CONFIDENTIAL
HEADS OF AGREEMENT
These Heads of Agreement ("these Heads") are entered into on
the 5th of July 1996 between:
(1) NETHOLD CENTRAL EUROPE B.V., a company incorporated in
The Netherlands, whose registered office is at
Xxxxxxxxxxxxx 00, 0000 XX Xxxxxxxxx, Xxx Xxxxxxxxxxx
("NetHold"); and
(2) HUNGARIAN BROADCASTING CORPORATION US, INC., a company
incorporated in the United States of America with a
principal place of business at 000 Xxxx Xxxxxx, Xxx
Xxxx, XX 00000, XXX (referred to herein as "HBC").
WHEREAS:
(A) NetHold or its affiliated companies have leased
transponder capacity on various satellites for
transmission of television programme signals in Europe,
including a package of television and audio services in
digital format referred to herein as the "NetHold
Package," in respect of which one of NetHold's
affiliated MultiChoice companies will provide the
relevant subscriber management services and other
affiliated and third party companies the relevant
technical expertise;
(B) HBC currently operates a channel in the Hungarian
language currently known as "A3" more fully described
in Schedule A attached hereto and by this reference
incorporated herein (the "Channel");
(C) HBC desires that NetHold distributes the Channel in
digital format with a view to: (i) cable operators in
the Territory being able to access the digital signals
of the Channel and cablecast the same on their cable
systems in analogue or digital format; and (ii) NetHold
including the Channel in the NetHold Package for
distribution throughout the Territory.
NOW THEREFORE THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. TERM
1.1 These Heads and the Definitive Agreement referred in
Paragraph 14 below shall be deemed to take effect on
the date of execution hereof and shall continue
thereafter for a period of 5 (five) years from the
Start Date (the "Initial Term").
1.2 The Initial Term shall automatically be extended for
additional periods of 1 (one) year each unless either
party shall have given written notice to the other
party terminating this Agreement at least 6 (six)
months' prior to the expiration of the Initial Term or
any anniversary thereof. The Initial Term and any
extension thereof pursuant hereto shall be referred to
herein as the "Term."
1.3 The Start Date shall be the operation service date of
Eutelsat Hot Bird 2 ("Hot Bird"), being the date upon
which NetHold shall commence distribution of the
Channel pursuant hereto. NetHold agrees to provide HBC
with as much notice as is reasonably practical of the
Start Date.
2. TERRITORY
2.1 For the purposes hereof, the territory shall consist of
Hungary and any other territories within the footprint
of the Hot Bird transponder on which the Channel is
distributed pursuant hereto to which NetHold
distributes the NetHold Package, in respect of which
HBC has cleared all necessary rights and which are
notified in writing by HBC to NetHold during the Term
hereof (the "Territory").
3. DIGITIZATION OF THE CHANNEL
3.1 HBC agrees, at its cost, to deliver the signals of the
Channel to the multiplex and uplinking facilities (the
"Facilities") specified in the technical specification
to be agreed between the parties as soon as practicable
after the signing of this Agreement (the "Technical
Specification") in accordance with technical
specifications and quality standards set out in the
Technical Specification.
3.2 NetHold agrees that, upon receipt of the signals of the
Channel at the Facilities NetHold shall procure:
3.2.1 that the signals of the Channel are digitally
compressed, multiplexed and encrypted; and
3.2.2 uplinked to the relevant Hot Bird transponder
specified in the Technical Specification (the
"Satellite") for transmission and reception
throughout the Territory.
3.3 NetHold agrees that all times throughout the Term:
3.3.1 it shall obtain and maintain (either directly
or indirectly) such transponder capacity,
digital compression equipment, transmission
and uplinking facilities and equipment and
encryption hardware and software as may be
required to fulfil its obligations set out in
Paragraph 3.2 above;
3.3.2 It shall ensure that the Channel is of a good
broadcast quality as set out in the Technical
Specification and shall at all times
distribute the same in accordance with the
Technical Specification.
