(d), then in addition
to any other rights at law or equity Affiliate shall have the right to cancel
the Launch Authorization Form(s) for any or all Systems, immediately, and
to discontinue carriage, immediately, of the Service on any or all Systems.

 

(e)                                  Change
in Satellite. If Network proposes to change the satellite via
which the signal for the Service is transmitted to a satellite different from
that via which it is presently transmitted, Network will give [***] prior
written notice to Affiliate, provided however that Affiliate acknowledges that
a force majeure event (as described in Section 10) may prevent Network
from providing the foregoing [***] notice, in which event Network shall provide
as much advance notice as is [***]. If, in order to receive the Service after
such change, any System 

 

6

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

would incur expenses for
additional satellite transmission reception equipment, the Launch Authorization
Form for such System may be cancelled by Affiliate upon notice to Network
as of the effective date of such change.

 

(f)                                    Change
in Encryption Method or Digitization. If Network proposes to
change the method via which the signal for the Service is encoded, scrambled or
to digitize the signal in connection with the satellite transmission thereof to
a method different from that via which it is presently encoded, scrambled or
digitized, Network will give [***] prior written notice to Affiliate and
Network shall provide to each System, [***] any additional decryption
equipment, provided however, that if Network fails to provide such additional
decryption equipment to a System or a System would incur expenses for
additional digitization equipment in order to continue to receive the Service
after such change, the Launch Authorization Form for such System may be
cancelled by Affiliate upon notice to Network as of the effective date of such
change.

 

(g)                                 Other
Technological Changes. Except as otherwise provided in Sections 5(e) and
5(f), Network shall not materially change the technology, standards, practices
or procedures utilized in connection with the delivery of the Service unless
such change is generally being made in the cable television industry.

 

(h)                                 Carriage. The Systems
and any third party distributor of the Service hereunder may distribute the
Service on a [***] or [***] basis on a [***] or [***] basis; provided, however,
that, except as otherwise expressly permitted or required hereby, during the
time when a System or such a third party distributor distributes the Service,
such System or third party distributor must distribute the Service without
alteration, editing or delay of any kind. Affiliate (or the Systems or such
third party distributors) will have exclusive right to designate the channel(s) over
which the Service will be carried and will have the right to change such
designation from time to time and at any time.

 

(i)                                     Packaging. Each System
or third party distributor of the Service hereunder may carry the Service in an
analog and/or digital format and may package the Service with other premium
services.

 

(j)                                     Reproduction
Limitations. Subject to the last sentence of this Section 5(j),
Affiliate shall not, and shall not authorize other persons to, copy, tape or
otherwise reproduce any part of the Service without Network’s prior written
authorization. Neither Affiliate nor any person distributing the Service in accordance
herewith shall be responsible or liable for home taping of all or any part of
the Service by Subscribers. This Section 5(j) does not restrict the
practice of connecting distribution cables to Subscribers’ videotape recorders
or other devices intended for home duplication of audio or video programming.

 

(k)                                  Digital
Reception. Network represents that its digital feed shall be
provided [***] to Affiliate. Affiliate shall have the option to utilize the
digital feed from Network or, if Network has granted a third party the right to
transport a digital feed to unaffiliated cable systems, from such third party.
It is agreed that if Affiliate elects to receive the feed from said third
party, and not Network, that any additional transport fees imposed by such
third party shall be the responsibility of Affiliate.

 

7

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

6.                                       FEES

 

(a)                                  Fees. For each
[***] of each [***] of the Term, commencing on the Effective Date, Affiliate
shall pay to Network, in consideration for the license granted herein, the
following fees: (i) Subscription Purchase: [***]; or (ii) Pay
Per View Purchase: [***] (collectively, the “Fees”), provided, however,
that, notwithstanding the foregoing, on a System-by-System basis, [***], provided
further that if, as of the [***] anniversary of the Effective Date, the
number of Subscribers to which the Service is available (i.e.,
addressable subscribers) is not [***] or [***] than [***], the Fees set forth
in the preceding (i) and (ii) shall be, [***], as follows: Subscription
Purchase: [***]; or Pay Per View Purchase: [***]. Despite the
foregoing, for each [***] of each [***] of the Term, commencing on the Effective
Date, (A) for each System’s distribution of the Service to hotels and
motels on a Pay Per View Purchase basis, Network shall be paid in accordance
with the Pay Per View Purchase provisions of the preceding sentence of this Section 6(a),
and (B) for each System’s distribution of the Service to hotels and motels
on a [***] basis, Network shall be paid the [***] of: (x) [***] and (y) [***]
percent ([***]%) of the [***] accrued per [***].

 

(b)                                 Due
Date. The Fees and other payments payable hereunder
shall be due [***] after the end of such [***]. 
In the event of a good faith dispute regarding any Fees, no such
disputed Fees shall be due or payable by Affiliate to Network nor subject to
the recovery of prejudgment interest or the terms or conditions of this Section 6
unless and until such dispute has been resolved to the satisfaction of
Affiliate and Network, provided that Network and Affiliate shall use [***] to
resolve such disputes within a [***] period, and, if the parties are unable to
resolve such dispute within such [***] period, the parties may pursue all
available rights and remedies hereunder.

 

(c)                                  Retroactive
Adjustments. If a payment of Fees due hereunder for any [***]
has been made and, the amount of such payment exceeds the amount of the Fees
which was actually due hereunder for such [***] (regardless of when such
adjustment is made), then 

 

Affiliate
shall have the right to set off against any amounts then or thereafter due to
Network (or, upon demand, Network shall pay to Affiliate) an amount equal to
such excess.

 

(d)                                 Preview. Affiliate
shall have the [***] right for each System to preview the Service on any System
on a [***] or [***] basis, without any obligation to [***] and without having
to add such cable television system to Schedule 1 attached hereto, for a period
of up to [***] in order to determine subscriber preferences as long as the
preview is offered [***] to Subscribers and prior to the Service being offered
to any Subscribers.

 

8

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

7.                                       REPORTS

 

(a)                                  Reports. Within [***]
after the end of each [***] during the Term, Affiliate shall send to Network a
statement which sets forth the [***] who purchased the Service (by Subscription
Purchase or Pay Per View Purchase) and such other information as may be
reasonably necessary to support the computation of the Fees due to Network for
such [***]. Affiliate shall send such statement to Network together with payment
of Fees.

 

(b)                                 Audit
Right. During the Term, and for [***] thereafter,
Affiliate shall maintain accurate and complete books and records, in accordance
with generally accepted accounting principles and practices which contain
information sufficient to verify the Fees due Network hereunder. Upon [***]
prior written notice, Network shall have the right, during the Term, [***] to
examine during normal business hours at a location within the 48 contiguous
United States without unreasonably interfering with the operation of Affiliate’s
business, the books and records of Affiliate which are related directly to the
Service to the extent necessary to verify the Fees due; provided, however, that
such examinations shall not be conducted more frequently than [***] in any
[***] period and that such examinations shall be limited to Fees payable during
the [***] and the [***]. If any such examination reveals a discrepancy in the
amount paid to Network, Affiliate shall be paid an amount equal to the amount
of such discrepancy, plus interest on the amount of such discrepancy at the
rate of [***]% per [***] (or, if lower, the maximum rate permitted by law) from
the date on which such amount was paid by or should have been paid to Network
through the date on which payment is made to Network. Network will be deemed to
have waived any and all claims which it may have with respect to an
underpayment of fees due unless it gives written notice of such claims to
Affiliate upon the earlier of [***] after the date on which payment of such
fees was due or, within [***] after the conclusion of such examination.

