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EXHIBIT 10.6
PROGRAM AGREEMENT
DATED AS OF JULY 1, 1999
This Program Agreement shall serve to confirm the agreement between
Hallmark Entertainment Distribution LLC, successor to Hallmark Entertainment
Distribution Company ("Distribution") and Hallmark Entertainment Networks, Inc.
("Networks") in connection with Networks' acquiring from Distribution certain
exhibition rights to various Distribution product as follows:
1. Pictures. Product shall consist of all television motion
pictures and mini-series as defined herein (each a "Picture," collectively
"Pictures") owned and controlled by Distribution during the Term. A motion
picture shall be product with a two-hour commercial broadcast time in a U.S.
time slot. A mini-series shall be product with longer than a two-hour commercial
broadcast time in a U.S. time slot. With respect to each Networks territory, a
Picture will be deemed to be either: (a) a "Library Picture" if it completed or
will complete principal photography any time prior to the launch (as defined in
Section 3 hereof) of the Networks service in such Networks territory (as defined
in Section 3 hereof) or (b) a "New Picture" if it completed or will complete
principal photography after the launch (as defined in Section 3 hereof) of the
Networks service in such Networks territory and before expiration of the Term as
defined below.
2. Output Term. The Output Term shall commence as of the date set
forth above and expire on December 31, 2004, subject to the renewal and price
adjustment set forth in Section 12 hereof.
3. Licensed Rights. Networks agrees to license from Distribution
and Distribution agrees to license to Networks all Library Pictures and all New
Pictures for telecast on the Hallmark Entertainment Networks pay television
service (including cable and satellite but specifically excluding pay-per-view)
on a territory-by-territory basis commencing upon the later of (x) the date the
Picture is available in the relevant Networks territory as set forth on Schedule
A which has been previously provided to Networks (the "Availability Date") and
(y) the date Networks initially telecasts its service in such territory (the
"launch"). Networks shall also have the right to distribute via the Internet,
provided that such distribution is within a Networks Window, is only within the
relevant Networks territory and does not conflict with any Prior Agreement. A
"Prior Agreement" shall be any agreement that Distribution has entered into (x)
prior to the date of this Agreement or (y) prior to Networks' written
notification to Distribution pursuant to Section 4 with respect to the relevant
territory (but in any event, not more than 12 months prior to the Launch Date as
defined in Section 4). The relevant terms and restrictions of Prior Agreements
shall be made available to Networks upon request. Except in Germany, Italy and
Spain and subject to the terms and conditions of those Prior Agreements set
forth on
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Schedule B hereto, Distribution shall not renew or extend the term of any Prior
Agreement. All rights not expressly granted herein, are reserved by
Distribution.
4. Availability and Delivery.
(a) Networks shall use its best efforts to give Distribution
written notice of its intent to launch in a given territory
and its expected launch date ("Launch Date") at least six
months prior to such launch. After Networks gives such written
notice, Distribution agrees not to enter into any distribution
agreement which might conflict with Networks' rights in the
relevant territory. By the later of (x) 14 business days after
receipt of such written notice and (y) six months prior to the
scheduled launch, Distribution will provide to Networks
Availability Dates of Pictures for the launch. Schedule A
shall be amended from time to time to reflect Availability
Dates for additional New Pictures and new Networks territories
by way of an Availability Letter from Distribution to
Networks' Vice President of Programming and Vice President of
Finance or their designees. Distribution shall also provide an
updated Schedule A at least once each quarter or upon the
request of Networks.
(b) Distribution shall use best efforts to provide notice to
Networks at least 180 days prior to the Availability Date of
any Picture and to deliver the materials for such Picture to
Networks at least 90 days prior to the Availability Date.
Effective January 1, 2000, in the event that Distribution
fails to provide notice to Networks at least 90 days prior to
the Availability Date of any Picture or fails to deliver the
materials for such Picture to Networks at least 30 days prior
to the Availability Date, then Networks shall be entitled to
an Additional Period (as defined herein) at the end of that
Picture's window; provided, however, that no Additional
Periods shall be available for windows granted by Nine Network
or Beta-Taurus and such windows shall be pro-rated to reflect
the amount of time that Networks was able to telecast that
particular Picture. The Additional Period shall be equal to
the greater of (x) ninety days minus the number of days prior
to the Availability Date that notice was actually given
regarding the Availability Date and (y) thirty days minus the
number of days prior to the Availability Date that delivery of
the materials was actually made; provided, however, that in no
event shall the Additional Period exceed the amount of time
that Networks was actually delayed in telecasting that
particular Picture.
(c) In the event that Networks fails to launch in a given
territory, Networks shall be liable only for the License Fees
for the First Window of each New Picture that Distribution has
made available and that Distribution is not able to resell for
that same time period and Networks shall not be liable for
the Licensee Fees for any Library Pictures. In the event that
Networks delays a launch in a given
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territory for longer than six months after the Launch Date,
its First Window shall begin six months after the Launch Date.
5. Licensed Exhibitions. Networks will license each Picture for a
minimum of three windows in each Networks territory as set forth below and such
license shall be exclusive as to all forms of television for a period of 18
months, except for the Exceptions identified in Section 8(a) for which the
Windows shall be 12 months; provided, however, that such license and exclusivity
shall be subject to (x) the terms and conditions of Prior Agreements, and (y)
the restrictions and exceptions for those feeds servicing Italy, Germany and
Spain. Networks shall be entitled to its customary number of telecasts during
each window.
(a) The First Window shall commence upon the Availability Date
and shall expire 18 months thereafter (or 12 months for the
Exceptions). Distribution shall have the right to license such
Picture to a third party provided that such third party
license is effective no sooner than 30 days after expiration
of the First Window and expires within such length of time as
is customary in such media and territory. The day after the
date of such expiration shall be the "Second Availability
Date." If Distribution does not enter into such third party
license agreement, then the Second Availability Date shall be
three years after the expiration of the First Window, unless
Distribution, at its sole election, stipulates an earlier
date, provided that in no event shall the Second Availability
Date be earlier than one year after expiration of the First
Window.
(b) The Second Window shall commence upon the Second
Availability Date for the relevant Networks territory and
shall expire 18 months thereafter (or 12 months for the
Exceptions). Distribution shall have the right to license such
Picture to a third party thereafter, provided that such third
party license is effective after expiration of the Second
Window and expires within such length of time as is customary
in such media and territory. The day after the date of such
expiration shall be the "Third Availability Date." If
Distribution does not enter into such third party license
agreement, then the Third Availability Date shall be three
years after the expiration of the Second Window, unless
Distribution, at its sole election stipulates an earlier date,
provided that in no event shall the Third Availability Date be
earlier than one year after the expiration of the Second
Window.
(c) The Third Window shall commence upon the Third
Availability Date for the relevant Networks territory and
shall expire 18 months thereafter (or 12 months for the
Exceptions).
(d) Any subsequent windows pursuant to Section 7(c) shall
commence upon the Availability Date provided by Distribution
for the relevant Networks territory and shall expire 18 months
thereafter (or 12 months for the Exceptions).
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(e) The notice periods, delivery of materials and Additional
Period provisions of Section 4(b) shall also apply to the
Second Availability Date, Third Availability Date and any
subsequent Availability Date for each Picture.
6. New Pictures.
(a) Subject to the terms and conditions of Prior Agreements
and to subsections (b) and (c) below, all New Pictures will be
premieres (i.e. there will not be any prior exhibition in the
relevant territory except for home video) for the first
Networks Window in each Networks territory except in Germany,
Italy and, Spain. In Germany, Italy and Spain, except for
mini-series, a minimum of 50% of all New Pictures will be
premieres for the first Networks Window. Mini-series in
Germany, Italy and Spain will be premieres at the discretion
of Distribution.
(b) In the event a New Picture is a motion picture with
production costs in excess of $10 million or a mini-series
with production costs in excess of $30 million (not to exceed
three mini-series in any given year), Distribution agrees to
negotiate in good faith with Networks with respect to premiere
rights on a territory-by-territory basis. In the event that
Distribution and Networks are unable to agree on the License
Fee for the premiere rights for such a motion picture,
Distribution shall have the right to accept any offer from a
third party licensee. In the event that Distribution and
Networks are unable to agree on the License Fee for the
premiere rights for such a mini-series, then Distribution
shall have the right to accept any offer from a third party
licensee that is not less than 110% of the amount offered by
Networks. If Distribution does not accept such an offer from a
third party licensee, Distribution shall give notice to
Networks regarding such Picture's Availability Date in
accordance with Section 4(b).
(c) Distribution shall have the right to withhold on a
territory-by-territory basis, a Picture which is to be
distributed as a theatrical release for the term of the
theatrical distribution agreement.
7. Territory and Feeds. Territory shall be each country in which
Networks' service is launched (only in the dominant native language of such
country) and may be worldwide, excluding the United States and Canada. In the
event that Networks elects to restructure its territorial feed resulting in the
addition or deletion of individual countries, the conditions of this Section
shall apply.
(a) To the extent that any country is deleted from an existing
feed, Networks shall remain obligated to pay the License Fees
for the then current Window or the currently scheduled Window
in such country regardless of whether Networks exploits its
rights to such Window.
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(b) To the extent that any additional country is added to an
existing feed, License Fees will be charged for such
additional country in accordance with Section 8 below on a
pro-rata basis.
(c) The parties agree that it is their intent that all
Pictures will be licensed for a minimum of three Windows in
each country. To the extent that an elective restructuring by
Networks of countries within a territorial feed results in
Networks having exploited fewer Windows in some countries in
the feed than in other countries in the feed, then Networks
shall license additional Windows (subject to Availability
Dates) in excess of the original three Networks Windows as
necessary so that all material countries in the feed (as
determined in Distribution's judgment) have exploited a
minimum of three Windows (subject to Availability Dates). The
License Fees for any such additional Windows shall be subject
to good faith negotiation by the parties. If the parties are
unable to reach agreement on such License Fees, the issue
shall be escalated to the President of Distribution and the
President of Networks for resolution.
8. Networks License Fees.
(a) For and in consideration of the rights and licenses
granted to Networks hereunder, Networks shall pay to
Distribution such License Fee, on a country-by-country,
Picture-by-Picture basis, as is set forth in Schedule C. The
License Fee shall constitute payment for one Networks Window
and therefore shall be payable for each of the three Networks
Windows. The License Fees for Australia, the Continental
European territories, product reacquired from Beta-Taurus,
coproductions, certain feeds that are not typically 18 months
and seasonal Pictures (e.g. Christmas) (the "Exceptions")
reflect a 12 month exclusive Window and shall be prorated on a
monthly basis (rounding to the nearest whole month) for those
windows for which Networks receives less than 12 months of
exclusivity. All other License Fees set forth on Schedule C
reflect an 18 month exclusive Window and shall be prorated on
a monthly basis (rounding to the nearest whole month) for
those windows for which Networks receives less than 18 months
of exclusivity. The License Fee for mini-series shall be the
movie of the week rate per hour multiplied by the number of
hours for the mini-series. All rates for mini-series premieres
(as defined in Section 6) shall be two times the mini-series
rate set forth in Schedule C for each of the three Windows
granted.
(b) The License Fee for each Networks First Window shall be
payable in four equal installments; one installment payable at
the end of each of four consecutive calendar quarters
commencing with the calendar quarter
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during which the respective Networks Window commences.
Subsequent Windows shall be payable in six equal installments;
one installment payable at the end of each of six consecutive
calendar quarters commencing with the calendar quarter during
which the respective Networks Window commences.
(c) Commencing January 1, 2000, the amounts of such License
Fees shall increase by 5% per year on a cumulative basis and
such increase shall apply to any and all Networks Windows
commencing after such increase.
9. Hallmark Entertainment. Networks shall be permitted to utilize
the Hallmark Entertainment name in connection with the promotion and
advertisement of the Pictures, provided that all such uses are approved in
advance by the Branding Committee of Hallmark Cards, Incorporated.
10. Other Product. Distribution and Networks agree to negotiate in
good faith on a product-by-product basis with respect to Networks' licensing pay
television exhibition rights to any television product which does not fall under
this agreement (i.e., series, documentaries and specials, etc.) and for which
Distribution controls such rights during the Term. Networks acknowledges that
the project "Tenth Kingdom" is specifically excluded from this agreement.
11. Non-Transferable. The rights herein may not be assigned,
sublicensed or transferred by Networks by operation of law, change of control or
otherwise; provided, however, that Networks may sublicense select Pictures to
H&H Programming-Asia, LLC and provided further, that upon Networks' written
request, Distribution may, in its sole discretion, permit Networks to sell
select Pictures to another third party or parties. Networks shall be responsible
for the full payment of the License Fee for such Picture(s) as though such
Pictures were exhibited by Networks pursuant to this Agreement.
12. Renewal and Price Adjustment.
(a) This Agreement shall be renewable for an additional period
beginning January 1, 2005 and ending December 31, 2009 (the
"Renewal Term") at Distribution's option, provided that
Distribution agrees to renew so long as Networks is not in
default under this Agreement or any other agreement with
Distribution and that Networks does not provide written notice
to Distribution by July 1, 2004 indicating that Networks does
not wish to renew. Distribution will provide Networks with
notice of Distribution's intent to renew or not to renew by
July 1, 2004.
(b) Either party shall have the right to request a price
adjustment for the Renewal Term by providing the other party
with written notice prior to
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July 1, 2004. In the event either party delivers such notice,
the parties agree to negotiate in good faith to determine the
fair market rate for the License Fees for the Renewal Term. If
the parties fail to reach agreement with respect to License
Fees by October 1, 2004, then the parties agree to submit the
matter to an independent third party with experience in the
industry. The independent third party shall be selected by the
parties. In the event the parties fail to agree upon an
independent third party, each party shall designate a third
party and the designees shall collectively select a neutral
third party with experience in the industry, and that party
shall determine the fair market value rate for the License
Fees for the Renewal Term, provided that such fair market rate
shall not be more than 20% higher or 20% lower than the
License Fees in existence at such time. Each party shall bear
its own costs of the process and the costs of the neutral
third party shall be shared equally.
13. Entire Agreement. This Agreement and the attached Standard
Terms and Conditions contain the entire agreement between the parties and as of
the date hereof supersede any and all prior oral or written agreements including
the Agreement dated as of January 1, 1996, as amended (the "1996 Agreement"),
provided, however, that Networks Windows licensed pursuant to the 1996 Agreement
shall be counted toward the minimums required pursuant to Section 5 hereof and
that all amounts payable by Networks pursuant to the 1996 Agreement shall
remain due and payable.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
HALLMARK ENTERTAINMENT HALLMARK ENTERTAINMENT
DISTRIBUTION, LLC NETWORKS, INC.
By /s/ XXXXXXX X. XXXXXX By /S/ XXXXX XXXXX
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Title Vice-President Title President & CEO
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