3.4 HBC acknowledges and agrees that the first 3 (three)
months of the Term from the Start Date shall be viewed
as a trial period (the "Trial Period") during which
NetHold may make interruptions to the digital
transmissions of the Channel for reasons related to
evaluation, testing, adjustment or failure of technical
facilities and equipment used in receiving and
distributing the signals of the Channel ("Essential
Interruptions"). HBC agrees that it shall not have any
claim or other legal remedy against NetHold in respect
of any damages or loss arising from interruptions of
the transmissions of the Channel during such trial
period. For the avoidance of doubt, no fees shall be
payable by either party in respect of the Trial Period.
4. DISTRIBUTION RIGHTS GRANTED TO NETHOLD
4.1 Subject to the cable distribution rights set out in
Paragraphs 5.1 and 5.2 below, HBC hereby grants to
NetHold the exclusive right to distribute the Channel
as part of a multi-channel service to viewers via
direct to home ("DTH") means, SMATV systems and cable
systems throughout the Territory in digital format.
4.2 NetHold shall have the right to package the Channel, as
it sees fit, provided that it shall not distribute the
Channel as part of a tier of programming of the NetHold
Package in respect of which no subscription fee is
charged to Subscribers.
5. CABLE DISTRIBUTION IN THE TERRITORY
5.1 NetHold agrees that HBC may authorize cable operators
in the Territory ("Operators");
5.1.1 to receive the signals of the Channel as
distributed by NetHold in digital format
pursuant hereto; and
5.1.2 de-compress, de-digitize and decrypt the
signals of the Channel and reconvert the same
into analogue format prior to distributing
the same via their systems in analogue
format.
5.2 NetHold agrees that HBC may authorize Operators not
less than 25% (twenty-five percent) of the issued
shares of which are owned either by Xx. Xxxxx X.
Xxxxxxx of Xxxxxxx U.19, H-1118, Budapest, Hungary, a
company controlled by Xx. Xxxxx X. Xxxxxxx or the
Hungarian Telephone and Cable Corporation, Inc. having
a place of business at Xxxxxxx X.00, X-0000, Xxxxxxxx,
Xxxxxxx:
5.2.1 to receive the signals of the Channel as
distributed by NetHold in digital format
pursuant hereto; and
5.2.2 distribute the same via their systems to
their subscribers in digital format.
For the purposes of this clause 5.2, control shall mean
the right to exercise, whether directly or indirectly,
more than 50% of the voting rights attributable to the
shares of a company and the ability to direct or cause
the direction of the management, actions or policies of
that company.
5.3 HBC acknowledges that, save where HBC enters into a
cable representation agreement with NetHold in respect
thereof (the terms of which would be the subject of a
separate agreement between the parties), HBC shall be
responsible for entering into agreements directly with
Operators regarding the carriage of the Channel on
cable systems in the Territory under Paragraph 5.1 or
5.2.
5.4 HBC agrees to provide NetHold with as much notice as is
reasonable practical of the cable systems in the
Territory in which it requires distribution of the
Channel. NetHold agrees to help facilitate the
acquisition by HBC of the professional decoders
("ProfDecs") required by Operators in order to access
the signals of the Channel pursuant to Paragraph 5.1
above; provided that HBC acknowledges and agrees that
HBC shall be solely responsible for entering into
agreements directly for the acquisition of the ProfDecs
and for any and all cost associated therewith and that
NetHold's role in this regard shall be solely as
facilitator.
5.5 The foregoing notwithstanding, NetHold agrees to
provide smart cards to Operators and to carry out
authorization and enablement of the Channel vis such
smart cards in accordance with HBC's instructions, at a
cost of US $100 per enabled smart card per year.