 

(c)                                  Compliance. Network
represents, covenants, and warrants that the Service complies, and will
continue to comply, in all respects with the commercial matter limitations of the
Children’s Television Act of 1990, Public Law 101-437 (October 18, 1990)
and the regulations of FCC promulgated thereunder, as the same may apply to
cable television systems and cable operators, including 47 C.F.R. §76.225,
76.305, and as the same may be amended from time to time (“Children’s
Television Regulations”). Network further represents, covenants and warrants
that it will provide to Affiliate all records demonstrating such compliance
under the Children’s Television Regulations as are necessary for Affiliate to
timely demonstrate its compliance as a cable operator with the commercial
matter limitations and record keeping requirements of the Children’s Television
Regulations. Network further represents, covenants and warrants that the
Service complies, and will continue to comply, with all origination
cablecasting regulations of the FCC, including but not limited to 47 C.F.R.
§§76.205-76.221 (political equal time, personal attach, lotteries and
sponsorship identification), as the same any be amended from time to time (“Origination
Cablecasting Requirements”), and that Network shall provide Affiliate all
necessary documentation required thereunder for Affiliate to timely meet its
documentation and public file requirements under the Origination Cablecasting
Requirements. In the event that any other programming offered by the Service
shall be among the kind of programming which is regulated by federal, state or
local law, as the same may apply to cable television systems and cable
operators, or other non-broadcast television distributors, then Network shall
provide to Affiliate all statements, records or other documents in the 

 

9

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

Network’s possession,
custody and control reasonably necessary for Affiliate to demonstrate timely
compliance as a cable operator or distributor with such laws and regulations.

 

8.                                       PROMOTION AND ADVERTISING

 

(a)                                  Launch
and Marketing Support. Network shall provide to each System the
launch and marketing support set forth on Exhibit D.

 

(b)                                 Network’s
Names and Marks. Affiliate acknowledges that the name and mark
PleasureTM (and the names of certain programs which appear in the Service) (the “Network
Marks”) and the programming provided by the Service, as between Affiliate and
Network, are the exclusive property of Network or its suppliers and that
Affiliate has not and will not acquire any proprietary rights therein by reason
of this Agreement. Affiliate shall not use the Network Marks without the prior
written consent of Network, except that Affiliate may use the Network Marks in
a manner that is consistent with the criteria and requirements specified on Exhibit D
of this Agreement in routine promotional materials, channel line-ups, print and
electronic program guides and on the Web sites of Affiliate or any System without
the prior written consent of Network. Nothing contained herein shall limit or
restrict the right of Affiliate, the Systems or any third party distributors of
the Service hereunder to use such names and marks (i) in connection with
the exercise of its or their rights hereunder or (ii) as permitted under
any other contract or agreement, in connection with any local advertising
inserted in any cable television service or programming if the sponsor of such
advertisement had the right to use such names and marks therein or otherwise
than under this Agreement.

 

(c)                                  Cross
Channel Promotions of Affiliated Services. Except as otherwise
expressly authorized in this Agreement, Network shall not promote, market or
advertise on the Service any other cable programming service which is
affiliated or associated with Network (“Cross Promotions”) unless such other
service is then being distributed by the Systems on which such Cross Promotions
are to appear. The practice of “nesting” or “incubating” (whether or not for
the express purpose of inducing subscriptions to) a cable programming service
by showcasing such service within an existing service shall be considered a
means to “promote, market or advertise” such service hereunder. Network agrees
that the Service will not air any promotional spot (whether alone or in
conjunction with any other person) which indicates that any other method of
video distribution offers a service not available on the relevant Affiliate
System. Affiliate shall have the right to preempt all material which violates
the foregoing.

 

9.                                       REPRESENTATIONS,
WARRANTIES AND COVENANTS

 

(a)                                  Network’s
Authorization. Network represents and warrants that: (i) Network
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Colorado; (ii) Network has the requisite power
and authority to execute and deliver this Agreement and to fully perform its
obligations hereunder; (iii) the execution, delivery and performance of
this Agreement has been duly authorized by all corporate and board of directors’
actions necessary on the part of Network; (iv) Network is not subject to
any contractual or other legal obligation which will in any way interfere with
its full performance of this Agreement; and (v) the individual executing
this Agreement on behalf of Network has the authority to do so.

 

10

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

(b)                                 Insurance. Network
represents, warrants and covenants that (i) it has obtained broadcaster’s
errors and omissions insurance covering the Service and all elements thereof
from a nationally recognized insurance carrier and in accordance with industry
standards of no less than [***]; (ii) such insurance shall remain in full
force and effect throughout the term; (iii) Affiliate shall be named as an
additional insured on the insurance policy; (iv) Network shall provide
Affiliate with documentation to such effect upon the execution hereof; (v) [***]
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 (vi) Network shall
provide Affiliate with [***] written notice of any changes in such policy.

 

(c)                                  Affiliate’s
Authorization. Affiliate represents and warrants that: (i) Affiliate
is a division of a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware; (ii) Affiliate has
the requisite power and authority to execute and deliver this Agreement and to
fully perform its obligations hereunder; (iii) the execution, delivery and
performance of this Agreement has been duly authorized by all action necessary
on the part of Affiliate; (iv) Affiliate is not subject to any contractual
or other legal obligation which will in any way interfere with its full
performance of this Agreement; and (v) the individual executing this
Agreement on behalf of Affiliate has the authority to do so.

 

(d)                                 Affiliate’s
Trademarks. Network represents and warrants that it shall not
use, and no right or license is herein granted to Network to use, any of the
trade names, trademarks, copyrights, styles, slogans, titles, logos or service
marks of Affiliate, TWI, TWE, TWEAN, TWIC, Paragon Communications, any other
System or any other Time Warner Company.

 

(e)                                  Publicity. Network
represents and warrants that it shall not have, and shall not permit its
officers, directors, partners, shareholders, employees, agents, representatives
or affiliates to have, any oral or written communication (including, without
limitation, announcements, correspondence and advertisements) with or directed
to any third party (including, without limitation, the press, the public,
Subscribers, the trade and governmental and quasi-governmental agencies,
authorities and instrumentalities) which (i) concerns (A) the
negotiation (or other transactions in contemplation of), termination, renewal,
non-renewal or expiration of this Agreement of any other prior, then current or
proposed agreement, arrangement or understanding with any Time Warner Company
relating to the distribution of the Service or (B) any modification or
amendment hereof or thereof or (ii) would or could adversely affect
relations between Affiliate, any Time Warner Company or System, on the one
hand, and subscribers, potential subscribers or such agencies, authorities or
instrumentalities, on the other hand, without the prior written approval of the
form and content of such communication by Affiliate; provided, however, that
such approval shall not be required if such communication is required by (i) an
applicable law, rule or regulation or (ii) an order of a court or
governmental agency, authority or instrumentality of competent jurisdiction;
provided further, however, that, prior to communication without such approval
pursuant to the preceding clause (ii), Network shall have given prompt prior
notice to Affiliate of such intended communication and, if requested by
Affiliate, shall have used reasonable efforts at Network’s expense to obtain a
protective order or similar protection for the benefit of Affiliate. In no
event shall Network attempt or permit its officers, directors, partners,
shareholders, employees, agents, 

 

11

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together with
such request for confidential treatment.