6. CONSIDERATION
6.1 HBC agrees that in consideration of NetHold providing
carriage for the Channel as outlined herein, HBC shall
be liable to pay fees to NetHold in the amount of US
$700,000 (Seven Hundred Thousand US Dollars) per annum;
provided that the parties agree that such consideration
shall be payable as follows:
6.1.1 HBC shall pay to NetHold US$400,000 (Four
Hundred Thousand US Dollars) per annum in
cash throughout the Term (the "Annual Fee"),
such Annual Fee being payable in equal
installments, quarterly, in advance (payment
in respect of each quarter being due and
payable on the last day of the preceding
quarter), throughout the Terms. For the
avoidance of doubt, the first payment in
respect of the Annual Fee shall be made on
the last day of the Trial Period and only
US$300,000 (Three Hundred Thousand US
Dollars) shall be payable in respect of the
first year of the Term; PLUS
6.1.2 HBC shall provide to NetHold free of charge,
advertising time to a value of US$300,000
(Three Hundred Thousand US Dollars)(the "Free
Spots") for the promotion of NetHold, its
affiliates and the NetHold Package. The Free
Spots shall be transmitted by HBC at times
selected by NetHold's appointed media buying
agency. The value of the Free Spots shall be
calculated at the lesser of HBC's ratecard
for advertising on the Channel and the
average market rate, in each case less a
discount of 40% (forty percent). The average
market rate shall be determined by a third
party, the identity of which is to be
mutually agreed between the parties. Failing
such agreement, the average market rate shall
be determined by NetHold's auditors. HBC
agrees to insert such advertising into the
Channel at no cost to NetHold prior to
transmission of the Channel. Material
transmitted in the free spots shall be
produced by or on behalf of NetHold and
delivered in the format generally required by
HBC from its advertisers and, for the
avoidance of doubt, the costs of production
of such material shall, as between NetHold
and HBC, be borne by NetHold.
6.2 The parties hereto agree that the Annual Fee and the
DTH Subscriber Fees shall be increased each year by a
percentage equivalent to the percentage increase in the
Dutch CPI during the previous twelve month period.
6.3 HBC shall, as a condition precedent to the performance
by NetHold of its obligations hereunder, prior to the
Start Date and in any event no later than 1 September
1996, provide NetHold with a deposit in the sum of
US$100,000 (One Hundred Thousand US Dollars) as
security for the due and proper performance by HBC of
its obligations hereunder (the "Deposit"). Following
termination of this Agreement NetHold will return the
Deposit to HBC less any sums retained to meet any
liability of HBC under this Agreement. HBC shall not
deduct the amount of the Deposit from the Annual Fee
payable by it.
7. DTH SUBSCRIBER FEES, REPORTING AND PAYMENT
7.1 NetHold shall contribute towards the payment of
properly incurred television programming and music
rights clearance fees for DTH distribution of the
Channel in the Territory by paying the Channel Supplier
US$0.083 (Eight Point Three US cents) in respect of
each Subscriber to the Channel receiving the Channel by
way of DTH in the Territory (each a "DTH Subscriber")
up to a maximum of US$8,300 (Eight Thousand Three
Hundred US Dollars) per month (the "DTH Subscriber
Fees"). Payments of the DTH Subscriber Fees shall be
made monthly in arrears and shall commence in respect
of the month starting after the end of the Trial
Period.
7.2 The foregoing notwithstanding, The Channel Supplier
agrees that in the event that NetHold offers incentives
to potential DTH Subscribers in the form of free
viewing periods, NetHold shall not be obliged to pay
any DTH Subscribers Fees to the Channel Supplier in
respect of potential new DTH Subscribers during such
free viewing periods.
7.3 Within 30 (thirty) days after the end of each month and
with effect from the Start Date, NetHold shall deliver
to The Channel Supplier a statement relating to the
preceding month recording the total numbers of
Subscribers to the Channel (breaking down the numbers
by country and type) respectively on the first and last
days of such month and the average number of DTH
Subscribers to the Channel in the relevant month
calculated by adding the number of DTH Subscribers on
the first and last days of the relevant month and
dividing that figure by two. Following receipt of the
statement, and subject to the periods during which no
DTH Subscriber Fees shall be payable by NetHold to The
Channel Supplier pursuant hereto, The Channel Supplier
shall invoice NetHold in respect of the average number
of DTH Subscribers to the Channel during the relevant
month and NetHold shall pay such invoice in full no
later than 60 (sixty) days after the date of receipt
thereof.
8. MARKETING AND PROMOTION
8.1 NetHold agrees to use all reasonable endeavors to
market and promote the Channel as part of the NetHold
Package to potential subscribers and subscribers in the
Territory, the nature of such activities being in the
absolute discretion of NetHold.
8.2 HBC agrees to provide to NetHold, at HBC's cost,
monthly listings of the programme schedules for the
Channel, in as final a form as possible, at least 45
(forty-five) days before the start of the calendar
month in which such programmes are to be transmitted.
Such listings shall be in such format(s) (including
electronic format) as NetHold may reasonably require.
HBC shall provide NetHold promptly with any updates
thereto in the requested format.
8.3 HBC further agrees to use its reasonable endeavors to
provide to NetHold, at HBC's cost, and on a timely
basis, such other information and materials relating to
the Channel as, and in such format as, NetHold may
reasonably request for inclusion in NetHold's marketing
and promotional materials, including, without
limitation, still pictures and programme synopses.
NetHold may use the listings and any other information
or materials provided pursuant hereto in any printed,
electronic or other media created by or on behalf of
NetHold in order to market and promote the NetHold
Package and shall have editorial freedom to adapt such
materials as it deems appropriate, provided that
NetHold agrees to comply with reasonable guidelines
supplied by HBC in respect thereof and any such
adaptation shall not misrepresent the contents of the
same or have an adverse affect on HBC.
8.4 HBC further agrees that, on request, it shall provide
reasonable amounts of video promotional material for
insertion in any promotional channel produced by
NetHold in respect of the NetHold Package (the
"Promotional Channel"). If NetHold identifies excerpts
from the Channel which it wishes to include in the
Promotional Channel, it shall notify HBC thereof who
shall notify NetHold within 10 (ten) days of whether
NetHold may record such excerpts from the Channel for
inclusion in the Promotional Channel and of any
relevant restrictions applicable thereto.
9. IRDs AND VIEWING CARDS
9.1 HBC acknowledges that NetHold will not itself
manufacture digital decoders in the Territory but will
use reasonable efforts to procure that manufacturers
and distributors are granted such licenses and/or
authorizations as may be necessary for the manufacture
of such decoders and for their distribution in the
Territory.
9.2 NetHold agrees that throughout the Term it shall obtain
and distribute Viewing Cards to viewers who have
acquired a digital decoder for the purpose of viewing
the NetHold Package and from time to time replace the
same as it may deem appropriate.
10. PROGRAMME CLEARANCES AND CONTENT
10.1 HBC acknowledges and agrees that it is solely
responsible for the content of the Channel and shall
ensure compliance with any laws, rules, regulatory
codes, orders and directions applicable from time to
time to the transmission, reception and/or content of
and/or advertising contained in the Channel. For the
avoidance of doubt, both parties acknowledge and agree
that HBC shall not be responsible for any licenses,
consents or permissions required in respect of the
uplinking or downlinking of the signals of the Channel
in accordance with this Agreement.
10.2 HBC warrants that it shall clear all necessary
television programming and music rights (including, but
not limited to, music performing rights) in respect of
the Channel at its cost throughout the Terms and in
particular, but without limitation, warrants that
neither the Channel nor any materials of any nature
provided to NetHold by HBC nor any part thereof or
material therein (other than any material inserted in
the Channel by NetHold as expressly permitted herein)
will infringe the copyright, performing right, right of
privacy, trade xxxx, moral right or other proprietary
right or interest of any third party or will constitute
a misuse of any confidential information of a third
party.