 

representatives or
affiliates to interfere with such relations. Network and Affiliate hereby
acknowledge that (i) their interests are often in direct conflict, (ii) their
relationship is often adversarial, and (iii) Network could cause Affiliate
significant harm by the nature of Network’s communications to Affiliate’s
subscribers or to the governmental entities or franchise or licensing
authorities whose opinions and actions could adversely affect Affiliate’s cable
television systems. Therefore, Network shall not knowingly initiate
communications regarding Affiliate or the carriage of the Service with any
subscribers or franchise or licensing authorities or governmental entities in
the Operating Area of any cable television system owned or managed by a Time
Warner Company without Affiliate’s prior written approval, and under no
circumstances shall Network knowingly engage in any communications with any
subscribers or franchise or licensing authority or governmental entity in the
Operating Area of any such system which would, or could, adversely interfere
with Affiliate’s relations with subscribers, or Affiliate’s relations with any
governmental entity or community in any such Operating Area. This provision
shall not apply, (A) to any national advertising or promotion by Network
in connection with the Service, (B) to any proceeding before any judicial
body, or (C) communications with Congress or with any other branch or
agency of the Federal government. This provision shall not prevent Network from
cablecasting [***] for such purposes as [***] or [***] to viewers; provided
that such activities shall not contain communications or materials which could
adversely affect Affiliate. In addition, this Section 9(e) shall not
prevent Network from [***] or other communications received from Subscribers;
provided that such responses shall not include information or text which could
reasonably be construed to adversely affect Affiliate. Affiliate acknowledges
that Network’s responding to communications from Subscribers with information
specifically requested by such Subscriber about the availability of the Service
and/or other programming or services available from the Network or any
affiliate of Network shall not be deemed to adversely affect Affiliate. This Section 9(e) shall
survive the expiration or termination of this Agreement (regardless of the
reason for such expiration or termination) for a period of two (2) years.

 

10.                                 FORCE MAJEURE

 

Neither party shall have any
liability to the other party for any failure to perform hereunder, if such
failure is due to: an act of God; inevitable accident; fire; lockout; strike or
other labor dispute; riot or civil commotion; act of government or governmental
instrumentality (whether federal, state or local); act of terrorism; failure of
performance by a common carrier; failure in whole or in part of technical
facilities or satellites; or other cause (excluding financial inability or
difficulty of any kind) beyond such party’s reasonable control; provided,
however, that, if such failure interrupts (sporadically or continuously) or
degrades the quality of the signal for the Service received by the Systems or
third party distributors of the Service hereunder, then the [***] fee payable
by Affiliate hereunder for the [***] during which such failure occurs shall be
reduced to an amount [***] if such failure had not occurred and provided
further, that such interruptions or degradation if they continue for [***]
consecutive [***] periods [***] periods in any period of [***] Network shall
have the right in addition to any other remedies at law or equity to terminate
on [***] notice. Network shall use [***] to remedy the cause of such
interruptions or degradation as soon as reasonably possible.

 

12

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

11.                                 [***]; AUDIT RIGHTS

 

(a)                                  [***]

 

(b)                                 Audit
Right; Damages. During the Term, and for [***] thereafter, Network
shall maintain accurate and complete books and records in accordance with
generally accepted accounting principles and practices which, at a minimum,
shall contain sufficient information to enable an auditor to verify compliance
with this Agreement. Upon [***] prior written notice, Affiliate shall have the
right, during the term of this Agreement and for [***] thereafter to examine
during normal business hours all of the books and records of Network to the
extent necessary to verify compliance with this Agreement; provided, however,
that any such audit shall be conducted by a public accounting firm or an
auditing firm selected by Affiliate who has executed a written non-disclosure
agreement which includes confidentiality provisions at least as strict as those
set forth in this Agreement and provides that information reviewed during an
audit shall not be disclosed to third parties (the “Auditor”), and provided
further that such examinations shall not be conducted more frequently than
[***]. If, as a result of an audit or examination, the Auditor determines that
Network has complied with Section 11(a), then the Auditor shall provide
notice to the parties stating only that Network has complied. If, as a result
of an audit, the Auditor determines that Network has failed to comply with Section 11(a),
then the Auditor shall commence good faith discussions with Network regarding
such non-compliance. In the event that after such good faith discussions, the
Auditor concludes that Network, in fact, has complied with Section 11(a),
then the Auditor shall provide notice to the parties stating only that Network
has complied. In the event that after such good faith discussions, the Auditor
concludes that Network has not complied with Section 11(a), then Network
shall have the option, at Network’s sole election, to either (i) grant to
Affiliate the Provision which is the subject of Section 11(a) effective
as of the date on which such Provision was granted to the third party, or (ii) authorize
the Auditor to provide to Affiliate only that limited information acquired
during the course of the audit as is necessary for Affiliate to pursue its
claim or claims related to Network’s non-compliance; any information that is
not so necessary shall not be disclosed to Affiliate by the Auditor and shall
remain strictly confidential. Under no circumstances, other that the limited
circumstance set forth in clause (ii) above, shall any information
acquired during the course of the audit be disclosed to Affiliate by the
Auditor. In the event that either (x) Network agrees pursuant to clause (i) above
to grant to Affiliate the Provision, or (y) it is determined by a court of
law that Network violated Section 11(a), Network agrees to (a) [***].
Within [***] of the end of each [***] of the Term, Network shall certify, in a
writing signed by [***] executive officers of Network, that Network is
compliant with Section 11(a).

 

(c)                                  No
Conflicting Provision. During the Term and for [***] thereafter,
Network shall not enter into any agreement or contract (whether oral or
written) which limits or restricts, or has the effect of limiting or
restricting, Affiliate’s rights under Section 11(b) by reason of
provisions regarding confidentiality or non-disclosure or otherwise.

 

12.                                 INDEMNIFICATION AND OTHER
REMEDIES

 

(a)                                  Indemnification
by Network. Network shall indemnify Affiliate and each other
Time Warner Company, each System, the persons which directly own the Systems
and their respective affiliates (including controlling persons and related
companies), officers, 

 

13

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

directors, shareholders,
employees and agents (each, an “Indemnitee”) for, and shall hold them harmless
from and against, any and all losses, settlements, claims, actions, suits,
proceedings, investigations, judgments, awards, damages and liabilities
(collectively, “Losses” and, individually, a “Loss”) which are sustained or
incurred by or asserted against any of them and which arise out of or relate to
(i) any breach of this Agreement by Network or (ii) the Service, the
content thereof or programming contained therein or the delivery or
distribution thereof (including, without limitation, any Loss arising out of
libel, slander, defamation, indecency, obscenity, invasion of right of privacy
or infringement or violation of copyrights, music synchronization or
performance rights, dramatic or non-dramatic music rights, trademark rights,
patent rights or other contractual or proprietary rights) to the extent that
such Losses do not arise directly from Affiliate’s gross negligence or willful
misconduct and shall reimburse them for any and all legal, accounting and other
fees, costs and expenses (collectively, “Expenses”) reasonably incurred by any
of them in connection with investigating, mitigating or defending any such
Loss; provided, however, that Network will not have any obligation or liability
under this Section 12(a) to the extent that Affiliate has an
obligation or liability with respect to the same Loss under Section 12(b).

 

(b)                                 Indemnification
by Affiliate. Affiliate shall indemnify Network and its
affiliates (including controlling persons and related companies), officers,
directors, shareholders, employees and agents for, and shall hold them harmless
from and against, any and all Losses which are sustained or incurred by or
asserted against any of them and which (i) arise out of any breach of this
Agreement by Affiliate or (ii) arise directly out of the addition of
material to or the deletion of material from the content of the Service by
Affiliate or the Systems and shall reimburse them for any and all Expenses
reasonably incurred by any of them in connection with investigating, mitigating
or defending any such Loss; provided, however, that Affiliate will not have any
obligation or liability under this Section 12(b) to the extent that
Network has an obligation or liability with respect to the same Loss under Section 12(a).

 

(c)                                  Notice;
Defense. Promptly after receipt by a party of notice of the
commencement of any action, suit, proceeding or investigation in respect of
which a claim for indemnification may be made hereunder by it or its
affiliates, officers, directors, shareholders, employees or agents, such party
will give prompt written notice thereof to the other party; but the failure to
so notify the other party will not relieve the other party from any liability
or obligation which the other party may have to any indemnified person (i) otherwise
than under this Agreement or (ii) under this Agreement except to the
extent of any material prejudice to the other party resulting from such
failure. If any such action, suit, proceeding or investigation is brought
against an indemnified person, the indemnifying party will be entitled to
participate therein and, if it wishes to assume the defense thereof with
counsel satisfactory to the indemnified person (who shall not, except with the
consent of the indemnified person, be counsel to the indemnified person) and
gives written notice to the indemnified person of its election so to assume the
defense thereof within [***] after notice shall have been given to it by the
indemnified person pursuant to the preceding sentence, will be entitled to
assume the defense thereof. Each indemnified person will be obligated to
cooperate reasonably with the indemnifying party, at the expense of the
indemnifying party, in connection with such defense and the compromise or
settlement of any such action, suit, proceeding or investigation.

 

14

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

(d)                                 Overdue
Payments. If any amount due hereunder is not paid when due
or within [***] thereafter, the payor shall pay, in addition to such amount,
interest on such amount at a rate of [***]% per [***] (or, if lower, the
maximum rate permitted by law) from the date on which such amount was due
through the date on which payment of such amount is made.

 

(e)                                  Consequential
Damages. Neither Affiliate nor any other Time Warner
Company, or any System, or third party distributor of the Service on the one
hand, nor Network, on the other hand, shall, for any reason or under any legal
theory, be liable to the other or any third party for any special, indirect,
incidental or consequential damages or for loss of profits, revenues, data or
services, regardless of whether such damages or loss was foreseeable and
regardless of whether it was informed or had direct or imputed knowledge of the
possibility of such damages or loss in advance.

 

(f)                                    Cumulative
Remedies. All rights, powers and remedies afforded to a
party hereunder, by law, in equity or otherwise shall be cumulative (and not
alternative) and shall not preclude assertion or seeking by a party of any
other rights or remedies.

 

13.                                 TERMINATION

 

In addition to the other
rights of termination set forth in this Agreement, the parties shall have the
right to terminate this Agreement as follows.

 

(a)                                  Bankruptcy. If a party (i) becomes
bankrupt or insolvent, however evidenced, (ii) admits in writing its
inability to pay its debts when due, (iii) makes a general assignment for
the benefit of creditors, (iv) has appointed, voluntarily or
involuntarily, any trustee, receiver, custodian or conservator with respect to
it or a substantial part of its property, (v) files, or has filed against
it, a voluntary or involuntary petition in bankruptcy or (vi) makes any
arrangement or otherwise becomes subject to any proceedings under the bankruptcy,
insolvency, reorganization or similar laws of the United States or any state,
then the other party shall have the right at any time thereafter to terminate
this Agreement by giving written notice to such party.

 

(b)                                 Breach. Either party
shall have the right to terminate this Agreement by giving written notice to
the other party if the other party has materially breached this Agreement 

 

and
such breach cannot be fully cured; provided, however, that if such breach is
fully curable, such party shall not have the right to terminate this Agreement
unless such party shall have given written notice to the other party of such
breach and the other party shall have failed to fully cure such breach within
30 days after such notice shall have been given.

 

(c)                                  Effective
Date of Termination. If a party exercises any option or right to
terminate this Agreement as provided herein, such termination shall become
effective on the date on which notice of exercise of such option or right shall
have been given (or on such later date as may be specified in such notice).

 

(d)                                 Survival. Sections
4(e), 5(j), 6(a), 7(a), 7(b), 8(b), 9(a), 9(c), 9(d), 9(e), 15(a), 15(b),
15(c), 15(g) and 15(1), and Articles 11 and 12 shall survive the
expiration or termination of this Agreement for any reason.

 

15

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

14.                                 NOTICES

 

All notices required or
permitted to be given pursuant to this Agreement shall be given in writing,
shall be transmitted by personal delivery, by registered or certified mail,
return receipt requested, postage prepaid, or by a nationally recognized
overnight delivery service and shall be addressed as follows:

 

When Network is the intended recipient:

 

New Frontier Media, Inc.

5435 Airport Boulevard, Suite 100

Boulder CO 80301

Attention: Senior Vice President, Sales

 

with a copy to:

 

New Frontier Media, Inc.

5435 Airport Boulevard, Suite 100

Boulder CO 80301

Attention: Director of Legal Affairs

 

When Affiliate is the
intended recipient:

 

Time Warner Cable

290 Harbor Drive

Stamford, Connecticut 06902

Attention: Senior Vice President, Programming

 

with a copy to:

 

Time Warner Cable

290 Harbor Drive

Stamford, Connecticut 06902

Attention: Senior Vice President and General
Counsel

 

A party may designate a new address to which notices required or
permitted to be given pursuant to this Agreement shall thereafter be
transmitted by giving written notice to the other party. Each notice
transmitted in the manner described in this Section 14 shall be deemed to
have been given, received and become effective for all purposes at the time it
shall have been (i) delivered to the addressee as indicated by the return
receipt (if transmitted by mail), the affidavit of the messenger (if
transmitted by personal delivery), the records of the overnight delivery
service (if transmitted by such service) or the answer back or call back (if
transmitted by telecopier) or (ii) presented for delivery to the addressee
as so indicated during normal business hours, if such delivery shall have been
refused for any reason.

 

16

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

15.                                 MISCELLANEOUS

 

(a)                                  Relationship. Neither party
shall be or hold itself out as the agent of the other party under this
Agreement. Nothing contained herein shall be deemed to create, and the parties
do not intend to create, any relationship of partners or joint venturers 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. 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. Network
disclaims any present or future right, interest or estate in or to the
transmission facilities of Affiliate and any affiliate of Affiliate and the
parents, subsidiaries, partnerships or joint venturers controlling the Systems
on which the Service is transmitted, such disclaimer being to acknowledge that
neither Affiliate nor the transmission facilities of the Systems (nor the
owners thereof) are common carriers.

 

(b)                                 Governing
Law. The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of New York (without
giving effect to the laws, rules or principles of the State of New York
regarding conflicts of laws). The respective obligations of the parties under
this Agreement are subject to all applicable federal, state and local laws, rules and
regulations (including, without limitation, the Communications Act of 1934, as
amended, the Cable Communications Policy Act of 1984, as amended, and the rules and
regulations of the Federal Communications Commission thereunder).

 

(c)                                  Forum;
Jury Trial. Each party agrees that any proceeding arising out
of or relating to this Agreement or the breach or threatened breach of this
Agreement may be commenced and prosecuted in a court in the State of New York.
Each party consents and submits to the non-exclusive personal jurisdiction of
any court in the State of New York in respect of any such proceeding. Each
party consents to service of process upon it with respect to any such
proceeding by registered mail, return receipt requested, and by any other means
permitted by applicable laws and rules. Each party waives any objection that it
may now or hereafter have to the laying of venue of any such proceeding in any
court in the State of New York and any claim that it may now or hereafter have
that any such proceeding in any court in the State of New York has been brought
in an inconvenient forum. Each party waives trial by jury in any such
proceeding.

 

(d)                                 Entire
Agreement. This Agreement together with the Schedules and
Exhibits attached hereto constitute the entire contract between the parties
with respect to the subject matter hereof and cancels and supersedes all of the
previous or contemporaneous contracts, representations, warranties and
understandings (whether oral or written) by, between or among the parties with
respect to the subject matter hereof.

 

(e)                                  Binding
Effect; Assignment. This Agreement shall be binding upon the
parties and their respective successors and assigns and shall inure to the
benefit of the parties and their respective successors and permitted assigns.
Neither party shall assign any of its rights or delegate any of its duties
under this Agreement (by operation of law or otherwise) without the prior
written consent of the other party. 
Notwithstanding the foregoing, no such consent shall be required in
connection with any such assignment or delegation by (i) Affiliate to any
Time Warner Company or any person which controls, is controlled by or is under
common control 

 

17

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under the
Securities Exchange Act.  Omitted
information, marked “[***]” in this Exhibit, has been filed with the Securities
and Exchange Commission together with such request for confidential treatment.

 

with Affiliate or any Time
Warner Company or any partner of Paragon Communications; (ii) Network to
any affiliate of Network; or (iii) Network to any other entity in
connection with a merger, consolidation or sale by Network of all or
substantially all of its assets, provided however, that upon an assignment by
Network pursuant to the foregoing (iii), Affiliate shall have the right to
terminate this Agreement immediately upon written notice to Network without any
further liability or obligation of any kind under this Agreement. Any
assignment of rights or delegation of duties under this Agreement by a party
without the prior written consent of the other party, if such consent is required
hereby, shall be void. Except as otherwise provided herein, no person shall be
a third party beneficiary of this Agreement.

 

(f)                                    Headings. The headings
set forth in this Agreement have been inserted for convenience of reference
only, shall not be considered a part of this Agreement and shall not limit,
modify or affect in any way the meaning or interpretation of this Agreement.

 

(g)                                 Survival
of Representations. All representations and warranties set
forth herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.

 

(h)                                 Amendments;
Modifications; Consents; Waivers. Except as otherwise
contemplated herein no addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and which is
executed and delivered on behalf of each party by, in the case of Network, an
officer of Network and, in the case of Affiliate, by its Senior Vice President,
Programming, Senior Executive Vice President, President or Chairman (each an “Authorized
Person”); provided, however, that any Authorized Person may, by written
authorization, designate another person to execute and deliver such an
instrument. Unless authorized in writing pursuant to the preceding proviso, the
employees and officers of Affiliate’s regional divisions and Systems are not
Authorized Persons. Without in any way limiting either party’s right to
withhold any consent or waiver contemplated by this Agreement or requested by
the other party, or to reject any proposed modification to or amendment of this
Agreement, each party agrees that the other party shall have the right to
condition its grant of any requested consent hereunder, its grant of any
requested waiver of any provision hereof or its acceptance of any proposed
modification hereof or amendment hereto on receipt of such commissions,
compensation or other financial accommodation or consideration as it may, in
its sole discretion, determine appropriate.

 

(i)                                     Waivers
Limited. No waiver of any provision of this Agreement shall
be binding upon a party unless such waiver is set forth in a written instrument
which is executed and delivered on behalf of such party by, in the case of
Network, an officer of Network and, in the case of Affiliate, by an Authorized
Person. Such waiver shall be effective only to the extent specifically set
forth in such written instrument. Neither the exercise (from time to time and
at any time) by a party of, nor the delay or failure (at any time or for any
period of time) to exercise, any right, power or remedy shall constitute a
waiver of the right to exercise, or impair, limit or restrict the exercise of,
such right, power or remedy or any other right, power or remedy at any time and
from time to time thereafter. No waiver of any right, power or remedy of a
party 

 

18

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

shall be deemed to be a
waiver of any other right, power or remedy of such party or shall, except to
the extent so waived, impair, limit or restrict the exercise of such right,
power or remedy.

 

(j)                                     No
Inference Against Author. Each party acknowledges
that this Agreement was fully negotiated by the parties and agrees, therefore,
that no provision of this Agreement shall be interpreted against any party
because such party or its counsel drafted such provision.

 

(k)                                  Counterparts. This
Agreement may be signed in any number of counterparts, each of which (when
executed and delivered) shall constitute an original instrument, but all of
which together shall constitute one and the same instrument. This Agreement
shall become effective and be deemed to have been executed and delivered by
both of the parties at such time as counterparts shall have been executed and
delivered by each of the parties, regardless of whether each of the parties has
executed the same counterpart. It shall not be necessary when making proof of
this Agreement to account for any counterparts other than a sufficient number
of counterparts which, when taken together, contain signatures of both of the
parties.

 

(l)                                     Confidentiality. The terms and
conditions, other than the existence and duration, of this Agreement shall be
kept confidential by the parties hereto and shall not be disclosed by either
party to any third party, without the prior written consent of the other party
except: (i) as may be required by any court of competent jurisdiction,
governmental agency, law or regulation (in such event, the disclosing party
shall notify the other party before disclosing the Agreement); (ii) as may
be required or necessary in any SEC or regulatory filings; (iii) as part
of the normal reporting or review procedure to a party’s accountants, auditors,
agents, legal counsel, and employees of parent and subsidiary companies,
provided such accountants, auditors, agents, investors and potential investment
partners, legal counsel, and employees of parent and subsidiary companies agree
to be bound by this Paragraph; (iv) to enforce any of a party’s rights pursuant
to this Agreement; (v) in connection with due diligence conducted in
connection with a merger, consolidation or acquisition provided that any person
to whom Confidential Information is so disclosed shall have executed, prior to
receiving any Confidential Information, written non-disclosure agreements which
include confidentiality provisions at least as strict as those set forth in
this Agreement; (vi) in connection with audits conducted at the behest of
third parties for purposes similar to that set forth in Section 11(b),
provided that any such third parties shall have executed (prior to their review
of any Confidential Information) written confidentiality agreement which
include provisions at least as strict as the provisions set forth in this Agreement
regarding the confidentiality of information reviewed in connection with such
audits; and (vii) to any prospective or existing lender provided that any
such lender shall have executed (prior to their review of any Confidential
Information) a written confidentiality agreement which includes provisions at
least as strict as the provisions set forth in this Agreement regarding the
confidentiality of information reviewed.

 

19

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under the
Securities Exchange Act.  Omitted
information, marked “[***]” in this Exhibit, has been filed with the Securities
and Exchange Commission together with such request for confidential treatment.

 

IN WITNESS WHEREOF, the parties
have duly executed and delivered this Agreement as of the date first above
written.

 

	
  TIME WARNER CABLE, a division of TIME WARNER ENTERTAINMENT COMPANY,
  L.P. 

  	
   

  	
  NEW FRONTIER MEDIA, INC. 

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  [Illegible]

  	
   

  	
  By: 

  	
  /s/ Michael Weiner

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name: 

  	
   

  	
   

  	
  Name: 

  	
  Michael Weiner

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  SVP

  	
   

  	
  Title:

  	
  VP

  

 

20

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT A

LAUNCH AUTHORIZATION FORM

 

“CABLE/SMATV”
System

 

System Name: _______________________________________

 

Address:____________________________________________

 

City:__________________ State:__________________ Zip:____________________

 

Contact:________________________ Phone:________________________________

 

Billing Address, if different:_________________________________________________________

 

Headend Contact:___________________________  Phone:________________________________

 

Headend Location, if different:_______________________________________________________

 

Major Community Served: _______________________________________________

 

Units Passed:________________________ Service Subs:____________________________

 

Launch Date:________________________ Channel Assigned:________________________

 

Service Required:_____________________________________

 

Start Date:___________________

 

Residential Unit ID#:__________________

 

OR

 

Commercial Unit ID#:_________________

 

Serial #:_____________________

 

A-1

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT B

EDITING AND CONTENT STANDARDS

 

All programming comprising
the Service shall comply at all times with the following [***] editing and
content standards:

 

[***] - [***], or [***]
versions of adult entertainment are known as [***] programming. All shots of
[***] and [***] have been removed from [***] programming, [***] and [***] are
limited, and sometimes (for productions), activities are [***]. [***]
programming depicts [***] and [***] situations and [***], but does not depict
[***] and is [***] (or [***]) to the degree of explicitness of programming
featured on [***].

 

Although not submitted for
MPAA ratings, [***] programming would likely receive an [***] or [***].
Standard adult entertainment, especially [***] programs, operate mostly within
[***].

 

The Service shall not
include any [***] or [***] programming, defined as follows:

 

[***] - [***] programming
incorporates most of the elements shown in [***] features, including [***].
However, [***] excludes certain [***] and [***] that the adult industry had
determined may violate some acceptable community standards.

 

[***] - Like adult video
stores, [***] programming includes movies and other features that have not been
altered from their original master version.

 

[Table
Illustrating Differences between Editing Standards Omitted.]

 

B-1

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT C

SAMPLE PROGRAM SCHEDULE

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

C-1

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT D

 

LAUNCH AND MARKETING SUPPORT

 

Network make the following available each System:

 

[***]

 

D-1

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT E

 

NETWORK NAMES AND MARKS USE GUIDELINES

 

Affiliate’s use of the Network Marks shall be limited to the
advertising and promotion of its carriage of the Service over the Systems
pursuant to this Agreement. Network shall provide Affiliate with samples of the
network Marks which Affiliate shall use in their entirety (including all
service mark and trademark notices) whenever the Network Marks are used by
Affiliate.

 

Network shall have the right at any time upon reasonable notice to
Affiliate to review and require modifications to Affiliate’s advertising,
promotional, marketing and/or sales materials concerning the Service and all
other uses of the Network Marks by Affiliate.

 

E-1

 

Portions of this Exhibit have been redacted pursuant to
a request for confidential treatment under Rule 24b-2 of the General Rules and
Regulations under the Securities Exchange Act.  Omitted information,
marked “[***]” in this Exhibit, has been filed with the Securities and Exchange
Commission together with such request for confidential treatment.

 

AMENDMENT TO THE AFFILIATION AGREEMENT

 

This Amendment (“Amendment”), effective as of
June 17, 2003 (“Effective Date”) hereby amends the Affiliation
Agreement regarding carriage of the adult entertainment pay television service
known as PleasureTM that was entered into by and between COLORADO
SATELLITE BROADCASTING, INC. f/k/a NEW FRONTIER MEDIA, INC. (“Network”)
and TIME WARNER CABLE INC. (“Affiliate”) as of the 1st day of January, 2000.  Such Affiliation Agreement, as amended prior
to the Effective Date hereof, is hereinafter referred to as the “Pleasure
Agreement”.  Any terms not otherwise
defined herein shall have the meaning set forth in the Pleasure Agreement.  If there are any conflicts between the terms
of this Amendment and the Pleasure Agreement, the terms of this Amendment shall
prevail.

 

1.                                     Services.  The parties hereby agree that each of the
following satellite-delivered, commercial-free, encrypted, adult entertainment
pay television programming services shall, as of the Effective Date, be
considered a “Service” for all purposes under the Pleasure Agreement:

 

(a)           the
television programming service known as The Erotic NetworkTM (or TeNTM), as more fully described in
Section 2(a) of this Amendment;

 

(b)           the
television programming service known as The Erotic Network ClipsTM (or TeNClipsTM), as more fully
described in Section 2(b) of this Amendment;

 

(c)           the
television programming service known as The Erotic Network BlueTM (or TeN BlueTM), as more fully
described in Section 2(c) of this Amendment; and

 

(d)           the
television programming service known as The Erotic Network BloxTM (or TeN BloxTM), as more fully
described in Section 2(d) of this Amendment.

 

The foregoing television
programming services are collectively referred to herein as the “Services”.

 

2.                                     Content of the Services.  The parties hereby agree that, with respect
solely to the Services addressed by this Amendment, Section 4(a) of
the Pleasure Agreement [“Service Description”] shall not apply.  Rather, for such purposes, each of the
Services will comply at all times with the following content descriptions, as
applicable:

 

(a)           TeNTM Description.  The Service known as “The Erotic Network” or “TeN”
shall be a 24-hour per day, 7-day per week, satellite-delivered,
commercial-free, encrypted, pay video programming service, which at all times
shall, in each [***] programming block, on a daily average basis, consist
solely of:  (i) [***] of [***] or
[***] feature length premieres (“TeN Premieres”) of adult films, events,
specials, compilations and programs, all of which shall depict [***] and [***]
situations among consenting adults, and shall not depict [***], (ii) no
more than [***] of promotionals and/or interstitial programming that advertises
only TeN (such as pay-per-view features and highlights) or the pay-per-view
services of Network’s affiliates and joint ventures which it owns and controls;
provided, however, that such programming shall not advertise any other
television programming or service that is not 

 

 

Portions of this Exhibit have been redacted
pursuant to a request for confidential treatment under Rule 24b-2 of the
General Rules and Regulations under the Securities Exchange Act. 
Omitted information, marked “[***]” in this Exhibit, has been filed with the
Securities and Exchange Commission together with such request for confidential
treatment.

 

available in such System to Subscribers, and (iii) no more than
[***] of advertisements for products designed specifically to enhance the
Subscribers’ experience while viewing the Service.  All of the programming on TeN, including
without limitation all promotionals, interstitials and advertisements, shall,
at all times during the Term, adhere to and comply with the [***] or [***]
editing and content standards described in sub-section (a)(ii) above and
shall consist of programming similar in all material respects to that described
on the program schedule attached hereto as Exhibit A-1.  Network agrees that, during each quarter of
the Term, it shall send [***] copy of its monthly programming schedule for TeN
to Affiliate in care of:  Vice President
of Programming.

 

(b)           TeNClipsTM Description.  The Service known as “The Erotic Network
Clips” or “TeNClips” shall be a 24-hour per day, 7-day per week,
satellite-delivered, commercial-free, encrypted, pay video programming service,
which at all times shall, in each [***] programming block, on a daily average
basis, consist solely of:  (i) at
least [***] of [***] or [***] clips from TeN Premieres, as well as other adult
events, specials, compilation and programs, all of which shall be bundled in
[***] blocks and shall depict [***] and [***] situations among consenting
adults, and shall not depict [***], (ii) no more than [***] of
promotionals and/or interstitial programming that advertises only TeNClips
(such as pay-per-view features and highlights) or the pay-per-view services of
Network’s affiliates and joint ventures which it owns and controls; provided,
however, that such programming shall not advertise any other television
programming or service that is not available in such System to Subscribers, and
(iii) no more than [***] of advertisements for products designed
specifically to enhance the Subscribers’ experience while viewing the
Service.  All of the programming on
TeNClips, including without limitation all promotionals, interstitials and
advertisements, shall, at all times during the Term, adhere to and comply with
the [***] or [***] editing and content standards described in sub-section (b)(ii) above
and shall consist of programming similar in all material respects to that
described on the program schedule attached hereto as Exhibit A-2.  Network agrees that, during each quarter of
the Term, it shall send [***] copy of its monthly programming schedule for
TeNClips to Affiliate in care of:  Vice
President of Programming.

 

(c)           TeN BlueTM Description.  The Service known as “The Erotic Network Blue”
or “TeN Blue” shall be a 24-hour per day, 7-day per week, satellite-delivered,
commercial-free, encrypted, pay video programming service, which at all times
shall, in [***] programming block, on a daily average basis, consist solely
of:  (i) at least [***] of [***] or
[***] feature length [***] adult films, events, specials and programs
(collectively, the “Blue Programming”), all of which shall depict [***]
and [***] situations among consenting adults, and shall not depict [***], (ii) no
more than [***] of promotionals and/or interstitial programming that advertises
only TeN Blue (such as pay-per-view features and highlights) or the
pay-per-view services of Network’s affiliates and joint ventures which it owns
and controls; provided, however, that such programming shall not advertise any
other television programming or service that is not available in such System to
Subscribers and (iii) no more than [***] of advertisements for products
designed specifically to enhance the Subscribers’ experience while viewing the
Service.  All of the programming on TeN
Blue, including without limitation all promotionals, interstitials and
advertisements, shall, at all times during the Term, adhere to and comply with
the [***] or [***] editing and content standards described in sub-section (c)(ii) above
and shall consist of programming similar in all material respects to that
described on the

 

2

 

Portions of this Exhibit have been redacted
pursuant to a request for confidential treatment under Rule 24b-2 of the
General Rules and Regulations under the Securities Exchange Act. 
Omitted information, marked “[***]” in this Exhibit, has been filed with the
Securities and Exchange Commission together with such request for confidential
treatment.

 

program schedule attached hereto as Exhibit A-3.  Network agrees that, during each quarter of
the Term, it shall send [***] copy of its monthly programming schedule for TeN
Blue to Affiliate in care of:  Vice
President of Programming.

 

(d)           TeNBloxTM Description.  The Service known as “The Erotic Network Blox”
or “TeNBlox”) shall be a 24-hour per day, 7-day per week, satellite-delivered,
commercial-free, encrypted, pay video programming service, which at all times
shall, in each [***] programming block, on a daily average basis, consist
solely of:  (i) at least [***] of
[***] or [***] clips from Blue Programming, which shall be bundled in [***]
blocks and shall depict [***] and [***] situations among consenting adults, and
shall not adult films, events and programs that depict [***] and [***]
situations among consenting adults, and shall not depict [***], (ii) no
more than [***] of promotionals and/or interstitial programming that advertises
only TeNBlox (such as pay-per-view features and highlights) or the pay-per-view
services of Network’s affiliates and joint ventures which it owns and controls;
provided, however, that such programming shall not advertise any other
television programming or service that is not available in such System to
Subscribers and (iii) no more than [***] of advertisements for products
designed specifically to enhance the Subscribers’ experience while viewing the
Service.  All of the programming on
TeNBlox, including without limitation all promotionals, interstitials and
advertisements, shall, at all times during the Term, adhere to and comply with
the [***] or [***] editing and content standards described in sub-section (d)(ii) above
and shall consist of programming similar in all material respects to that
described on the program schedule attached hereto as Exhibit A-4.  Network agrees that, during each quarter of
the Term, it shall send [***] copy of its monthly programming schedule for
TeNBlox to Affiliate in care of:  Vice
President of Programming.

 

3.                                     Other Exhibition and
Distribution.  The
parties hereby agree that, with respect solely to the Services addressed by
this Amendment, Section 4(g) of the Pleasure Agreement [“Other
Exhibition and Distribution”] shall not apply. 
Rather, with respect to each of the Services described in this
Amendment, Network agrees that if, during the Term, Network exhibits or
distributes, or grants or agrees to grant to any third party the right to
exhibit or distribute all or any portion of any of the Services via the
Internet, any online service, any broadband, wireline or wireless service or
any local or wide area network, in any format (including multimedia,
interactive, three dimensional or other augmented or enhanced format, e.g., “video-streaming”)
to customers in the franchise area of any System within the United States, its
territories or possessions (“More Expansive Rights”), then Network shall
promptly give written notice thereof to Affiliate and, at Affiliate’s election,
this Amendment shall be deemed to have been modified so that, from the date on
which such More Expansive Rights are first in effect (or, if such More
Expansive Rights are now in effect, from the date hereof) and thereafter during
the Term for so long as such More Expansive Rights continue to remain in
effect, Affiliate shall have the right to enjoy the benefit of such More
Expansive Rights with respect to the applicable Service on the most favorable
terms and conditions of any distributor with respect to such More Expansive
Rights

 

4.                                     Fees.  The parties hereby agree that, with respect
solely to the Services addressed by this Amendment, Section 6(a) of
the Pleasure Agreement [“Fees”] shall not apply.  Rather, 

 

3

 

Portions of this Exhibit have been redacted
pursuant to a request for confidential treatment under Rule 24b-2 of the
General Rules and Regulations under the Securities Exchange Act. 
Omitted information, marked “[***]” in this Exhibit, has been filed with the
Securities and Exchange Commission together with such request for confidential
treatment.

 

the parties hereby agree to the following fee arrangement relating to
the Services covered by this Amendment:

 

(a)                                For each [***]
of each [***] of the Term, commencing on the Effective Date, Affiliate shall
pay to Network, in consideration for the license granted herein, the following
fees, on a System-by-System basis:

 

(i)                                  For a System
that carries [***] of the Services:

 

(A)          Subscription Purchases:  [***]; and (B) Pay Per View Purchases:  [***] (collectively, the “[***] Channel
Fees”).

 

(ii)                               For a System
that carries [***] of the Services on separate channels:

 

(A)          Subscription Purchases:  [***]; or (B) Pay Per View Purchases:  [***] (collectively, the “[***] Channel
Fees”).

 

(iii)                            For a System
that carries [***] of the Services on separate channels:

 

(A)          Subscription Purchases:  [***]; or (B) Pay Per View Purchases:  [***] (collectively, the “[***] Channel
Fees”).

 

(iv)                           “Fees” shall mean, collectively, the [***] Channel Fees, the [***] Channel
Fees and the [***] Channel Fees.

 

(v)                              If a System carries the PleasureTM service (“Pleasure”) and
launches, on [***], on a [***] basis, any [***] of the
Services described in this Amendment then, beginning with the launch date of
such Service(s), Affiliate shall [***] for such
System for Pleasure for a period of [***]
continuous [***].  If, however,
any such System deletes the applicable Service prior to the [***] anniversary
of the launch of such Service in such System, or 

 

4

 

Portions of this Exhibit have been redacted
pursuant to a request for confidential treatment under Rule 24b-2 of the
General Rules and Regulations under the Securities Exchange Act. 
Omitted information, marked “[***]” in this Exhibit, has been filed with the
Securities and Exchange Commission together with such request for confidential
treatment.

 

if any System distributing the applicable Service is sold, transferred,
or otherwise disposed of and the applicable Service is subsequently deleted
from such System prior to the end of the applicable [***] period, Affiliate
will [***] Network a [***] for Pleasure attributable to the System in which
such applicable Service was deleted using the following calculation to
determine the amount of [***]:

 

[***]

 

Such [***] will be paid by
Affiliate to Network within [***] after the deletion of the applicable
Service.  It is agreed that such [***]
obligation shall not apply where the subsequent owner or transferee has in turn
sold, transferred or otherwise disposed of the System and the applicable
Service is then deleted by the second subsequent owner or transferee.  Irrespective of any other provision of the
Pleasure Agreement or this Amendment, this Section 4(a)(v) shall
survive the expiration or termination of the Pleasure Agreement in accordance
with its terms.

 

5.                                     Except as
expressly set forth herein, all terms and conditions of the Pleasure Agreement
remain unmodified and are incorporated herein by reference.  This Amendment shall be governed by the laws
of the State of New York, without regard to its conflict of law
principles.  By signing below, the
parties agree to the terms of this Amendment. 
This Amendment may not be modified or amended except in a writing signed
by a duly authorized representative of each party.

 

 

	
  ACCEPTED AND AGREED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COLORADO SATELLITE BROADCASTING,
  INC.

  	
   

  	
  TIME WARNER CABLE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ken Boenish

  	
   

  	
  By:

  	
  /s/ Lynne Costantini

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Ken Boenish

  	
   

  	
  Name:

  	
  Lynne Costantini

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  	
  Title:

  	
  VP Programming

  

 

5

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHBIT A

 

PROGRAMMING SCHEDULES

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

Exhibit A-1

 

TeNTM

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT A-2

 

TeNClipsTM

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT A-3

 

TeNBlueTM

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

 

Portions
of this Exhibit have been redacted pursuant to a request for confidential
treatment under Rule 24b-2 of the General Rules and Regulations under
the Securities Exchange Act.  Omitted information, marked “[***]” in this
Exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

EXHIBIT A-4

 

TeNBloxTM

 

[Programming Schedule by Time and Title Omitted]

 

[***]

 

 

Portions of this Exhibit have been redacted pursuant to
a request for confidential treatment under Rule 24b-2 of the General Rules and
Regulations under the Securities Exchange Act.  Omitted information,
marked “[***]” in this Exhibit, has been filed with the Securities and Exchange
Commission together with such request for confidential treatment.

 

SECOND AMENDMENT TO THE AFFILIATION
AGREEMENT

 

This Second Amendment to the
Affiliation Agreement, effective as of this 27th day of December 2006,
hereby amends the Affiliation Agreement that was entered into by and between
NEW FRONTIER MEDIA, INC. a Colorado Corporation (“Licensor”) and TIME
WARNER CABLE LLC (successor in interest to Time Warner Cable, a division of
Time Warner Entertainment Company, LP., a Delaware partnership) (“TWC”)
dated as of the 1st day of January 2000, as amended as of June 17,
2003 (the “Agreement”).  Licensor
and TWC hereby agree as follows:

 

1.                                       Term.  Section 3 of the Agreement is hereby
deleted in its entirety and replaced with the following: “The initial term of
this Agreement shall be [***], commencing on the Effective Date (“Initial
Term”), and shall automatically renew thereafter on a [***] basis (each
such [***] a “Renewal Period”) (the Initial Term and any Renewal Period(s) together,
the “Term”).  Either party may terminate
this Agreement for any or no reason by giving written notice to the other party
at least [***] prior to the last day of any Renewal Period.”

 

2.                                       All of the
terms and conditions set forth in the Agreement shall remain in full force and
effect, except to the extent that such terms and conditions are modified by or
in conflict with the provisions of this Amendment, in which case this Amendment
shall prevail.  Subject to the foregoing,
this Amendment and the Agreement (including all other amendments, addenda,
schedules and exhibits thereto) shall be deemed one in the same document.

 

ACCEPTED
AND AGREED:

 

	
  Time
  Warner Cable LLC

  	
  New
  Frontier Media, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  [Illegible]

  	
   

  	
  By:

  	
  /s/
  Karyn L.Miller

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
  Karyn
  Miller

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
  12-28-06

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