10.3 Without limitation to the generality of Clause 10.2,
HBC warrants that it shall clear all necessary
television programming and music rights for DTH
distribution of the Channel in the Territory prior to
28 February 1997, and shall continue to clear such
rights throughout the remainder of the Term. Failing
which and without prejudice to any other remedies
available to it, NetHold shall be entitled at its
discretion, not to distribute the channel by way of DTH
or to terminate this agreement.
10.4 NetHold and HBC each agree to obtain and maintain such
licenses, consents and permissions as are required from
any third party and/or appropriate governmental
authority and/or regulatory body or authority for such
party to perform its obligations under this Agreement;
including, without limitation, in the case of HBC, a
broadcast license in respect of the Channel and any
other permissions required by broadcasters to
facilitate the broadcast of the Channel as set out
herein.
10.5 NetHold agrees that it shall not during this Agreement
interrupt, alter, add to, delete or edit any part of
the Channel in any way, save as is envisaged in this
Agreement or required by any applicable law nor record
the Channel or any part thereof, except as may be
required by law or otherwise to comply with the terms
of any license, consent or permission.
10.6 NetHold acknowledges and agrees that it shall be
responsible for the encryption of the signals of the
Channel before their distribution as permitted herein.
NetHold is not aware of any significant breach of the
security of the encryption technology to be used to
encrypt the Channel as at the date hereof and shall
employ all reasonable security systems and procedures
to prevent any loss, theft, piracy, unauthorized use,
reception or copying of the Channel or any part thereof
and shall immediately notify HBC if it knows that such
event has occurred.
10.7 Each party agrees to indemnify the other party and hold
it harmless against any damages (including reasonable
legal costs) which may be awarded or agreed to be paid
to any third party in respect of any claim or action
arising out of any actual or alleged breach of any
undertaking, warranty or obligation on the part of such
party contained in the Paragraph 10.
11. TERMINATION
11.1 Either party may terminate this Agreement at any time
by giving notice in writing to the other party where:
11.1.1 The other party has committed a material
breach of any of its obligations under the
Agreement which is incapable of remedy; or
11.1.2 the other party has committed a material
breach of any of its obligations under the
Agreement (including the persistent breach of
any provision hereof) which is capable of
remedy and which the other party has not
remedied within 30 (thirty) days of receipt
of written notice to do so; or
11.1.3 an order is made for the other party's
winding up, dissolution or reorganization
(otherwise than while solvent and for the
purpose of bona fide reconstruction or
amalgamation) or the other party becomes
bankrupt or insolvent or files any
application, petition or action for relief
under any bankruptcy, insolvency or
moratorium law, or the other party admits in
writing its inability to pay its debts or is
unable to pay its debts as they fall due, or
the other party suffers any event of
insolvency or bankruptcy or any event
analogous thereto under the terms of the law
applicable the jurisdiction of its domicile,
or an application is made for an
administration (or similar) order to be made
in respect of the other part; or suspends or
threatens to suspend its operations.
11.2 Within 20 (twenty) days of the termination of this
Agreement (howsoever occasioned), each party shall, at
the direction of the other party either destroy or
return to the other party all materials furnished to it
under this Agreement and in its possession or under its
control and shall certify in writing to the other party
that the other party's direction has been complied
with. The above obligations shall not apply to any
material which either party is able to demonstrate to
the reasonable satisfaction of the other is required to
be retained for the purposes of compliance with
applicable law provided that such material is returned
or destroyed as soon as is permissible under the
relevant legal provision.
11.3 Termination of this Agreement by either party for
whatever reason shall not prejudice or affect the
rights or remedies of such party against the other
party in respect of any antecedent breach of this
Agreement.
12. GENERAL
12.1 These Heads (and the Definitive Agreement) shall be
governed by and construed in accordance with the laws
of England.
12.2 Notices shall be in writing and shall be sent to the
address of the relevant party as set out hereinabove
marked for the attention of the Chief Executive Officer
or to such other address as may be designated by notice
given in the manner provided herein. Notices given by
telefax shall be confirmed by mail.
12.3 Nothing in these Heads shall be deemed to create any
joint venture or partnership between HBC and NetHold
and neither party shall hold itself out in its
advertising or otherwise in any manner which would
indicate or imply any such relationship with the other.
12.4 NetHold shall be entitled to assign any of its rights
and/or obligations hereunder to its parent, subsidiary
or affiliated companies upon notifying HBC thereof in
writing, provided that in the event of any such
assignment NetHold shall remain jointly and severally
liable with the assignee for the performance of this
Agreement by the assignee. Otherwise neither party
shall be entitled to assign, sub-license, transfer or
otherwise dispose of any of its rights or sub-contract,
transfer or otherwise dispose of any of its rights or
obligations, hereunder without the prior written
consent of the other party (such consent not to be
unreasonably withheld or delayed).
12.5 A waiver (whether express or implied) by one of the
parties of any of the provisions set out herein or of
any breach of or default by the other party in
performing any of those provisions shall not constitute
a continuing waiver and that waiver shall not prevent
the waving party from subsequently enforcing any of the
provisions hereof not waived or from acting on any
subsequent breach of or default by the other party
under any of the provisions of this agreement.
12.6 Neither party shall be liable to the other for any
delay or non-performance of its obligations hereunder
arising from any cause beyond its reasonable control,
including, without limitation, an act of God, satellite
failure or governmental regulation or directives
("event of force majeure"). The party so delaying or
failing to perform shall use all reasonable efforts to
resume performance of its obligations as soon as
practical provided that if performance is not resumed
within sixty (60) days either party shall be entitled
to terminate these Heads or the Definitive Agreement
forthwith upon notice in writing to the other.
12.7 Neither party shall be liable to the other for any
indirect losses, including loss of profits and
consequential damages, arising from any breach of these
Heads (or the Definitive Agreement).
12.8 Each party hereby undertakes to treat the terms of
these Heads (and the Definitive Agreement) as
confidential together with all information whether of a
technical nature or otherwise relating in any manner to
the business or affairs of the other party as may be
communicated to it hereunder or otherwise and will not
disclose such information to any person (other than to
its parent, subsidiary or affiliated companies,
auditors or other professional advisers) and will not
use such information other than for the purposes
hereof. Any public announcement of the consummation of
this deal shall be made jointly by the parties hereto.
12.9 Any amendments or variations to the terms of this
Agreement shall be in writing and signed by the duly
authorized representatives of both parties.
13. FUTURE CHANNELS
13.1 The parties hereto agree that in the event that HBC
develops new channels during the Terms hereof, similar
in quality to the Channel (the "New Channels"), the
parties shall enter into good faith negotiations
regarding the carriage of such New Channels as part of
the NetHold Package on terms and conditions to be
agreed between the parties, it being acknowledged that
the timing of the carriage of any such new channels
will be dependent, inter alia, on the availability of
transponder capacity leased by NetHold.
14. DEFINITIVE AGREEMENT
15. These Heads, upon the signing hereof by NetHold and
HBC, shall create legally binding obligations pending
the finalization of a Definitive Agreement into which
the terms of these Heads shall be included and which
the parties shall negotiate in good faith with a view
to concluding the same by not later than 31 August 1996
("Completion Date"). The parties hereto shall, until
the Definitive Agreement is concluded, remain bound by
these Heads and whether or not the Definitive Agreement
has been concluded by the Completion Date.
IN WITNESS WHEREOF these Heads of Agreement have been
executed on the day and year first above written.
SIGNED BY SIGNED BY
/s/ /s/
for and on behalf of for and on
behalf of
NETHOLD CENTRAL EUROPE B.V. HUNGARIAN
BROADCASTING CORPORATION US, INC.
Signed Xxxxx X. Xxxxxxx
SCHEDULE A
(Description of the Channel)
Description of Channel:
Transmission Hours:
Components of Channel:
