<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
COMMISSION FILE NO. 1-11121
____________________
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 54-1522360
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2877 GUARDIAN LANE 23452
VIRGINIA BEACH, VIRGINIA (Zip Code)
(Address of principal executive offices)
(757) 459-6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Class B Common Stock, $.01 par value per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 23, 1998: 0
---
The number of shares outstanding of each of the Registrant's classes of
common stock as of March 23, 1998: Common Stock, par value $.01 per share
100 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement (the "1997 Proxy
Statement") to be used in connection with the 1997 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K.
=============================================================================
<PAGE>
This Form 10-K/A is being filed for the purpose of filing redacted
versions of Exhibits 10.28 and 10.29, pursuant to the Company's request for
confidential treatment.
<PAGE>
ITEM NO. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1)-(2) Financial Statements and Schedules:
The list of financial statements and schedules set forth in the
accompanying Index to Financial Information is incorporated herein by reference.
Such financial statements and schedules are filed as part of this Form 10-K/A.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 10-K/A and such Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K (filed during the fourth quarter of 1996):
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL FAMILY
ENTERTAINMENT, INC.
By: /s/ Mel Woods
----------------------------------------------------
Mel Woods
Executive Vice President and Chief Operating Officer
Dated: March 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Haim Saban Co-Chairman and Director March 23, 1998
- -----------------------
Haim Saban
/s/ Mel Woods Executive Vice President, March 23, 1998
- ----------------------- Chief Operating Officer
Mel Woods and Director
(Principal Executive and
Accounting Officer)
/s/ Jay Itzkowitz Senior Vice President, March 23, 1998
- ----------------------- Assistant Secretary, and
Jay Itzkowitz Director
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <C> <S> <C>
3(i) -- Amended and Restated Certificate of Incorporation of Registrant (filed as Exhibit 3(i) to the Registrant's *
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995).
3(ii) -- Restated By-laws of the Registrant (filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the *
fiscal year ended December 31, 1992).
4.l -- Credit Agreement, originally dated as of December 27, 1993, Amended and Restated as of December 26, 1995, by and *
among the Registrant, the Lenders (as defined therein), and the First National Bank of Boston as agent for the
Lenders (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated December 26, 1995).
4.2 -- Amendment No. l, dated December 29, 1995, to Credit Agreement, dated as of December 26, 1995, by and among the *
Registrant and the lender(s) listed on the signature pages thereto (filed as Exhibit 4.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
4.3 -- Amendment No. 2, dated November 15, 1996, to Credit Agreement, dated as of December 26, 1995, by and among the ***
Registrant and the lender(s) listed on the signature pages thereto.
10.1 -- Program Time Agreement, dated as of January 5, 1990, between The Christian Broadcasting Network, Inc. and the **
Registrant.
10.2 -- Employment Agreement, dated as of July 1, 1995, between the Registrant and M.G. Robertson (filed as Exhibit 10.22 *
to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.3 -- Employment Agreement, dated as of August 7, 1995, between the Registrant and Timothy B. Robertson (filed as *
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.4 -- International Family Entertainment, Inc. Family Channel Affiliation Agreement, dated as of December 28, 1989, **
between Satellite Services, Inc. and the Registrant.
10.5 -- Uplink Facilities Lease and Transponder Sublease, dated as of January 5, 1990, between The Christian Broadcasting **
Network, Inc. and the Registrant.
10.6 -- International Family Entertainment, Inc. Stock Incentive Plan, as amended (filed as Appendix 2 to the *
Registrant's definitive Proxy Statement, dated April 19, 1996).
10.7 -- Form of The International Family Entertainment, Inc. Senior Executive Stock Incentive Plan. *
10.8 -- Form of International Family Entertainment, Inc. 401 (k) Employee Retirement Savings Plan and amending and **
restating the International Family Entertainment, Inc. 401(k) Employee Retirement Savings Plan adopted on April 1,
1990, and the Trust Agreement between the Registrant and Signet Trust Company, as trustee, effective as of January
1, 1992.
10.9 -- Exchange Agreement, dated as of December 1, 1995, by and between the Registrant, Liberty Programming Corporation *
and Liberty IFE, Inc., a direct, wholly owned subsidiary of Liberty Media Corporation and an affiliate of
Tele-Communications, Inc. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K, dated December 15,
1995).
10.10 -- Amended and Restated Convertible Note Agreement, dated as of September 1, 1995, by and between the Registrant and *
Liberty IFE, Inc. (filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K, dated December 15, 1995).
10.11 -- Waiver of Preemptive Rights, dated December 1, 1995, by and between M.G. Robertson, Timothy B. Robertson, The *
Christian Broadcasting Network, Inc. and The Robertson Charitable Remainder Unitrust (filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K, dated December 15, 1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <C> <S> <C>
10.12 -- Amended and Restated Shareholder Agreement, dated as of September 1, 1995, by and between M.G. Robertson, Timothy *
B. Robertson, the Robertson Charitable Remainder Unitrust, The Christian Broadcasting Network, Inc., Liberty IFE,
Inc. and the Registrant (filed as Exhibit 2(c) to the Registrant's Current Report on Form 8-K., dated December 15,
1995).
10.13 -- Amended and Restated Subordination Agreement and Consent, dated as of September 1, 1995, by and between the *
Registrant, each Holder of Subordinated Indebtedness executing a counterpart of the agreement and The First
National Bank of Boston, as agent for the Lenders (filed as Exhibit 2(d) to the Registrant's Current Report on Form
8-K, dated December 15, 1995).
10.14 -- Employment Agreement, dated as of October 27, 1993, between the Registrant and John B. Damoose (filed as Exhibit *
99.1 to the Registrant's Current Report on Form 8-K dated March 8, 1994).
10.15 -- Employment Agreement, dated as of December 22, 1993, between the Registrant and Larry W. Dantzler (filed as *
Exhibit 99.2 to the Registrant's Current Report on Form 8-K, dated March 8, 1994).
10.16 -- Employment Agreement, dated as of December 22, 1993, between the Registrant and David R. Humphrey (filed as *
Exhibit 99.3 to the Registrant's Current Report on Form 8-K, dated March 8, 1994).
10.17 -- Employment Agreement, dated as of December 22, 1993, between the Registrant and Louis A. lsakoff (filed as *
Exhibit 99.4 to the Registrant's Current Report on Form 8-K, dated March 8, 1994).
10.18 -- Employment Agreement, dated as of December 22, 1993, between the Registrant and Stephen D. Lentz (filed as *
Exhibit 99.5 to the Registrant's Current Report on Form 8-K, dated March 8, 1994).
10.19 -- Employment Agreement, dated as of December 22, 1993, between the Registrant and Craig R. Sherwood (filed as *
Exhibit 99.6 to the Registrant's Current Report on Form 8-K, dated March 8, 1994).
10.20 -- Employment Agreement, dated as of April 7, 1995, between the Registrant and Richard Sirvaitis (filed as Exhibit *
10 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995).
10.21 -- Employment Agreement, dated as of January 1, 1995, between the Registrant and B. Randall Seiler (filed as Exhibit *
10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.22 -- Employment Agreement, effective as of March 6, 1995, between the Company and Anthony D. Thomopoulos, executed May *
15, 1996 (filed as Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarterly period ended June 30,
1996).
10.23 -- Employment Agreement, dated as of April 1, 1996, between the Registrant and D. Paul Newton. ***
10.24 -- Employment Agreement, dated as of January 1, 1997, between the Registrant and Diane Linen Powell. ***
10.25 -- Agreement between International Family Entertainment, Inc. and Flextech plc, dated as of March 20, 1996, for the *
sale and purchase of shares in International Family Entertainment UK (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K, dated April 22, 1996).
10.26 -- Agreement between International Family Entertainment. Inc. and Flextech plc, dated as of March 20, 1996, for the *
sale and purchase of shares in TVS Television Limited (filed as Exhibit 2.2 to the Registrant's Current Report on
Form 8-K, dated April 22, 1996).
10.27 -- Shareholders Agreement in relation to Flextech plc, dated as of March 20, 1996, between International Family *
Entertainment, Inc. and Tele-Communications International, Inc. (filed as Exhibit 2.3 to the Registrant's Current
Report on Form 8-K, dated April 22, 1996).
10.28 -- Letter Agreement, dated as of May 16, 1996, amending the International Family Entertainment, Inc. Family Channel ****
Affiliation Agreement, dated as of December 28, 1989, between Satellite Services, Inc. and the Registrant.+
10.29 -- Affiliation Agreement, dated as of May 16, 1996, between Satellite Services, Inc. and Cable Health TV, Inc., ****
d/b/a FiT TV.+
11 -- Computations of Earnings per Common Share. ***
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <C> <S>
21 -- Subsidiaries of the Registrant. ***
23 -- Consent of Independent Auditors. ***
27 -- Financial Data Schedule (for SEC use only). ***
</TABLE>
____________________
* Previously filed (as indicated parenthetically in description of exhibit),
and incorporated herein by reference.
** Previously filed with the Registrant's Registration Statement (No. 33-
45967) on Form S-1 under the Securities Act of 1933, and incorporated
herein by reference.
*** Filed previously with the Registrant's Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference.
**** Filed herewith.
+ Confidential treatment has been requested with respect to such exhibit
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 and, in
accordance therewith, such exhibit has been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
Portions of this exhibit have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
"*" indicating deleted information.
<PAGE>
EXHIBIT 10.28
EXECUTION COPY
--------------
May 16, 1996
Mr. Louis A. Isakoff
Senior Vice President
and General Counsel
IFE Inc.
P.O. Box 2050
Virginia Beach, Virginia 23450-2050
RE: Affiliation agreement dated as of December 28, 1989, (the "Agreement") by
and between Satellite Services, Inc. ("Affiliate") and The Family Channel
("FAM"), a division of International Family Entertainment, Inc. ("IFE")
Dear Lou:
The parties hereto desire to amend the above-referenced Agreement to
reflect their understanding as of January 1, 1994. Terms not defined in this
Letter of Amendment shall have the definition given to them in the Agreement. In
consideration of the mutual promises herein contained and other good and
valuable consideration, the receipt of which is acknowledged, FAM and Affiliate
agree as follows:
1. Nationwide, Third Party SMATV Rights. Section 3(a) of the Agreement
------------------------------------
is hereby amended by adding at the end thereof the following new sentence:
"Notwithstanding the foregoing provisions of this Section 3(a), FAM hereby
grants to Affiliate and Affiliate hereby accepts the nationwide, non-exclusive
right to exhibit and distribute the FAM Service to any SMATV owned and operated
by a third party, provided that the rates for the exhibition and distribution of
the FAM Service to such a SMATV shall be equal to the Fees set forth in Section
7(i) (B) hereof, and provided further that FAM has the right to deliver the FAM
Service to each such SMATV. The customers served by such SMATV shall all be
considered Subscribers for purposes hereof pursuant to the provisions of Section
2(b) hereof."
2. Compression Rights. A new Section 3(c) shall be added to the
------------------
Agreement, as follows:
"(c) FAM 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 a location within the
continental United States designated by Affiliate (in its sole and absolute
discretion), for redistribution to terrestrial or other reception sites capable
of receiving and utilizing the Altered Signal, within the United States its
territories, commonwealths and
<PAGE>
possessions. FAM hereby grants Affiliate, any affiliate of Affiliate, and any
System having a valid affiliation agreement with FAM the right to deliver the
Altered Signal for the uses set forth in the Agreement, and the right to deliver
the Altered Signal to any third party, provided that such third party is
authorized by FAM pursuant to a valid agreement or otherwise to receive the
signal of the Service; and provided, further that no such alteration,
transmission, redistribution, reception or other use will cause a material
change in an average viewer's perception of the principal video or principal
audio presentation of the Service. Furthermore, FAM shall not change the signal
of the Service in such a way as technically or technologically to defeat, or
otherwise interfere with, Affiliate's, any affiliate of Affiliate's, or any
System's rights under this Section 3(c) . In the event FAM 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 3(c), then Affiliate shall have the right to delete any or all
Systems from Schedule 1 of this Agreement, immediately, and to discontinue
carriage, immediately, of the Service on any or all Systems."
3. Signal Hand-Off Rights. A new Section 3(d) shall be added to the
----------------------
Agreement, as follows:
"(d) FAM hereby gives its consent to permit Affiliate and any affiliate of
Affiliate to transmit by cable or other transmission system the signal of the
Service as received at the headend of any System to any third party; provided
that the cable or other transmission system of such third party is connected to
the cable or other transmission system of such System, and provided further that
such third party is authorized by FAM to receive the signal of the Service.
Affiliate will, at FAM's request, terminate delivery to any such third party,
provided FAM indemnifies Affiliate from any claim that FAM wrongfully directed
Affiliate to terminate delivery of the Service to such third party. Affiliate
will not terminate delivery to any such third person without six months' prior
written notice to FAM, which notice FAM may waive in FAM's sole and absolute
discretion. FAM also hereby gives its consent to permit Affiliate and any
affiliate of Affiliate during the Term to receive by cable or other transmission
system the signal of the Service from any third party, provided that such third
party is connected to the cable or other transmission system of any System."
4. Legally required data streams. A new Section 3(e) shall be added to
-----------------------------
the Agreement, as follows:
"(e) In the event that Affiliate is required by law, decree, ordinance or
administrative action to pass through to any of its customers any material
contained within the signal of the FAM Service (including but not limited to
ratings or V-Chip data), FAM shall not commingle such material with material
Affiliate is not required to pass through to its customers and shall not co-
locate such material on lines of the vertical blanking interval with material
Affiliate is not required to pass through to its customers.
2
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
5. Term. Section 4 of the Agreement shall be deleted in its entirety, and
----
the following language shall be added in lieu thereof:
"4. Term. The term of this Agreement (the "Term") shall commence on January
----
1, 1990 and shall, unless sooner terminated pursuant to the terms hereof or
extended by agreement of the parties hereto, expire on December 31, 2009.
Affiliate shall have a one-time option to terminate this Agreement
effective December 31, 2006, provided written notice thereof is given to
FAM prior to December 31, 2005; and provided further the parties shall
negotiate in good faith a renewal agreement to be effective December 31,
2006 but the parties shall be under no obligation to reach such a renewed
agreement."
6. Fees. Sections 7(a) (i) and (ii) of the Agreement shall be deleted in
----
their entirety and the following language shall be added in lieu thereof:
"(i) (A) For the period prior to January 1, 1996, Affiliate shall pay
the monthly per subscriber Fees set forth in the provision of the Agreement
superseded by this amendment.
"(i) (B) For the period January 1, 1996 to December 31, 2001 Affiliate
shall pay the following monthly per subscriber Fees:
1996 1997 1998 1999 2000 2001
$[*] $[*] $[*] $[*] $[*] $[*]
Each annual [*] increase in the Fee shall go into effect either, at
Affiliate's annual option, on the last day of the year preceding the year
shown in the table immediately preceding this sentence or on the first day
of the year shown. If, as of November 1, 1994 Affiliate delivered FAM to at
least [*] subscribers, Affiliate shall be entitled throughout the Term to
a discount of [*], to be applied to the above rates.
"(i) (C) For the period of [*] Affiliate shall pay per subscriber
monthly Fees that are the [*] of (x) the prior year's rate, [*] or (y) the
rate arrived at by [*] FAM's then current, undiscounted cable television
industry rate card. Each annual increase in the Fee provided for in this
Section 7(a)(i)(C) shall go into effect either, at Affiliate's annual
option, on the last day of the year preceding the year it will mainly be in
effect or on the first day of the year it will be in effect.
"(i) (D) For the period [*] Affiliate shall pay per subscriber monthly
Fees that are the [*] of (x) the rate arrived at by [*] FAM's then current,
undiscounted cable television industry rate card, provided Affiliate's
Service Subscribers [*] in number and (y) the prior year's rate card [*].
Each annual increase in the Fee provided for in this Section 7(a)(i)(D)
shall go into effect either, at Affiliate's annual option, on the last day
of the year preceding the year it will mainly be in effect or on the first
day of the year it will be in effect.
"(i) (E) Once per each quarter during the Term prior to [*] FAM shall
[*] to Affiliate [*] of paid quarterly license fees in respect of any
System that offers FAM full-time as a basic level service or as an expanded
basic level service [*]. It is the sole responsibility of Affiliate to
provide a clear detailed statement certifying FAM carriage quarterly. In
the event FAM extends this channel position [*] beyond [*] Affiliate shall
be able to participate in it on terms at least as favorable as the most
favorable terms offered to any other multi-channel video programming
distributor.
"(i) (F) For Systems realigning (for the first time) or launching FAM
as a basic level or expanded basic level service [*], a [*] amount of [*]
per FAM subscriber will be paid to Affiliate."
"(i) (G) For the purposes of Section 7(g) hereof, 'net effective per
subscriber rate' will be calculated taking into account (a) all terms and
provisions of any agreement which involves financial outlays (excluding
contingent liabilities) by either party for the benefit of the other or in
direct connection with the rates for the FAM service, or which involves
direct or indirect consideration paid by either party to the other, such as
discounts, credits, marketing support or adjustments of any kind; and (b)
the actual number of subscribers to the FAM Service (rather than
'committed' or 'projected' subscribers) will be used. Net effective per
subscriber rate shall exclude [*] but Affiliate shall be entitled to
participate in such programs on the same basis as any other affiliate."
3
<PAGE>
7. A la Carte and Packaging. A new Section 17 (j) shall be added to the
------------------------
Agreement, as follows:
"(j) A la Carte and Packaging. In a System that is carrying FAM as of
------------------------
the date hereof, Affiliate may carry FAM a la carte, or on any level or in
any package of services, provided it does so according to the terms and
provisions of Exhibit B attached hereto and incorporated herein by this
reference. In a System that is not carrying FAM on the basic or expanded
basic level of service as of the date hereof, or in any system that becomes
a System after the date hereof and is not carrying
4
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
FAM on the basic or expanded basic level of service as of the date hereof,
Affiliate may, after good faith consideration of carrying FAM on the basic
or expanded basic level of service, carry FAM a la carte, or on any level
or in any package of services, and shall pay the following amounts to FAM
in lieu of any Fees notwithstanding any provision in Section 7 of the
Agreement:
(i) [*] by the System for the Service if offered by the System on an
a la carte basis; or
(ii) if the Service is offered by the System as part of a package of
other services, then an [*] by the System for the package [*].
In no event may the a la carte or package amount be less than any Fee
provided for in Section 7(a) (i) hereof."
8. On-Air Acknowledgment. A new Section 17(k) shall be added to the
---------------------
Agreement as follows:
"(k) On-Air Acknowledgment. FAM shall provide an audible
---------------------
acknowledgment one time each day, in alternating day parts, stating that
programming on the Family Channel has been paid for in part by fees paid by
the local cable company. Subject to the provisions hereof, the scheduling
of the acknowledgment and the format and style of the acknowledgment shall
be at the sole discretion of FAM."
9. Effective Date. This Letter of Amendment shall be effective as of
--------------
January 1, 1994. Except as specifically provided in this Letter of Amendment,
the Agreement shall remain in full force and effect.
10. Audit Rights. A new Section 8(d) shall be added to the Agreement as
------------
follows:
"(d) FAM shall keep and maintain accurate books and records of all
matters directly relating to this Agreement including, without limitation,
all books and records necessary for FAM to demonstrate its compliance with
Section 7(g) hereof, in accordance with generally accepted accounting
principles. During the Term and for one (1) year after the termination of
this Agreement, such books and records shall be available to Affiliate for
inspection and audit, during normal business hours, at Affiliate's expense,
at FAM's offices upon reasonable notice to FAM; provided, however, that any
inspection and audit of FAM's books and records to determine compliance
with the provisions of Section 7(g) hereof shall be conducted with
reference to books and records relating to the then current
5
<PAGE>
calendar year and the two prior calendar years only, and shall be conducted
by a public accounting firm or an auditing firm that audits or otherwise
provides services to both Affiliate and FAM or an independent accounting
firm mutually agreed upon in good faith by the parties, provided that such
accounting firm is one of the six largest accounting firms in the United
States. If the parties cannot in good faith mutually agree upon such
independent accounting firm within ninety (90) days, then Affiliate shall
select an independent accounting firm to conduct such audit, provided that
such independent accounting firm is one of the six largest accounting firms
in the United States. The public accounting firm or auditing firm that
conducts the audit shall be referred to hereinafter as the "Auditor." If,
as a result of the examination performed hereunder by the Auditor, the
Auditor determines that FAM has fully complied with Section 7(g) hereof,
then such Auditor shall provide written notice to the parties stating only
that FAM has complied with Section 7(g), and under no circumstances shall
any information acquired during the course of the examination be disclosed
to Affiliate by the Auditor and all such information shall remain strictly
confidential. If, as a result of the examination performed hereunder, the
Auditor determines that FAM has failed to comply with Section 7(g), then
the Auditor shall discuss in good faith for a reasonable time with FAM the
provisions at issue. In the event that the Auditor and FAM resolve the
provisions at issue and conclude that FAM, in fact, has complied with
Section 7(g), then the Auditor shall provide written notice to the parties
stating only that FAM has complied with Section 7(g), and under no
circumstances shall any information acquired during the course of the
Examination and/or discussions be disclosed to Affiliate by the Auditor and
all such information shall remain strictly confidential. In the event that
the Auditor and FAM cannot resolve the provisions at issue and the Auditor
believes FAM has not complied with Section 7(g), then FAM shall have the
option, at FAM's sole election, either (i) to grant to Affiliate the more
favorable provision that was the subject of FAM's noncompliance with
Section 7(g) (in which case under no circumstances shall any information
acquired during the course of the examination be disclosed to Affiliate by
the Auditor and all such information shall remain strictly confidential),
or (ii) to authorize the Auditor to provide to Affiliate only that limited
information acquired during the course of the examination as is necessary
for Affiliate to pursue its claim or claims under this Agreement; any
information which is not so necessary shall not be disclosed to Affiliate
by the Auditor and shall remain strictly confidential. Affiliate's right to
audit FAM's compliance with Section 7(g) hereof shall be limited to once in
any twelve (12) month period during the Term and once in the year after
termination of this Agreement. Affiliate must make any claim against FAM
pursuant to Section 7(g) hereof within the earlier of (i) three (3) months
after Affiliate's auditor leaves FAM's offices and (ii) thirty-nine (39)
months after the close of the month that gave rise to such claim."
6
<PAGE>
11. MFN Amendment. Section 7(g) of the Agreement is hereby amended by
-------------
adding at the end thereof the following new sentence:
"For purposes of this Section 7(g), and for purposes of comparing the
actual rate per subscriber to the Service payable by Affiliate to the
actual rate per subscriber to the Service payable by a third party that is
distributing the Service via a common delivery system through which
multiple parties may distribute services (e.g., VDT or OVS providers), the
----
calculation of the penetration of the Service for such third party shall be
based on the total number of customers receiving programming services
through such common delivery system, regardless of the number of
distributors providing services through such common delivery system."
12. VDT Rights. Section 3 (a) of the Agreement is hereby amended by
----------
adding the following sentence at the end of the fourth sentence of Section
3 (a):
"Notwithstanding any other provision hereof, FAM hereby grants to Affiliate
and Affiliate hereby accepts the non-exclusive right to exhibit and
distribute the FAM Service, on a retail basis, in the United States, the
District of Columbia and the territories, possessions and commonwealths of
the United States by any' system or enterprise (regardless of whether such
system or enterprise is affiliated with the owner and/or operator of any
required distribution equipment) that distributes audio/visual signals
and/or programming over the distribution facilities. of a common carrier by
means of a video dial tone connection, open video system or other common
carrier arrangement, whether now existing or developed in the future
("VDT"), at the Fees set forth in Section 7 hereof." Each such system or
enterprise shall be a System for all purposes hereof.
13. Compression, digitization or encryption switch. Section 5(c) of the
----------------------------------------------
Agreement is hereby amended by adding at the end thereof the following two
new sentences:
"Notwithstanding the foregoing, In the event Network (x) compresses the
signal of the Service, (y) digitizes the signal of the Service, or (z)
changes the method of encryption of the signal of the Service, in such a
manner that the signal of the Service cannot be received or utilized by a
System or Systems, Network shall, at its sole and exclusive option, either
promptly reimburse each System for the cost to purchase and/or deploy the
equipment necessary for such System to receive or utilize the signal of the
Service, or promptly supply to each System all of the equipment necessary
for such System to receive or utilize the signal of the Service. The
preceding sentence shall only apply to Systems carrying the signal of the
Service as of the date of such a compression, digitization or encryption
change, and
7
<PAGE>
any System that is so compensated shall rebate to Network such compensation
in the event it discontinues carriage of the Service earlier than one year
after receiving such compensation."
If the foregoing accurately reflects your understanding, please so indicate
by executing this Letter of Amendment in the space indicated and returning it to
me.
Very truly yours,
/s/ Jedd S. Palmer
Jedd S. Palmer,
President
ACCEPTED AND AGREED TO
FOR THE FAMILY CHANNEL AND FOR
INTERNATIONAL FAMILY ENTERTAINMENT, INC. BY
/s/ Craig R. Sherwood
___________________________
(Name)
May 28, 1996
___________________________
(Date)
cc: Tim Robertson
Larry Dantzler
Craig Sherwood
8
<PAGE>
[*] CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
---------
1. A la carte. Affiliate shall have the right to carry the Service on an
----------
a la carte basis in any System where the Service is also carried in the most
highly penetrated package of service other than the broadcast basic package of
services. Affiliate shall pay FAM the Fees set forth in Section 7(i) hereof in
respect of such customers receiving the Service on an a la carte basis.
2. Packages. Affiliate shall have the right in any System to include the
--------
Service in a package of other services containing at least three other
programming networks (the "Mini-pack"). The programming networks included in the
Mini-pack shall be subject to FAM's prior written consent, provided that no such
consent shall be necessary if the Mini-pack includes at least three of the
following networks: WTBS, USA, Nickelodeon, TNT, ESPN, CNN, Headline News,
Discovery, AMC, TNN, WOR and WGN.
3. Packaging Fees. In the event that the Service is received by
--------------
[*] of Affiliate's total cable television subscriber universe, Affiliate
shall pay a total monthly license fee, in respect of Affiliate's cable
television subscribers receiving the Service in a package of services, that is
equal to the Fees set forth in Section 7(i) hereof. In the event that the
Service is received by [*] of Affiliate's total cable television
subscriber universe, Affiliate shall pay a total monthly license fee in respect
of Affiliate's cable television subscribers receiving the Service on an a la
carte or package basis, that is equal to the per subscriber rates, including
tier and a la carte rates, set forth below.
a. The a la carte rate shall be as follows:
(i) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*] specified in
the Agreement;
(ii) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*];
(iii) in Systems where the Service is offered to subscribers at [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*];
(iv) in Systems where the Service is offered to subscribers at a [*]
Affiliate shall pay Network a per subscriber license fee for each
subscriber receiving the Service on an a la carte basis [*].
9
<PAGE>
(b) The package rate shall be as follows:
(i) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month;
(ii) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by two;
(iii) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by two-and-
one-half;
(iv) in Systems where the Service is received by [*] of the System's
subscribers, Affiliate shall pay FAM a per subscriber license fee for each
subscriber receiving the Service in a package of services equal to the Fees
set forth in Section 7(i) for the pertinent month multiplied by three.
4. The "Benchmark". If at any time the Service is received by [*]
----------------
of Affiliate's total cable television subscriber universe (excluding
lifeline subscribers and subscribers in systems purchased or otherwise acquired
after the date hereof and who were not previously receiving the Service) (the
"Benchmark"), then FAM may terminate this Exhibit B (but not the Agreement)
unless Affiliate cures the subscriber shortfall within sixty (60) days of the
end of the month in which the Benchmark was missed. For the purposes of this
Exhibit B, "lifeline subscribers" shall mean those subscribers of Affiliate
receiving a package of services that includes only the following services, in
any combination: the signals of local broadcast television stations, no more
than four satellite-delivered cable television networks and any number of
services that are services other than satellite-delivered cable television
networks.
5. Reports. Affiliate shall report to FAM, no later than the forty-fifth
-------
(45th) day following the end of each quarter in which this Exhibit B is
effective, the following information in respect of each System carrying the
Service in a package of services: the number of total subscribers receiving
cable service and the number of total subscribers receiving the Service via a
Mini-pack carriage.
10
<PAGE>
Exhibit 10.29
Portions of this exhibit have been deleted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment. The redacted portions are identified by brackets with the character
indicating deleted information.
<PAGE>
EXHIBIT 10.29
Execution copy
--------------
AFFILIATION AGREEMENT
THIS AGREEMENT made as of the 16th day of May, 1996 is by and between CABLE
HEALTH TV, Inc., d/b/a FIT TV, a Delaware corporation ("Network"), and Satellite
Services, Inc., a Delaware corporation ("Affiliate"), regarding the cable
television programming service known as "FIT TV" and formerly known as "Cable
Health Club" (as transmitted in any technological format, including, without
limitation, an analog, digital or compressed format) (the "Service").
1. RIGHTS:
-------
(a) Grant of Rights. Network hereby grants to Affiliate and its
---------------
affiliates, and Affiliate hereby accepts on behalf of itself and its affiliates,
(i) the non-exclusive right, but not the obligation, to exhibit,
distribute, subdistribute and authorize the reception of the Service
in the United States, the District of Columbia and the territories,
possessions and commonwealths of the United States ("Nationwide") by
cable or other wire or fiber optic transmission service, whether now
existing or developed in the future, ("Cable") in the Operating Areas
(as defined herein) of the System or Systems, (as defined herein below
and as set forth on Schedule 1 hereof, as such Schedule 1 may be added
to or deleted from, from time to time, pursuant to the terms of this
Agreement);
(ii) the non-exclusive right, but not the obligation, to exhibit,
distribute, subdistribute and authorize the reception of the Service
Nationwide by multipoint distribution services ("MDS"), by
multichannel multipoint distribution services ("MMDS") and, provided
that Network has such rights (and Network shall make commercially
reasonable efforts to obtain such rights in a timely manner and on
terms that do not discriminate against Affiliate as compared to other
distributors of the Service by the same technology), by any other
means of multi-channel video distribution (other than Cable and
Satellite), whether now existing or developed in the future (A) in
Operating Areas (as defined herein) of Systems, (B) in other areas of
counties in which Operating Areas of Systems are wholly or partially
located but which areas are not the subject of a cable television
franchise or license or, if a cable television franchise or license
exists in such area, the operator of such franchise or license is not
distributing the Service and (C) in areas of counties (which areas are
contiguous to counties where an Operating Area of a System is wholly
or partially located) which are not the subject of a cable television
franchise or license or, if a cable television franchise or license
exists in such area, the operator of such franchise or license is not
distributing the Service (the areas
<PAGE>
described in (A), (B), and (C) of this Section l(a) (ii) shall be
referred to herein as a System's "Distribution Area");
(iii) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the
Service Nationwide by any satellite master antenna television system
("SMATV"), whether or not such SMATV meets the System Qualifications
of Exhibit A hereto and whether or not it is located inside the
Distribution Area of any System, provided only that the customers
served by such SMATV shall all be considered Service Subscribers for
purposes hereof pursuant to the provisions of Section 5(b) hereof; and
(iv) the non-exclusive right, but not the obligation, to
exhibit, distribute, subdistribute and authorize the reception of the
Service Nationwide to any person or entity (other than another multi-
channel video programming distributor), who receives the signal of the
Service by means of equipment capable of receiving audio/visual
signals and/or programming directly from any satellite, whether
existing now or developed in the future ("Satellite Subscribers"),
including but not limited to, C-Band and Ku-Band signals, whether
Network provides such signals in a digitized, compressed, modified,
replaced or otherwise manipulated format, including tier-bit access
rights and tier-bit messaging rights ("Satellite") upon terms and
conditions to be negotiated in good faith by Network and Affiliate;
provided, however, that if Network and Affiliate are unable to reach
an agreement with respect to the pertinent Satellite distribution
rights within ninety (90) days after the commencement of such good
faith negotiations, then Affiliate shall have such rights upon terms
and conditions, each of which shall be at least as favorable as any
right, term or provision either previously or hereafter offered or
granted by Network to any other distributor of the Service to
Satellite Subscribers. Notwithstanding the foregoing, nothing in this
Section l(a)(iv) shall be construed or interpreted as preventing
Affiliate from negotiating with Network as to any term or condition
that Affiliate finds unacceptable or any term or condition that
Network has not offered or granted to any other distributor, but which
Affiliate nevertheless desires to have in its agreement with Network;
and
(v) the non-exclusive right, but not the obligation, to
exhibit, distribute and authorize the reception of the Service, on a
retail basis, Nationwide by any system or enterprise (regardless of
whether such system or enterprise is affiliated with the owner and/or
operator of any required distribution equipment) that distributes
audio/visual signals and/or programming over the distribution
facilities of a common carrier by means of a video dialtone
connection, open video system or other common carrier arrangement,
whether now existing or developed in the future ("VDT" or "OVS"),
which meets the System Qualifications of Exhibit A hereto.
2
<PAGE>
The rights set forth in this Section l(a), and elsewhere under this
Agreement, are also granted hereby to any affiliate of Affiliate. As used in
this Agreement, an "affiliate of Affiliate" shall include any entity meeting the
requirements of paragraphs I.1, II or III of Exhibit A hereto, regardless of
whether such entity is a cable television system.
"Operating Area" of a cable television system or other video
distribution enterprise shall mean that geographic area where the owner of the
system or enterprise is authorized by appropriate governmental authority to
operate an audio or video distribution facility and is operating an audio or
video distribution facility within such area; provided, however, that if a
franchise or license is not required for the distribution of television services
in a particular geographic area, then the Operating Area of a system or
enterprise shall mean that geographic area where the system or enterprise is
operating regardless of the presence or absence of a franchise or license.
"Alternative Technology" or "Alternative Technologies" shall mean
SMATV, MDS, MMDS, Satellite and any other means of multi-channel video
distribution (other than Cable) whether now existing or developed in the future.
(b) To exercise the rights granted to Affiliate pursuant to
Section l(a) hereof, Affiliate shall have the right, upon written notice to
Network within thirty (30) days thereof, to elect to include under this
Agreement, and to demand authorization from Network, if necessary, and if
elected by Affiliate, to launch the Service on, any cable television system or
other multi-channel video distribution enterprise (regardless of whether such
system or enterprise is affiliated with the owner of any required distribution
equipment) which meets the System Qualifications of Exhibit A hereto regardless
of whether such system or enterprise is a cable television system (any cable
television system or other video distribution enterprise which Affiliate elects
to include under this Agreement shall be referred to in this Agreement,
individually, as a "System" or, collectively, as "Systems"). Upon receipt of
such a notice, Schedule 1 hereof shall be deemed to include such System(s), and
such System shall be included as a System under this Agreement, as of the later
of: (i) the launch date of the Service on such System(s), (ii) the date such
System(s) first meets the System Qualifications of Exhibit A hereto, or (iii)
the date for inclusion specified in such notice if such notice is properly given
pursuant to Section 12 hereof. Any then-existing agreement between or among
Network and any one or more third parties applicable to any such System for
carriage of the Service shall terminate and shall cease to be effective with
respect to such System as of the effective dace of the addition or deemed
addition of such System to Schedule 1. Affiliate shall have the right, in
Affiliate's sole and absolute discretion, to discontinue carriage of the Service
on any or all Systems, and to delete any or all Systems from Schedule 1, by
providing Network with written notice within thirty (30) days of such deletion.
(c) For the avoidance of doubt, the provisions of this Section
l(c) refer only to the exhibition, distribution and performance of the
Programming (as defined below) on the Promotional Service (as defined below). In
addition to the other rights granted in this Section 1 hereof, during the Term:
3
<PAGE>
(i) Network hereby grants to Affiliate, and any affiliate of
Affiliate (including, without limitation, TV Network Corporation), the
non-exclusive right, license, and privilege, but not the obligation,
to exhibit, distribute, transmit, and perform the Programming (as
defined below) on the programming service known as "Intro Television",
or any successor programming service designated by Affiliate (the
Promotional Service"), including, without limitation, the right to
compress, digitize, modify and/or uplink the Programming on the
Promotional Service (provided that no such compression, digitization
or modification will cause a material change in an average viewer's
perception of the principal video or principal audio presentation of
the Programming), and to authorize the exhibition, distribution, and
subdistribution of the Programming on the Promotional Service via
Cable or any Alternative Technology by Affiliate, any affiliate of
Affiliate or third parties.
(ii) For purposes of this Section l(c), the "Programming" shall
consist of, as mutually agreed by the parties hereto: (A) a simulcast
of the Service; (B) taped-delayed programming reproduced by Affiliate
from the programming contained on the Service during other days or
day-parts; and/or (C) programs reproduced by Affiliate from Network's
programming library. On or before seventy-five (75) days before the
beginning of each calendar month during the Term, Affiliate shall
designate to Network one (1) or more time periods in such month during
which the Programming will be featured on the Promotional Service, and
shall designate the programming from Network which Affiliate desires
to feature during such time period(s). Affiliate shall have full
authority and sole discretion to determine and control the time period
and length of time, if any, during which the Programming will appear
on the Promotional Service; provided, however, that in no event shall
the Programming appear on the Promotional Service for more than two
(2) hours in any calendar day, Monday through Sunday. Network shall
supply to Affiliate (if designated by Affiliate) no less than fourteen
(14) hours per week of Programming. With respect to any programming
designated by Affiliate pursuant to subsection (B) or (C) above,
Network shall make an objection, if any, to such programming's being
included in the Promotional Service no later than sixty (60) days
before the beginning of such calendar month. If Network objects to
such designated programming, then the parties shall negotiate in good
faith to determine which programming, if any, shall be designated to
be included within the Promotional Service. Any such objection to the
designated programming shall be made in good faith and in the exercise
of reasonable business judgment based on rights availability, rights
costs, or reasonable limitations on excessive exposure of programming.
In the event that Network notifies Affiliate (within the sixty (60)
day period) that including the designated programming within the
Promotional Service will violate Network's rights to such programming
or will subject Network to commercially unreasonable costs or
liability, Affiliate shall not include such designated programming
within the Promotional Service. If Network
4
<PAGE>
fails to object to any designated programming within such sixty (60)
day time period, such programming shall be deemed agreed to by
Network. Unless otherwise stated by Affiliate, any designation of
Programming by Affiliate shall automatically renew and continue from
month to month.
(ii) If all or a portion of the Programming agreed to by the
parties hereto will consist of tapes from Network's programming
library, Network shall deliver to Affiliate, at Network's expense,
broadcast-quality tapes of such Programming no later than fifteen (15)
days before the beginning of the pertinent calendar month during which
such Programming, or any portion thereof, is scheduled to appear on
the Promotional Service. Affiliate may copy or use such tape to
incorporate the Programming into the Promotional Service and shall
return such tape to Network within thirty (30) days after the end of
such calendar month. If all or a portion of the Programming consists
of a simulcast of the Service or tape-delayed programming, Affiliate
may simulcast or reproduce those portions of the Programming as may be
necessary for the performance of the Programming on the Promotional
Service.
(iv) Within fifteen (15) days after the date of full execution
hereof, Network shall send to Affiliate (or a designated affiliate of
Affiliate) a description of the programming contained in Network's
programming library. During the Term, Network shall update such list
quarterly within thirty (30) days after the end of each calendar
quarter. With respect to any calendar month during the Term, Network
shall, whenever possible, in addition to the obligations set forth in
Section 3(a) below, give Affiliate (or a designated affiliate of
Affiliate) at least sixty (60) days' prior notice of any change in its
program schedule.
(v) Affiliate shall have the right, for transitional or
promotional purposes, to place the Programming in a rotating cube of
television screens, or similar transitional or promotional device, and
shall have the right, to the extent not prohibited by Network's
contracts with third parties concerning the cablecast of the
Programming, to use excerpts of the Programming for promotional
purposes on the Promotional Service, including promotional spots or
inclusion of such Programming on the Promotional Service's rotating
cube. Network shall make available to Affiliate Network's existing
promotional spots for the Service or the Programming, and shall
reasonably cooperate, at Affiliate's cost, in creating promotional
spots for the Promotional Service.
(vi) Each program contained in the Programming shall be
incorporated in the Promotional Service without material alteration;
provided that Affiliate may superimpose a promotional "bug," a display
mortise, a rotating cube of television screens or a similar
promotional device, over such program, and provided further that such
promotional device shall not delete or otherwise obscure Network's
5
<PAGE>
promotional bug, if any, and shall not obscure more than ten (10%) of
the picture of the Programming as perceived by the average viewer in
such viewer's home. Notwithstanding the foregoing, Affiliate shall
have full authority and sole discretion, within all of the commercial
breaks in the Programming on the Promotional Service, to program
interstitial elements of the Programming, i.e., to insert commercial
announcements therein, and to make commercial announcement time
available to third party operators and distributors. Affiliate may
incorporate the programs contained in the Programming in the
Promotional Service in a different order or sequence than the order or
sequence of such programs contained in the Programming as supplied by
Network.
(vii) Without limiting the provisions of Section 9 hereof,
Network has or shall obtain all rights and licenses, including,
without limitation, copyrights (except for music performance rights),
and music synchronization rights, necessary for the performance and
distribution of the Programming (excluding any material or commercial
announcements inserted by Affiliate) as set forth in this Agreement.
Without limiting the generality of the foregoing, Network shall pay
any and all (A) union or guild payments required in connection with
the production, distribution, or performance of the Programming, and
(B) residuals, including all necessary rights, reuse, and other fees
or compensation of any kind, however denominated, which are due or may
become due by reason of Affiliate's full exercise of any and all
rights under this Agreement. With respect to the music performance
rights in the music contained in the Programming, Network represents
and warrants that such rights are: (1) in the public domain, (2)
controlled or authorized for use by Network and its licensees to the
extent necessary to permit Affiliate's or an affiliate of Affiliate's
full use hereunder without payment to any other person, firm or
corporation, or (3) controlled by ASCAP, BMI or SESAC in which event,
as between Affiliate or an affiliate of Affiliate and Network,
Affiliate or an affiliate of Affiliate shall be solely responsible for
obtaining any music performance rights licenses which may be required
to include the Programming within the Promotional Service.
2. TERM:
----
(a) Unless earlier terminated pursuant to the terms of this Agreement,
the "Term" of this Agreement shall consist of, collectively, the Initial Term
and any number of Renewal Terms (each as defined herein). The "Initial Term" of
this Agreement shall be for fifteen (15) years commencing as of the date hereof.
(b) This Agreement shall automatically renew for successive five (5)
year periods (each a "Renewal Term") after the expiration of the Initial Term,
and each Renewal Term, unless either, (i) this Agreement is terminated earlier
in accordance with the terms hereof, or (ii) Affiliate provides written notice
to Network of its intent to terminate this Agreement, in Affiliate's
6
<PAGE>
sole and absolute discretion, a minimum of sixty (60) days prior to the end of
the Initial Term or any Renewal Term.
3. CONTENT OF THE SERVICE:
----------------------
(a) Throughout the Term the programming on the Service shall consist
of long-form aerobic workouts; workouts which focus on body building, shaping
and/or toning; news and views on health topics, including nutrition, weight
loss, food, cooking, skin and hair care and vitamins; sporting events (e.g.
----
aerobic competitions) specifically relating to health and fitness (as opposed to
other skills or other athletic competitions generally), provided that the
Service shall not include more than fifteen (15) hours of such sporting events
in any calendar month; and a segment currently known as "Fitness Plus" which
demonstrates high quality health and fitness products and merchandise for
purchase by an advertised 1-800 product information and ordering number, such
programming to be similar to the programming on the program schedule attached
hereto as Exhibit B, and no other programming of any other type or variety
whatsoever. Network shall, during each month of the Term, send one (1) copy of
its monthly program schedule to Affiliate, in care of: Programming Department.
Network agrees that the Service shall not contain (i) any programming that has
received, or had it been rated would have received, an MPAA "X" or "NC-17"
rating; (ii) more than sixty (60) minutes on one day per week (which day shall
be Sunday) of religious programming, provided that any such religious
programming must be explicitly health and fitness related and may not contain
any solicitation of funds; (iii) a sufficient quantity of music videos such that
the Service could be characterized as a music video service; or (iv) a
sufficient quantity of children's programming such that the Service could be
characterized as a children's service. In addition, the Service shall not
contain any "direct on-air sales" (as defined below) programming other than: (A)
between the hours of 1:00 a.m. and 6:00 a.m., Eastern Time (and in the event
Network provides both an eastern and a western feed of the signal of the
Service, between the hours of 1:00 a.m. and 6:00 a.m. Pacific Time for the
western feed), and (B) up to thirty (30) minutes each day, which such thirty
(30) minutes shall not be during "Prime Time." For purposes of this Section
3(a), "Prime Time" shall mean the time between 8:00 p.m. and 11:00 p.m., Eastern
Time (and in the event Network provides both an eastern and a western feed of
the signal of the Service, between the hours of 8:00 p.m. and 11:00 p.m. Pacific
Time for the western feed). "Direct on-air sales" programming shall mean any
programming (except for the segment of the Service currently known as "Fitness
Plus") which is over two (2) minutes in length and includes the direct on-air
marketing and/or sales of products and/or services, including, without
limitation, home-shopping and "infomercials," and which may include product or
service demonstrations, promotions, testimonials, and/or referrals and may be in
a documentary, talk-show, news, information or other disguised format.
(b) Network shall make available to Affiliate not less than two (2)
minutes of commercial announcement time in each and every hour of the Service,
presently distributed as follows: (i) one (1) minute at :28 minutes after each
hour, and (ii) one (1) minute at :58 minutes after each hour, to be used at
Affiliate's option and control; provided, that Network may change the time
designations set forth herein, from time to time, in its sole discretion, upon
at least sixty
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(60) days' prior written notice to Affiliate of any such change. Network shall
have the right to preempt Affiliate's commercial announcement time occasionally
for specials or coverage of an event of public importance, but only if Network
similarly preempts all of its own commercial announcement time in the pertinent
half-hour period(s) during which it seeks to preempt Affiliate's commercial
announcements, and then only if Network provides at least thirty (30) days'
prior written notice, whenever possible, of any such preemption and provides
equally valuable make good time to Affiliate as soon as practicable. Affiliate
shall have the right to retain for itself all of the proceeds derived from the
sale of the commercial announcement time furnished to it hereunder. If Network
increases the aggregate number of minutes of commercial announcement time
included in the Service (including the commercial announcement time allocated to
Affiliate hereunder) to more than fourteen (14) minutes per hour, then the
commercial announcement time made available to Affiliate shall increase by fifty
percent (50%) of such increase and any increase thereafter (e.g., if Network
----
increases the commercial announcement time on the Service from fourteen (14) to
fifteen (15) minutes per hour, Affiliate will receive thirty (30) seconds of
such additional commercial announcement time). Network shall properly "tone-
switch", using industry-recognized equipment, via inaudible signals, all
commercial announcement minutes to enable Affiliate to insert its commercial
announcements. If Network fails more than two (2) times in any consecutive
thirty (30)-day period properly to "tone-switch" or otherwise identify
Affiliate's commercial announcement minutes to enable Affiliate to insert its
commercial announcements, Affiliate shall have the right, without first
notifying Network, to preempt the Service to insert its commercial
announcements.
(c) Neither Network nor Affiliate shall insert or sell, either in the
Service or the Programming, any advertisements (i) for alcohol, tobacco
products, narcotics or contraceptives, (ii) related to the occult, astrology, or
horoscopes, (iii) for any movie which has received or had it been rated would
have received a MPAA "X," "NC-17" or "R" rating, or (iv) which contain any
sexual material, material unsuitable for children or which would receive an MPAA
"X," "NC-17" or "R" rating if such advertisement were to be rated. Nothing
herein shall be construed as prohibiting either party from inserting and selling
commercial announcement time to programming services which distribute "R"-rated
programming, provided that such announcements comply with this Section 3(c).
(d) If for any reason, including, without limitation, causes beyond
the control of Network, Affiliate, in good faith, determines that the Service
includes programming prohibited in Section 3(a) hereof and/or does not include
programming of at least the quantity, quality, type and content as required in
Section 3(a) and Section 3(g) hereof and as referenced in Exhibit B, Affiliate
shall provide Network with written notice thereof, specifying the content
breach, whereupon Network shall have thirty (30) days from Affiliate's notice to
take appropriate action to cure such content breach and shall have sixty (60)
days from Affiliate's notice to cure such content breach fully. If Network has
not commenced good faith efforts to cure such content breach within such thirty
(30)-day period and/or has not fully cured such breach within such sixty (60)-
day cure period, then Affiliate may, in addition to any and all remedies
available to Affiliate hereunder, in law or in equity, at its option, either (i)
discontinue carriage of the Service on any
8
<PAGE>
or all Systems and delete such System or Systems from Schedule 1 hereof,
effective at any time by giving notice to Network within ten (10) days thereof;
or (ii) receive credit against the Fees (as defined herein) or Renewal Fees (as
defined herein) in the proportion that the hours of programming each day which
either is prohibited by Section 3(a) hereof or deviates from the programming
required in Section 3(a) or Section 3(g) hereof bears to the total hours the
Service is transmitted each day; such credit to be applied against the Fees or
any Renewal Fees in any month.
(e) No less than once per day in alternating day parts, but including
each and every day part, (i) during any period throughout the Term or any
Renewal Term when Fees or Renewal Fees are payable to Network by Affiliate, the
Service shall include the following audible message: "This programming is
brought to you, in part, by fees paid by your local cable company," and (ii)
during any period throughout the Term or any Renewal Term when no Fees or
Renewal Fees are payable to Network by Affiliate, the Service shall include the
following audible message: "This programming is brought to you through the
support and cooperation of your local cable company."
(f) During the Term, Network shall provide the Service in its entirety
to Affiliate. When the phrase "in its entirety" is used in this Section 3(f),
it means that each Service Subscriber 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 from the programming received by any
subscriber of Affiliate receiving the Service at such point in time, Affiliate
shall have the unconditional right to elect which programming it desires to
receive and utilize at any System, which programming it desires to subdistribute
hereunder, and/or which programming it will authorize for reception by
Affiliate's Satellite Subscribers. Notwithstanding the foregoing, in the event
Network provides an eastern and western feed of the signal of the Service,
Systems in the Eastern and Central Time zones shall make commercially reasonable
efforts to exhibit the eastern feed of the signal of the Service, Systems in the
Pacific Time zone shall make commercially reasonable efforts to exhibit the
western feed of the signal of the Service and each System in the Mountain Time
zone may elect, at its option, to exhibit either the eastern or western feed of
the signal of the Service; and any System shall have the option of exhibiting
both feeds of the Service without paying any additional Fees or Renewal Fees.
(g) At least twenty percent (20%) of the hours of the Service
programming each day shall be original programming distributed exclusively
Nationwide on the Service at all times throughout the Term.
4. DELIVERY AND DISTRIBUTION OF THE SERVICE:
----------------------------------------
(a) During the Term, Network shall, at its own expense, deliver a
signal of the Service to the earth station of each System, to each of
Affiliate's Satellite Subscribers, and, for
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purposes of Section 4(g) hereof, to other locations within the continental
United States designated by Affiliate (in its sole and absolute discretion), by
transmitting such signal via a domestic satellite commonly used for transmission
of cable television programming. In addition, no later than twelve (12) months
after the date on which the number of full-time equivalent cable television
subscribers to the service first reaches twenty (20) million subscribers,
Network shall, at its own expense, fully encode the satellite signal of the
Service utilizing scrambling technology commonly used in the domestic cable
television industry. Except as otherwise provided in this Section 4(a),
Affiliate shall, at its own expense, furnish an earth station and all other
facilities including, without limitation, decoders commonly used in the domestic
cable television industry, necessary for the receipt of such satellite
transmission and the delivery of such signal to the Service Subscribers. In the
event Network either (i) changes the satellite to which the Service is
transmitted to a satellite not susceptible to viewing by a System's or Systems'
then-existing earth station equipment and such satellite does not carry at least
three (3) of the top ten (10) cable television programming networks (such
networks to be determined based on the number of subscribers reported by A. C.
Nielsen Company), or (ii) changes the technology used by Network to encrypt the
Service to a technology not commonly used in the domestic cable television
industry, Affiliate shall then have the right to delete from Schedule 1 of this
Agreement, immediately, such System or Systems, and to discontinue carriage of
the Service, immediately, from such System or Systems; provided that this right
of deletion and discontinuance shall not apply to any System or Systems if, (1)
Network agrees, unconditionally, to promptly reimburse such System or Systems,
as the case may be, (A) for the cost to such System or Systems to acquire and
install equipment necessary for such System or Systems to receive the signal of
the Service from such new satellite, and/or (B) for the cost to such System or
Systems to acquire and install new equipment necessary for such System or
Systems to descramble, receive and/or utilize the signal of the Service; and (2)
physical space exists at the then-existing headend or earth station site to
accommodate the necessary equipment; and (3) current zoning and other
restrictions permits such additional equipment. In the event Network (x)
compresses the signal of the Service, (y) digitizes the signal of the Service,
or (z) changes the method of encryption after the signal of the Service is first
encrypted, in such a manner that the signal of the Service cannot be received or
utilized by a System or Systems, Network shall, at its sole and exclusive
option, either promptly reimburse each System for the cost to purchase and/or
deploy the equipment necessary for such System to receive or utilize the signal
of the Service, or promptly supply to each System all of the equipment necessary
for such System to receive or utilize the signal of the Service. The preceding
sentence shall only apply to Systems carrying the signal of the Service as of
the date of such a compression, digitization or encryption change, and any
System that is so compensated shall rebate to Network such compensation in the
event it discontinues carriage of the Service earlier than one year after
receiving such compensation.
(b) Network shall provide to each System and to each of Affiliate's
Satellite Subscribers a video and audio signal of the Service of a technical
quality equivalent to the greater of the following: (i) comparable to the
technical quality of audio and video signals delivered by other cable television
programming services, or (ii) the technical standards set forth in Exhibit C
hereof. If, at any time during the Term, Network converts to a format other
than its current
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analog format, Network and Affiliate shall negotiate in good faith to agree upon
replacement specifications for Exhibit C; provided, however, that the technical
quality of the video and audio signal under the replacement specifications shall
not be of a lesser technical quality than the video and audio signal quality of
the Service required hereunder in the month immediately preceding the conversion
to a non-analog format. Each System, if any, will deliver to its Service
Subscribers a principal video and audio signal of the Service of a technical
quality at least comparable to other cable television programming services, but
in no event higher than the technical quality provided by Network hereunder.
(c) The Systems, if any, may distribute the Service as a full-time or
part-time service; provided, however, that, subject to Section 4(i) hereof, any
part-time carriage of the Service shall consist of at least a continuous four
(4) hour block of the programming of the Service. Affiliate acknowledges that
in order to qualify for Affiliate's Revenue Share (as defined in Section 7
hereof), a System must distribute the Service either: (i) at least eight (8)
hours each day between the hours of 6:00 a.m. and midnight, or (ii) at least an
aggregate of fifty-six (56) hours each week. Except as otherwise provided
herein, the Systems, if any, will distribute the Service during the hours it is
carried by such Systems, without alteration, editing or delay. Network agrees
that Affiliate will have complete authority to control, to designate and to
change the channel(s) over which the Service is to be carried on each System.
(d) Network retains and reserves any and all rights in and to all
signal distribution capacity contained within the bandwidth of the Service,
including, without limitation, the vertical blanking interval ("VBI"), audio
subcarriers and all other distribution capacity contained within the bandwidth
of the Service between Network's uplink facilities and the Systems or
Affiliate's other first downlink facilities. Affiliate retains and reserves any
and all rights in and to, and may use in its sole discretion, all signal
distribution capacity contained within the bandwidth of the Service, including,
without limitation, the VBI, audio subcarriers or channels and any other
portions of the bandwidth that may be created or made usable as a result of the
conversion of the signal of the Service to a compressed, digital or other non-
analog format, as received at each System or Affiliate's other first downlink
facilities from such System or other first downlink facility to the service
Subscribers served by such System or other first downlink facility.
Notwithstanding the foregoing, if Network uses one (1) line of the VBI for
closed captioning for the hearing impaired then Affiliate shall transmit such
closed captioning service to Service Subscribers who (i) receive the Service in
an analog format, and/or (ii) receive the Service in a digital format utilizing
a set-top box which is capable of receiving and presenting information included
in the data stream which contains the data for the closed captioning service;
provided, however, that Affiliate shall only transmit such closed captioning
service in a digital format if Network delivers the closed captioning service to
Affiliate in a format specified by Affiliate. In addition, if Network uses one
audio subcarrier of the Service for a Spanish language translation of the
Service, then Affiliate shall transmit such Spanish language translation of the
Service to Service Subscribers who (A) receive the Service in an analog format,
and/or (B) receive the Service in a digital format utilizing a set-top box which
is capable of receiving and presenting information included in the data stream
which contains the data for such Spanish language
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<PAGE>
translation of the Service. Nothing herein shall preclude Affiliate from
exercising and exploiting the rights retained and reserved by Affiliate pursuant
to this Section 4(d) by any means and in any locations freely and without
restriction; provided, however, that any such use by Affiliate or the Systems
shall not materially degrade, or otherwise materially interfere with, the
picture quality of the Service or the audio portion of the signal of the Service
which is the principal audio carriage frequency of the Service. Furthermore, in
the event that Affiliate is required by law, decree, ordinance or administrative
action to pass through to any of its customers any material contained within the
signal of the Service, Network shall not commingle such material with material
Affiliate is not required to pass through to its customers and shall not co-
locate such material on lines of the vertical blanking interval with material
Affiliate is not required to pass through to its customers.
(e) Each System or other distribution facility or enterprise may carry
the Service on the basic level of service, on any tier, a la carte, or in any
combination thereof. For purposes of this Agreement, a "tier" shall mean any
package which includes, at a minimum, three (3) services.
(f) Affiliate shall not itself, and shall not authorize others to,
copy, tape or otherwise reproduce any part of the Service without Network's
prior written authorization and in each of the Systems shall take reasonable and
practical security measures to prevent the unauthorized or otherwise unlawful
copying, taping or other reproduction of the Service by others through the
facilities of the System. Affiliate shall not be responsible for home taping by
anyone viewing the Service and Affiliate may promote home taping as part of
Affiliate's marketing efforts. Network acknowledges that this Section 4(f) does
not restrict Affiliate's practice of connecting its subscribers' videocassette
recorders, or other devices susceptible to use for home duplication of video
programming, to the facilities of a System.
(g) 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 (one or more times) as so altered (the "Altered Signal") to a Satellite,
or to a location within the continental United States designated by Affiliate
(in its sole and absolute discretion), for redistribution to terrestrial or
other reception sites capable of receiving and utilizing the Altered Signal,
provided that no such alteration, transmission, redistribution, reception or
other use will cause a material change in an average viewer's perception of the
principal video or principal audio presentation of the Service, and provided
further that such terrestrial or other reception sites are authorized pursuant
to a valid agreement, or otherwise, to receive and/or distribute the Service.
Network hereby grants Affiliate, any affiliate of Affiliate, and any System (i)
the right to deliver the Altered Signal for the uses set forth in Section l(a)
of this Agreement, and (ii) the right to deliver the Altered Signal to any third
party, provided that such third party is authorized by Network pursuant to a
written agreement or otherwise to distribute the Service. Network shall not
change the signal on the service in such a way as technically or technologically
to defeat, or otherwise interfere with, Affiliate's, any affiliate of
Affiliate's, or any System's rights under this Section 4(g). In the event
Network
12
<PAGE>
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 4(g), then Affiliate shall have the right to delete any or
all Systems from Schedule 1 of this Agreement, immediately, and to discontinue
carriage, immediately, of the Service on any or all Systems.
(h) Network hereby grants to Affiliate and any affiliate of Affiliate
the right to transmit by Cable or other transmission system the signal of the
Service as received at the headend of any System to any third party, provided
that such third party is authorized by Network to receive the signal of the
Service. Network also hereby grants to Affiliate and any affiliate of Affiliate
the right to receive by Cable or other transmission system the signal of the
Service from any third party.
(i) Notwithstanding anything in Section 4(c) hereof to the contrary,
Affiliate shall have the right, but not the obligation, to preempt the Service
on the Systems for up to: two (2), thirty (30) minute periods each day during
the Term of this Agreement to insert other programming (the "Affiliate
Inserts"). Affiliate shall provide Network with at least thirty (30) days' prior
written notice of the time periods during which Affiliate will preempt the
Service for the Affiliate Inserts; provided, however, that Affiliate may preempt
the Service for the Affiliate Inserts up to ten (10) times each month without
prior notice to Network. Affiliate may only preempt the Service for an
Affiliate Insert beginning on the hour or on the half hour (e.g., at 6:00 a.m.
----
or 6:30 a.m.). Affiliate shall provide an on-screen or audible message at the
commencement of each Affiliate Insert which shall clearly identify such
Affiliate Insert as not being a part of or associated with the Service.
Affiliate's preemption of the Service for the exhibition of the Affiliate
Inserts shall be subject to the following limitations: (i) Affiliate shall not
preempt the Service for more than one (1), thirty (30) minute period during the
time period from 8:00 p.m. to 11:00 p.m., Eastern Time and no Affiliate Insert
inserted during such time period will consist of any direct on-air sales
programming as long as at least one (1) of the two (2) commercial announcement
minutes per hour allocated to Affiliate pursuant to section 3(b) hereof is
provided to Affiliate during the "first break out of the action," except that
such "first break out of the action" may be preceded by an announcement
promoting Network which does not exceed fifteen (15) seconds in length; (ii) the
Affiliate Inserts shall not be comprised of a simulcast of programming from any
other cable television service, other than a news, informational, or political
service created for Affiliate or an affiliate of Affiliate for cablecast on
cable television systems which meet the System Qualifications of Exhibit A;
(iii) the Affiliate Inserts shall be spaced at least one (1) hour apart;
provided, however, that Affiliate may preempt the Service for one (1) continuous
hour during any time period other than the time period from 8:00 p.m. to 11:00
p.m., Eastern Time, with Network's consent, which consent shall not be
unreasonably withheld by Network; (iv) the editorial and production quality of
the Affiliate Inserts, as measured by the average viewer, shall be materially
similar to or better than the editorial and production quality of the Service,
taking into account any differences in content and format; (v) during any hour
of the Service that is preempted for one (1), thirty (30) minute Affiliate
Insert, Affiliate shall be entitled to only fifty percent (50%) of the
commercial announcement time to which Affiliate would otherwise be entitled
pursuant to Section
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3(b) hereof; and (vi) during any hour of the service that is preempted for one
(1) continuous hour, Affiliate shall not be entitled to the commercial
announcement time for such hour to which Affiliate would otherwise be entitled
pursuant to Section 3(b) hereof.
(j) Upon request by Affiliate, Network agrees to negotiate in good
faith regarding the joint creation and development of multimedia, interactive
and/or computer applications related to the Service or the Service programming.
In addition, in the event Network or any affiliate of Network offers to, or
solicits an offer from, any third party to participate, in any way, in the
creation and/or development of a multimedia, interactive or computer application
related to the Service or service programming, to be offered in conjunction with
or separate from the Service, Network shall, within not more than sixty (60)
days from the date of Network's or such third party's acceptance of such offer,
offer Affiliate in writing the right to participate in a comparable creation
and/or development upon terms and conditions each of which shall be comparable
to the terms and condition of such other offer or solicitation. Affiliate shall
have fifteen (15) days from the date of receipt of Network's offer to accept
such comparable offer.
(k) Network agrees that if it grants or offers, or has granted or
offered, to any third party the rights to exhibit, distribute, subdistribute
and/or authorize the reception of any multimedia, interactive or computer
application relating to the service or the Service programming Network, shall
promptly offer such rights to Affiliate upon terms and conditions each of which
shall be no less favorable than the terms and conditions of any such third party
grant of rights.
5. FEES:
----
In consideration of the terms and conditions set forth herein,
Affiliate shall, subject to Sections 5(b) (i), (ii) and (iii), pay the following
fees ("Fees" and or "Fee"):
(a) For each calendar month during the Term, Affiliate shall pay
Network a Fee or Renewal Fee for each Service Subscriber who receives the
Service hereunder. The amount of the Fee shall be calculated as follows:
(i) Fees for Distribution of the Service on any Basis Other than A la
------------------------------------------------------------------
Carte. The Fee for each Service Subscriber in any System who receives the
-----
Service on any basis other than a la carte shall be based on the pertinent
calendar year and the penetration of the Service within a System ("Service
Penetration").
Service Penetration shall be determined each month on a System-by-System
basis and shall mean the percentage obtained by dividing: (x) the number of
Service Subscribers in the System, by (y) the number of subscribers
receiving the most highly penetrated level of television programming
services in such System excluding the Broadcast Basic level of service
and/or pay-per-view services. The "Broadcast Basic" level of service shall
mean that level of service which primarily contains (or would contain) only
the signals of local broadcast television stations and may contain one
satellite delivered
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[*] CONFIDENTIAL TREATMENT REQUESTED
programming service.
Notwithstanding the foregoing, in the event there are Service Subscribers
in any System who receive the signal of the Service from such System in a
digital format (the "Digital Service Subscribers"), or customers who
receive the signal of any advertiser-supported service in a digital format
(the "Digital subscribers), then neither the number of Digital Service
Subscribers nor the number of Digital Subscribers in such System shall be
included in the calculation of Service Penetration in such System pursuant
to the preceding provisions of this Section 5(a) (i). For purposes of
determining the applicability of the Fee with respect to Digital Service
Subscribers, Service Penetration shall be determined as if all Systems
which serve Digital Service subscribers are collectively a single System
hereunder (the "Digital System"); provided, that Service Penetration with
respect to Digital Service Subscribers shall be equal to the percentage
obtained by dividing: (x) the number of Digital Service Subscribers in the
Digital System, by (y) the number of Digital Subscribers served by the
Digital System.
The Fee for each Service Subscriber who receives the Service on any basis
other than a la carte shall be as follows:
[*]
The Renewal Fees for any Renewal Terms (i.e., calendar year 2010 and on) shall
----
be determined as set forth in Sections 5(c) and (d).
(ii) Fees for Distribution of the Service on an A la Carte Basis.
------------------------------------------------------------
For each calendar month during the Term, the Fee for each Service
Subscriber who receives the Service on an a la carte basis in any System,
regardless of whether such Service Subscriber receives the Service in an
analog or digital format (an "a la Carte Service Subscriber"), shall be
based on the retail price charged by a System for the Service and shall be
calculated as follows:
[*]
(b) "Service Subscribers" or a "Service Subscriber" shall mean each
location to which Affiliate knowingly provides the Service pursuant to this
Agreement directly, through an affiliate, or, as permitted by this Agreement,
through a third party (other than through a third party as. permitted in
Sections 4(g) and 4(h) hereof). Service Subscribers shall include each occupied
dwelling (whether in a single family dwelling or multiunit building), bar,
restaurant and other residential or commercial location in which the Service is
received. If Affiliate provides the Service to multiple dwelling complexes,
including, but not limited to, apartments, hotels and motels, on a bulk-rate
basis, the number of Service Subscribers attributable to each such bulk-
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<PAGE>
rate subscriber shall be equal to the total monthly retail rate a complex is
charged for the Service or for the level or package of services in which the
Service is carried, as the case may be, divided by Affiliate's, or the pertinent
affiliate of Affiliate's, standard monthly retail rate a non-bulk rate Service
Subscriber is charged in the applicable System for the Service or for such level
or package of service, as the case may be. Service Subscriber shall not include
(i) employees of Affiliate or any affiliated party who are not charged for the
Service; or (ii) public officials, administrative personnel or public buildings
that are not charged for the Service; or (iii) subscribers who have not paid
their monthly rate to Affiliate, or an affiliate of Affiliate, for a given month
and are subsequently disconnected; provided, however, that with respect to this
Section 5(b) (iii), if Affiliate subsequently receives payment for the Service
by any of such subscribers, Affiliate shall include such subscribers as Service
subscribers for purposes of payment of Fees.
(c) Network shall have the right to negotiate the Fee or Fees
applicable to any Renewal Term upon written notice to Affiliate at least six (6)
months prior to the end of the Initial Term or any Renewal Term immediately
preceding such Renewal Term. Any such revised Fees ("Renewal Fees") shall be
effective upon the commencement of such Renewal Term.
(d) Notwithstanding any provision of this Agreement to the contrary,
in the event that at any time during the Initial Term or during any Renewal
Term, Network proposes, and Affiliate agrees to pay, any surcharge for the
Service or increase in the Fees or Renewal Fees otherwise payable hereunder,
Affiliate shall have the right, but not the obligation, to carry the service on
any or all Systems on the basic level of service, on any tier (without regard to
the number of services contained therein) a la carte, or in any combination
thereof. Likewise, notwithstanding any provision of this Agreement to the
contrary, in the event that at least forty-five (45) days prior to the
expiration of the Initial Term or any Renewal Term hereunder, Affiliate and
Network have failed to agree on the Renewal Fees and either Affiliate or Network
notifies the other party that such first party chooses to cease negotiations of
the Renewal Fees, Network shall give Affiliate notice of the rates to be paid
per Service Subscriber and such rate shall be deemed the Renewal Fee per Service
Subscriber to be paid during such succeeding Renewal Term. So long as Affiliate
pays such rates, Affiliate shall then have the right, but not the obligation, in
its sole and absolute discretion, to provide the Service pursuant to this
Agreement, but on the basic level of service, on any tier, a la carte or in any
combination hereof, and without regard to any restrictions contained in Section
4(e) hereof (including, without limitation, the number of services required to
be in a tier), in Affiliate's sole and absolute discretion.
(e) Network agrees that in no event will it authorize in any twenty-
four (24) hour day the broadcast television exhibition of more than two (2)
hours of the Service, any portion thereof, or any programming derived therefrom
within the Distribution Area of any System.
(f) Any undisputed Fees and Renewal Fees payable by Affiliate to
Network
16
<PAGE>
hereunder, if any, shall be due and payable forty-five (45) days after the end
of the pertinent calendar month during the Term. Any amounts payable by Network
to Affiliate pursuant to Section 7 or Section 8(f) hereof shall be due and
payable forty-five (45) days after the end of the pertinent calendar quarter
during the Term. In the event of a good faith dispute regarding any amounts
payable by either party to the other party hereunder, no such disputed amounts
shall be due or payable by such party to the other party nor subject to the
terms or conditions of this Section 5(f) or Section 5(g) below unless and until
such dispute has been resolved to the satisfaction of Affiliate and Network. For
each month during the Term for which Fees or Renewal Fees are payable, the
number of Service Subscribers shall be equal to the number of Service
Subscribers as of the first day of each calendar year, adjusted monthly for
launches, acquisitions, deletions and divestitures. Service Subscribers in
launched or acquired Systems shall be added the month following completion of
the launch or acquisition. Service Subscribers in divested or deleted Systems
shall be deducted from the Service Subscribers count effective in the month of
the completion of the divestiture or deletion. The number of Service Subscribers
so added or deducted shall be equal to the number of Service Subscribers in the
System as of the first day of the applicable calendar quarter. Notwithstanding
the foregoing, in no event shall Affiliate be required to pay on a number of
Service Subscribers in any month greater than the average of the actual number
of Service Subscribers as of the first day of the month and the actual number of
Service Subscribers as of the last day of the month.
(g) Any Fees or Renewal Fees, and any amounts payable by Network to
Affiliate pursuant to Section 7 or Section 8(f) hereof that are unpaid within
thirty (30) days after they are due and payable shall accrue interest at one and
one-half percent (1.5%) per month or the highest lawful rate, whichever is less,
from the due date until payment is received by Network or Affiliate,
respectively. The party that is late in making such payments shall be liable to
the other party for all reasonable costs and expenses (including, but not
limited to, fines, forfeitures, attorneys' fees, disbursements and
administrative or court costs) in connection with the collection of any such
overdue amounts.
(h) Network agrees that on and after the date on which Network is
generating sufficient revenues to sustain its operations, at least twenty
percent (20%) percent of the revenues from the Fees and any Renewal Fees will be
used for the purpose of developing or acquiring original and/or exclusive
programming for the Service.
(i) Affiliate shall have the right to preview the Service in any of
its systems on a full-time or part-time basis free of any obligation to pay Fees
or Renewal Fees therefor for periods of up to one (1) month in any twelve (12)
month period (which one (1) month periods may not be continuous) in order to
determine subscriber preferences.
(j) Notwithstanding any other provision in this Agreement to the
contrary, any increase in any Fee or Renewal Fee hereunder shall, at Affiliate's
quarterly option, become effective either on the last day of the complete
quarter year that immediately precedes the quarter year containing the date such
Fee or Renewal Fee increase was scheduled to take effect pursuant
17
<PAGE>
to this Agreement, or on the first day of such complete quarter year.
6. REPORTS:
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(a) Affiliate shall send to Network, not later than forty-five (45)
days after the end of each calendar month during the Term for which Fees or
Renewal Fees are payable by Affiliate, if any, a statement on a form mutually
acceptable to Affiliate and Network. Each statement shall set forth the total
number of Service Subscribers and such other information pertinent hereunder
which relates to the computation of the amount due to Network for such calendar
month. Affiliate shall deliver such statement to Network prior to or along with
the amount payable to Network as provided in this Agreement. Network shall send
to Affiliate, not later than forty-five (45) days after the end of each calendar
quarter for which payment pursuant to Section 7 or Section 8(f) hereof is due, a
statement on a form mutually acceptable to Affiliate and Network which sets
forth all pertinent information to compute the amount due to Affiliate for such
calendar quarter. Network shall deliver such statement to Affiliate prior to or
along with the amount payable to Affiliate as provided in this Agreement.
(b) Affiliate and Network each agree to keep and maintain accurate
books and records of all matters directly relating to this Agreement in
accordance with generally accepted accounting principles. During the Term and
for one (1) year after the termination of this Agreement, such books and records
of each party shall be available to the other party for inspection and audit,
during normal business hours, at the inspecting party's expense, at the other
party's offices upon reasonable notice to the other party; provided, however,
that any inspection and/~ /audit of Network's books and records to determine
compliance with the provisions of Section 14(e) hereof ("More Favorable
Provision Obligations") shall be conducted by a public accounting firm or an
auditing firm that audits or otherwise provides services to both Affiliate and
Network or an independent accounting firm mutually agreed upon in good faith by
the parties, provided that such accounting firm is one of the six largest
accounting firms in the United States. If the parties cannot in good faith
mutually agree upon such independent accounting firm within ninety (90) days,
then Affiliate shall select an independent accounting firm to conduct such
audit, provided that such independent accounting firm is one of the six largest
accounting firms in the United States. The public accounting firm or auditing
firm that conducts the audit shall be referred to hereinafter as the "Auditor".
If, as a result of the examination performed hereunder by the Auditor, the
Auditor determines that Network has fully complied with the More Favorable
Provision Obligations, then such Auditor shall provide written notice to the
parties stating only that Network has complied with the More Favorable Provision
Obligations. If, as a result of the examination performed hereunder, the Auditor
determines that Network has failed to comply with the More Favorable Provision
Obligations, then the Auditor shall discuss the provisions at issue with Network
in good faith for a reasonable time. In the event that after good faith
discussions the Auditor concludes that Network has, in fact, complied with the
More Favorable Provision Obligations, then the Auditor shall provide written
notice to the parties stating only that Network has complied with the More
Favorable Provision Obligations. In the event that after good faith discussions
the Auditor concludes that
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Network has not complied with the More Favorable Provision Obligations, then
Network shall have the option, at Network's sole election, either (i) to grant
to Affiliate the provision(s) which is (are) the subject of the More Favorable
provision Obligation at issue, or (ii) to authorize the Auditor to provide to
Affiliate only that limited information acquired during the course of the
examination as is necessary for Affiliate to pursue its claim or claims related
to Network's non-compliance with such More Favorable Provision Obligation; any
information which is not so necessary shall not be disclosed to Affiliate by the
Auditor and shall remain strictly confidential. Under no circumstances, other
than the limited circumstances set forth in subsection (ii) above, shall any
information acquired during the course of any examination or obtained during any
discussions with Network be disclosed to Affiliate by the Auditor and all such
information shall remain strictly confidential.
(c) Each party's right to perform an audit hereunder shall be limited
to once in any twelve (12) month period during the Term and once in the year
after termination of this Agreement and shall be limited to an audit with
respect to amounts to be paid in the current and prior calendar years only. If
either party audits the other party's books hereunder, the inspecting party must
make any claim against the other party within the earlier of three (3) months
after the inspecting party or the inspecting party's representative leaves the
other party's offices, or twenty-four (24) months after the close of the
earliest month which is the subject of such claim. In addition, any such claim,
if and when made, must relate to the then-current calendar year and/or the
immediately preceding calendar year only. If a claim is not made within any
limitation set forth herein, then any amounts, and all reports required
hereunder shall be deemed final and incontestable, and the inspecting party will
be deemed to have forever and conclusively waived its right, whether known or
unknown, to collect any shortfalls from the other party for the period(s)
audited. Notwithstanding the foregoing, the provisions of this Section 6(c)
shall not apply to Affiliate's right to audit Network's compliance with the More
Favorable Provision Obligations; provided, however, that Affiliate may not
exercise its More Favorable Provision audit right more than once in any twelve
(12) month period and any such audit shall relate to the then-current calendar
year and/or the two (2) immediately preceding calendar years only; and provided
further that Affiliate must make any claim against Network pursuant to a More
Favorable Provision within the earlier of (i) three (3) months after Affiliate's
auditor leaves Network's offices and (ii) thirty-nine (39) months after the
close of the month that gave rise to a claim under the More Favorable Provision.
7. REVENUE SHARING:
---------------
(a) Subject to Affiliate's compliance with the conditions set forth in
Section 7(c) hereof, Network shall pay Affiliate five percent (5%) of the Gross
Sales Price (as hereinafter defined) of all merchandise sold during Network's
"Fitness Plus" programming segments (as described in Section 7(b) hereof) in zip
code areas served by Affiliate or an affiliate of Affiliate which distributes
the Service pursuant to this Agreement ("Affiliate's Revenue Share"). Where
sales are made to customers residing in a zip code area where there are two or
more distributors of the Service which are eligible to receive revenue sharing
with respect to "Fitness Plus" (at
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least one of which is Affiliate or an affiliate of Affiliate which distributes
the Service pursuant to this Agreement), Network shall allocate the Gross Sales
Price between such distributors based on the percentage of subscribers to the
Service which are serviced by each such distributor in such zip code. In the
event that one or more of such distributors of the Service in the same area
distributes the Service on a part-time basis, then the number of subscribers
attributable to such distributor, solely for purposes of this Section 7(a),
shall be calculated on a full-time equivalency ("FTE") basis for those
subscribers who receive the Service on a part-time basis. The number of FTE
subscribers for any such distributor shall be determined by multiplying such
distributor's total number of part-time subscribers in the pertinent area by the
percentage obtained by dividing the total number of hours such distributor
distributes the Service on a part-time basis in a week by 168 (full-time
carriage). For example, if a distributor with 10,000 subscribers in the
pertinent area distributes the Service on a part-time basis for 63 hours per
week, such distributor's number of FTE subscribers would be 3,750 [10,000 x (63
/ 168)]. If Network is able to separately identify in any manner those customers
who receive the Service by Satellite, then Network shall pay Affiliate five
percent (5%) of Affiliate's portion of the Gross Sales Price of all merchandise
sold during "Fitness Plus" to customers served by Satellite through Affiliate or
an affiliate of Affiliate, such portion to be the percentage of subscribers to
the Service which are served by Satellite by Affiliate or an affiliate of
Affiliate, such portion to be the percentage of subscribers to the Service which
are served by Satellite. If Network is able accurately to identify all of the
actual provider(s) of the Service to customers who receive the Service by
Satellite, then Network may, at its option, pay the five percent (5%) fee to
such actual provider(s), whether such provider is Affiliate and/or another
distributor, for the customers served by such actual provider(s), rather than
paying pursuant to the allocation formula set forth in this Section 7(a). "Gross
Sales Price" shall be defined for Affiliate in the most favorable manner as it
is defined (now or in the future) for any present or future affiliate of
Network, which is currently as follows: The price actually paid to and received
by Network from customers for merchandise promoted during Network's "Fitness
Plus" programming segments, excluding shipping and handling charges, applicable
taxes, credits for returns and refunds and also excluding advertising sales
revenue earned by Network.
(b) Network's "Fitness Plus" programming segments, whether known by
the "Fitness Plus" name or any other name, shall consist of originally produced
vignettes showcasing and marketing to home-viewers fitness and fitness-related
products and such other program elements as Network in its sole discretion shall
determine. Nothing herein shall obligate Network to continue its "Fitness Plus"
programming segment.
(c) In order to be eligible to receive Affiliate's Revenue Share,
Affiliate must comply with the following conditions: (i) Affiliate must be
distributing the Service, (ii) the pertinent System or other distribution
facility must distribute the Service for (A) at least eight (8) hours each day
between the hours of 6:00 a.m. and midnight, or (B) at least an aggregate of
fifty-six (56) hours each week, and (iii) Affiliate must provide Network with
the zip code areas served by Affiliate and any affiliate of Affiliate which is
distributing the Service pursuant to this Agreement.
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(d) Network shall pay to Affiliate the Affiliate Revenue Share, if
any, on a quarterly basis within forty-five (45) days after the end of the
pertinent calendar quarter.
8. PROMOTION:
---------
(a) Affiliate shall use reasonable efforts to promote the Service
within the Operating Areas of the Systems. Network shall provide promotional,
marketing and sales material to Affiliate, as available and at Network's cost.
Network agrees to allocate a proportionate amount of its affiliate promotion and
marketing budget to Designated Marketing Areas ("DMAs") (as determined by the
A.C. Nielsen company or, if such determination is no longer available, then a
like determination of marketing areas) served by Affiliate, based on the ratio
that Affiliate's number of subscribers bear to the subscribers of all affiliates
of Network, including Affiliate's Service Subscribers. Network shall have
discretion, subject to the preceding sentence, to choose the specific DMAs
receiving marketing and promotion support, and to control all spending. Within
sixty (60) days after the end of each calendar year, an officer of Network shall
certify to Affiliate that Network is in full compliance with the provisions of
this Section 8(a).
(b) Except to the extent prohibited by any of Network's agreements
regarding distribution of the programming constituting the Service, Affiliate
may create, edit, reproduce, distribute and exhibit promotional segments or
clips of the programming of the Service for purposes of promoting the Service,
including, without limitation, use of such promotional segments or clips on any
pay-per-view preview service or any on-screen programming guide service.
Affiliate may tape or otherwise reproduce any portion of the Service in the
exercise of the rights granted herein. Network agrees to use its reasonable
efforts to obtain all the rights necessary for Affiliate to utilize the
programming comprising the Service in the manner set forth in this Section 8(b).
(c) Network may not undertake marketing tests, surveys, rating polls
and/or other research that is substantially targeted to Service Subscribers in
the Systems in connection with the Service without Affiliate's prior written
consent, which consent may be withheld or delayed in Affiliate's sole and
absolute discretion. Network shall provide Affiliate, without cost to
Affiliate, with the results of such research to the extent it applies to a
System or Systems or the subscribers therein. With respect to any tests,
surveys, rating polls and/or other research that apply to a System or Systems
for which Network seeks Affiliate's cooperation, Network shall notify Affiliate
of the nature and scope of each such project and, upon Affiliate's prior written
consent to such project (which consent may be withheld in Affiliate's sole and
absolute discretion), Affiliate will, to the extent permitted by applicable law
and company policy, cooperate in such research by rendering such assistance as
Network may reasonably request and as Affiliate can reasonably provide, the cost
of which assistance shall be borne by Network. Network shall otherwise keep the
results of all research relating to a System or Systems confidential under the
provisions of Section 13 hereof and shall retain the results of such research in
an aggregate form only, which results do not identify any subscriber, Cable
television system
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<PAGE>
or Cable television operator.
(d) Network agrees to provide the following launch support to be used
towards marketing promotions and activities intended to promote sales of
subscription to Service, increase awareness and viewership of the Service, and
to generate local advertising sales on the Service in the Systems: launch kit
containing ad slicks, radio spots and other collateral material.
(e) Affiliate acknowledges that the names and marks FIT TV, Cable
Health Club and CHC (and the names of certain programs which appear in the
Service) are the exclusive property of Network and its suppliers and that
Affiliate has not and will not acquire any proprietary rights therein by reason
of this Agreement. Network shall have the right to approve any mention or use
by Affiliate of such names or marks in publicity about Network or the products
or programming included in the Service. Use of such names and marks in routine
promotional materials such as program guides, program listings and bill stuffers
shall be deemed approved unless Network specifically notifies Affiliate to the
contrary prior to such use by Affiliate.
(f) Network agrees that if Network includes any "direct on-air sales"
programming in the Service pursuant to Section 3(a) hereof (excluding Network's
regularly scheduled commercial announcement minutes provided for in Section 3(a)
hereof and, at Network's annual election upon written notice to Affiliate no
less than thirty (30) days' prior to January 1 of the pertinent calendar year,
either (x) up to two (2) minutes in each hour for the marketing of Network
products and Network licensed merchandise, or (y) any advertising time sold by
Network to third parties that complies with the provisions of Section 3(a)
hereof but for which Network does not receive any compensation or commission
based on the number or amount of products and/or Services sold by such third
parties during such programming), then Network shall pay to Affiliate the then
prevailing industry average home shopping service rebates (currently five
percent (5%) of net sales receipts) on all merchandise sold to respondents in
the Systems' zip code areas by such direct on-air sales programming on the
Service. "Net Sales" means gross sales less taxes, fees, returns and
allowances, freight out and cash discounts. Furthermore, Network agrees that in
the event Network does any direct on-air sales programming, Network shall
(unless prohibited by law or by the respondent) provide Affiliate with lists of
the names and addresses of respondents from within the zip code areas of the
Systems, who respond to such direct on-air sales programming, for use by
Affiliate, any affiliate of Affiliate, or any System or Systems; provided,
however, that (i) if Network can affirmatively and accurately distinguish
between respondents who receive the Service from Affiliate or an affiliate of
Affiliate and respondents who receive the Service from a distributor other than
Affiliate or an affiliate of Affiliate, then Network need not provide Affiliate
with the names and addresses of the respondents who receive the Service from
such other distributor, (ii) Affiliate shall not disclose the source of such
list, (iii) if Network notifies Affiliate of the products that Network is
selling in the direct on-air sales programming in the Service, then Affiliate
shall not sell products that are directly competitive with such products by
using such list, and (iv) if
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Network notifies Affiliate of the sports-related products that are being sold in
the direct on-air sales programming in the Service by a third party which has
been granted advertising exclusivity by Network with respect to such sports-
related products, Affiliate shall not sell sports-related products that are
directly competitive with such sports-related products by using such list
(g) 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
initiate communications with any subscribers or franchise or licensing
authorities or governmental entities in the Operating Area of any cable
television system that meets the System Qualifications of Exhibit A hereof
without Affiliate's prior written approval, and under no circumstances shall
Network engage in any communications with any subscribers or franchise or
licensing authority or governmental entity in the Operating Area of any such
system which would, or reasonably could, adversely and materially 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 by Network in connection with
the Service, (B) to any proceeding before any judicial body, or (C) to
communications with Congress or with any other branch or agency of the Federal
government. This Section 8(g) 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.
(h) Network shall not include in the Service any advertisements for
"800," "900," or "976" telephone services, or other telephone services or
similar services which bill a caller for placing or confirming the call (other
than for the telephone company's cost of the call), that relate directly or
indirectly to gambling, sexual or romantic activities, other adults-only
services, services that are directed at children and require the caller to make
a payment or give a credit card number for such call, or any services relating
to astrology, psychics or the occult. Network shall not, either before or after
the termination or expiration of this Agreement, regardless of the reason for
such termination or expiration, provide to any third party any information
(whether personally identifiable or otherwise) about any subscriber to any cable
television system which meets the System Qualifications of Exhibit A hereto.
9. WARRANTIES AND INDEMNITIES:
---------- --- -----------
(a) Network represents and warrants to Affiliate that (i) Network is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) Network has the power and authority to enter into
this Agreement and to fully perform its obligations hereunder; (iii) Network is
under no contractual or other legal obligation which shall in any way interfere
with its full, prompt and complete performance hereunder; (iv) the individual
executing this Agreement on behalf of Network has the authority to do so; (v)
Network is in compliance with all laws, rules, regulations and court and
administrative decrees to
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which it is subject including, without limitation, all applicable rules and
regulations of the Federal Communications Commission (the "FCC"); (vi) Network
has, or will have acquired at the pertinent time when all or part of the Service
and the Programming is made available to Affiliate, good title to, and/or each
and every property right (whether relative to tangible or intangible property),
or license, usage or other right necessary or appropriate whatsoever to
effectuate the acts or performances contemplated by, or satisfy the obligations
imposed on it pursuant to, this Agreement; provided, however, that Network makes
no representation with respect to the rights, licenses and approvals necessary,
required or appropriate for any and all performances through to the premises and
to the listeners frequenting the premises of Service Subscribers; (vii) neither
the Service, the Programming, any program related thereto, nor any component
thereof is subject to, or the subject of, any lien, encumbrance, charge, lis
pendens, administrative proceeding, governmental investigation, or litigation
pending or threatened; (viii) the use and exhibition of the Service and the
Programming by Affiliate, as contemplated by this Agreement, will not cause
Affiliate to violate any law, rule, regulation or court or administrative
decree; and (ix) the obligations created by this Agreement, insofar as they
purport to be binding on Network, constitute legal, valid and binding
obligations of Network enforceable in accordance with their terms.
(b) Affiliate represents and warrants to Network that (i) Affiliate is
a corporation duly organized and validly existing under the laws of the State of
Delaware; (ii) Affiliate has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder; (iii) Affiliate is
under no contractual or other legal obligation which shall in any way interfere
with its full, prompt and complete performance hereunder; (iv) the individual
executing this Agreement on behalf of Affiliate has the authority to do so; and
(v) the obligations created by this Agreement, insofar as they purport to be
binding on Affiliate, constitute legal, valid and binding obligations of
Affiliate enforceable in accordance with their terms.
(c) Network represents, covenants, and warrants that the Service
complies, and will continue to comply, in all respects with the commercial
matter limitations of the Children's Television Act of 1990, Public Law 101-437
(October 18, 1990) and the regulations of the FCC promulgated thereunder, as the
same may apply to cable television systems and cable operators, including 47
C.F.R. (S) 76.225, 76.305, and as the same may be amended from time to time
("Children's Television Regulations") to the extent pertinent to the Service or
to Affiliate's carriage of the Service; Network further represents, covenants
and warrants that, upon request by Affiliate, 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. (S)(S) 76.205 - 76.221 (political equal time,
personal attack, lotteries and sponsorship identification), as the same may be
amended from time to time ("Origination Cablecasting Requirements") to the
extent pertinent
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<PAGE>
to the service or to Affiliate's carriage of the Service, 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 reasonably necessary for Affiliate to demonstrate timely compliance as
a cable operator or distributor with such laws and regulations.
(d) Affiliate and Network shall each indemnify, defend and forever
hold harmless the other, the other's affiliated companies and each of the
other's (and the other's affiliated companies') respective present and former
officers, shareholders, directors, employees, partners and agents, against and
from any and all losses, liabilities, claims, costs, damages and expenses
(including, without limitation, fines, forfeitures, attorneys' fees,
disbursements and court or administrative costs) arising out of any breach of
any term of this Agreement or any warranty, covenant or representation contained
herein.
(e) Without limiting the provisions of Section 9(d) hereof, Network
will indemnify, defend and forever hold Affiliate and Affiliate's affiliated
companies and each of Affiliate's and Affiliate's affiliated companies'
respective present and former officers, shareholders, directors, employees,
partners and agents harmless from and against any and all losses, liabilities,
claims, costs, damages and expenses (including, without limitation, fines,
forfeitures, attorneys' fees, disbursements and administrative or court costs)
caused by or arising directly or indirectly out of (i) the content of the
service or the Programming or the use and delivery of the Service or the
Programming hereunder (including, but not limited to, sponsorship, promotional
and advertising spots, any background music and anything else inserted by
Network or any party other than Affiliate), including, without limitation, any
losses, liabilities, claims, costs, damages and expenses based upon any suit,
lien, encumbrance, charge, lis pendens, administrative proceeding, government
investigation or litigation relating to the Service, the Programming, any
program included therein or any component thereon, or based upon alleged or
proven libel, slander, defamation, invasion of the right of privacy or
publicity, or violation or infringement of copyright (including music
performance rights for any and all performances through to Affiliate's
subscribers), literary or music synchronization rights, obscenity, indecency, or
any other form or forms of speech (whether or not protected by the Constitution
of the United States or any State) or otherwise arising out of the content of
the Service or the Programming as furnished by Network hereunder (provided that
Affiliate shall, to like extent, indemnify Network for any deletion or addition
of material by Affiliate to the Service or the Programming which deletion from,
or addition to, the Service or the Programming gives rise to losses,
liabilities, claims, costs, damages or expenses (including, without limitation,
fines, forfeitures, attorneys' fees, disbursements and court or administrative
costs)) to Network; or (iii) the sale or marketing of any products or services
by, through or on the Service or the programming (including, but not limited to,
claims related to product liability, patent, trademark or copyright
infringement, right of privacy or publicity, express or implied warranties,
warranties relating to compliance with any
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applicable governmental laws or regulations, obscenity and personal injuries
(physically, economically or otherwise) to any person who may reasonably be
expected to use, consume or be affected by the products and services sold or
marketed by, through or on the Service or the Programming.
(f) In connection with any indemnification provided for in this
Section 9, each party shall so indemnify the other only if such other party
claiming indemnity shall give the indemnifying party prompt notice of any claim
or litigation to which its indemnity applies; it being agreed that the
indemnifying party shall have the right to assume the full defense of any or all
negotiations, claims or litigation to which its indemnity applies. The
indemnified party will cooperate fully (at the cost of the indemnifying party)
with the indemnifying party in such defense and in the settlement of such claim
or litigation, and the indemnified party shall make no compromise or settlement
of any such claim without the prior written consent of the indemnifying party.
The settlement of any claim or action by the indemnified party without the prior
written consent of the indemnifying party shall release the indemnifying party
from its obligations hereunder with respect to such claim or action so settled.
(g) Network represents, warrants and covenants that (i) it has
obtained general liability insurance covering the Service and all elements
thereof, including the Programming, from a nationally recognized insurance
carrier in accordance with industry standards; (ii) such insurance shall remain
in full force and effect throughout the Term; (iii) Affiliate shall be named as
an additional insured and loss payee on the insurance policy and such policy
shall provide that the proceeds thereof shall be payable to Affiliate as its
interests may appear; (iv) Network shall provide Affiliate with documentation to
such effect upon the execution hereof; (v) at least thirty (30) days prior to
the expiration of such policy, Network shall provide Affiliate with appropriate
proof of issuance of a policy continuing in force and effect the insurance
covered by the insurance so expiring; and (vi) Network shall provide Affiliate
with thirty (30) days written notice of any changes in such policy which would
materially adversely affect the coverage required hereunder.
(h) The representations, warranties and indemnities contained in this
Section 9 shall continue throughout the Term and the indemnities shall survive
the expiration or termination of this Agreement, regardless of the reason for
such expiration or termination.
10. EARLY TERMINATION RIGHTS:
----- ----------- ------
(a) In addition to Network's other rights at law or in equity or
pursuant to other provisions of this Agreement, Network may, by so notifying
Affiliate, terminate this Agreement: (i) if Affiliate is in material breach of
this Agreement; provided, however, that if such breach is of the type that is
curable, then Network shall not exercise its termination or other rights at law
or in equity hereunder unless Network has, by so notifying Affiliate in writing,
given Affiliate at least thirty (30) days from the time such notice is received
by Affiliate to fully cure such material breach and to demonstrate to Network
that such material breach has been cured, and provided further, that if such
breach is confined to a System or to a limited number of Systems, Network shall
have the
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right to terminate this Agreement only as to such System or Systems; or (ii) if
Affiliate has filed a petition in bankruptcy, is insolvent, or has sought relief
under any law related to Affiliate's financial condition or its ability to meet
its payment obligations; or (iii) if any involuntary petition in bankruptcy has
been filed against Affiliate, or any relief' under any such law has been sought
by any creditor(s) of Affiliate, unless such involuntary petition is dismissed,
or such relief is denied within thirty (30) days after it has been filed or
sought.
(b) In addition to Affiliate's other rights at law or in equity or
pursuant to other provisions of this Agreement, and in addition to any other
right to terminate provided hereunder, Affiliate may, by so notifying Network,
terminate this Agreement: (i) if Network is in material breach of this
Agreement; provided, however, if such breach is of the type that is curable,
then Affiliate shall not exercise its termination or other rights at law or in
equity hereunder unless Affiliate has, by so notifying Network, given Network at
least thirty (30) days from the time such notice is received by Network, to
fully cure such material breach and to demonstrate to Affiliate that such
material breach has been cured; or (ii) if Network has filed a petition in
bankruptcy, is insolvent or has sought relief under any law related to Network's
financial condition or its ability to meet its payment obligations; or (iii) if
any involuntary petition in bankruptcy has been filed against Network, or any
relief under any such law has been sought by any creditor(s) of Network, unless
such involuntary petition is dismissed, or such relief is denied, within thirty
(30) days after it has been filed or sought; or (iv) on at least thirty (30)
days' notice in the event that delivery of the Service is discontinued or
interrupted for a continuous period of thirty (30) days.
11. FORCE MAJEURE:
----- -------
Except as herein provided to the contrary, neither Affiliate nor Network
shall have any rights against the other party hereto for the non-operation of
facilities or the non-furnishing of the Service if such non-operation or non-
furnishing is due to an act of God; inevitable accident; fire; lockout; flood;
tornado; hurricane; strike or other labor dispute; riot or civil commotion;
earthquake; war; act of government or governmental instrumentality (whether
federal, state or local); failure of performance by a common carrier; failure in
whole or in part of technical facilities; or other cause (financial inability
excepted) beyond such party's reasonable control. In the event of non-operation
or non-furnishing of the Service, Affiliate shall have the right, immediately,
to insert programming of its choice on the channel otherwise identified with the
Service until such time as the Service is fully operational again. Credit will
be given to Affiliate, however, on that portion of the Service which is affected
by any interruption during any month equal to the product of (x) the Fees or any
Renewal Fees which would be due for such month, calculated in accordance with
this Agreement, assuming no interruption of Service during such month,
multiplied by (y) a fraction, the numerator of which is the total number of
hours of interruption of the Service during such month and the denominator of
which is the total number of hours of the Service which would have been provided
and carried by a System or Systems during such month absent such
interruption(s).
12. NOTICES:
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Any notice or report given under this Agreement shall be in writing, shall
be sent postage prepaid by registered or certified mail return receipt requested
or by hand or messenger delivery, or by Federal Express or similar overnight
delivery service, or by facsimile transmission, to the other party, at the
following address (unless either party at any time or times designates another
address for itself by notifying the other party thereof by certified mail, in
which case all notices to such party thereafter shall be given at its most
recently so designated address):
To Network: 2877 Guardian Lane
P.O. Box 2050
Virginia Beach, Virginia 23450-2050
Facsimile Number: (804) 459-6422
Attention: Senior Vice President,
Managing Director, Affiliate
Affiliate Relations
cc: Office of General Counsel
To Affiliate: Terrace Tower II
5619 DTC Parkway-
Englewood, Colorado 80111
Facsimile Number: (303) 488-3218
Attention: President
cc: Legal Department
Notice or report given by personal delivery shall be deemed given on
delivery. Notice or report given by mail shall be deemed given on the actual
receipt thereof. Notice or report given by Federal Express or similar overnight
delivery service shall be deemed given on the next business day following
delivery of the notice or report to such service with instructions for overnight
delivery. Notice or report given by facsimile transmission shall be deemed given
on the day of transmission if a business day, or on the next business day after
the day of transmission if not transmitted on a business day.
13. CONFIDENTIALITY; PRESS RELEASES:
---------------------- ---------
Neither Affiliate nor Network shall disclose (whether orally or in writing,
or by press release or otherwise) to any third party any information with
respect to the terms and provisions of this Agreement, any information obtained
in any inspection and/or audit of the other party's books and records or any
information contained in any data or report required or delivered hereunder or
any materials related thereto, and Network shall not disclose any information
regarding Affiliate's promotion of the Service, including, but not limited to,
Affiliate's promotional or marketing plans, programs or strategies or any
information regarding Affiliate's, or any System's subscribers, or Alternative
Technology subscribers including, but not limited to, the number of such
subscribers or Alternative Technology subscribers, except (as to all of the
foregoing): (i) to each party's respective officers, directors and employees, in
their capacity as such, and their respective auditors and
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attorneys; provided, however, that the disclosing party agrees to be responsible
for any breach of the provisions of this Section 13 by such officers, directors,
employees, auditors or attorneys; (ii) to the extent necessary (but redacted to
the greatest extent possible) to comply with law or with the valid order of an
administrative agency or a court of competent jurisdiction, in which event the
party making such disclosure shall so notify the other as promptly as
practicable (and, if possible, prior to making such disclosure) and shall seek
confidential treatment of such information; (iii) as part of its normal
reporting or review procedure to its parent company and such parent company's
auditors and attorneys; provided, however, that the disclosing party agrees to
be responsible for any breach of the provisions of this Section 13 by such
parent company, its auditors and attorneys; (iv) in order to enforce its rights
or perform its obligations pursuant to this Agreement provided that prior to
such disclosure such party shall seek confidential treatment of such
information; and (v) if mutually agreed by Affiliate and Network, in advance of
such disclosure, in writing. Network shall comply with all laws, rules,
regulations and court and administrative decrees to which it is subject. In
addition, unless such information is obtained from a third party, including from
the subscriber in a communication which does not violate Section 8(g) hereof,
Network shall not use or disclose information (whether personally identifiable
information or not) to any third party regarding Affiliate's or any affiliate of
Affiliate's Cable television subscribers or Alternative Technology subscribers
and shall not engage in any direct mailing or telephone solicitation, for any
purpose, to such Cable television subscribers or Alternative Technology
subscribers. This Section 13 shall survive, indefinitely, the expiration or
termination of this Agreement regardless of the reason for such expiration or
termination.
14. MISCELLANEOUS:
--------------
(a) Assignment; Binding Effect; Reorganization. This Agreement,
------------------------------------------
including both its obligations and benefits, shall redound to the benefit of,
and be binding on the respective transferees and successors of the parties,
except that neither this Agreement nor either party's rights nor obligations
hereunder shall be assigned or transferred by either party without the prior
written consent of the other party; provided, however, no consent shall be
necessary in the event of an assignment to a successor entity resulting from a
merger, acquisition or consolidation by either party or assignment to an entity
under common control, controlled by or in control of either party.
Notwithstanding the foregoing, Network shall give Affiliate thirty (30) days'
prior written notice of a change in the control or ownership of the Service or
Network. In such event, this Agreement shall continue but, upon the date of
such change of control, at Affiliate's option, (i) Affiliate may carry the
Service on the basic level of Service, on any tier, in any package, or on an a
la carte basis in any or all Systems without reference to the restrictions
contained in Section 4(e) hereof; or (ii) any or all of the Systems may be
deemed deleted from Schedule 1 hereto and carriage of the Service may be
discontinued on any or all of the Systems; provided, however, that Affiliate
shall have the option to continue or restore carriage in any or all Systems at
any time during the Term. For purposes of this paragraph, the term "control"
means the power to direct the management and policies of an entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, this Section 14(a) shall not apply if
there is a change in the control or ownership of the Service which involves the
transfer of the Service to the partnership
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known as the "Fit TV Partnership".
(b) Entire Agreement; Amendments; Waivers. This Agreement contains
-------------------------------------
the entire understanding of the parties and supersedes and abrogates all
contemporaneous and prior understandings of the parties, whether written or
oral, relating to the subject matter hereof. This Agreement may not be modified
except in writing executed by both parties hereto. Any waiver of any provision
of, or right included in, this Agreement must be in writing and signed by the
party whose rights are being waived. No waiver by either Affiliate or Network
of any breach of any provision hereof shall be or be deemed to be a waiver of
any preceding or subsequent breach of the same or any other provision of this
Agreement. The failure of Affiliate or Network to enforce or seek enforcement
of the terms of this Agreement following any breach shall not be construed as a
waiver of such breach.
(c) Governing Law. The obligations of Affiliate and Network under
-------------
this Agreement are subject to all applicable federal, state and local laws,
rules and regulations (including, but not limited to, the Communications Act of
1934, as the same may be amended from time to time, and the rules and
regulations of the FCC promulgated thereunder), and this Agreement and all
matters or issues collateral thereto shall be governed by the laws of the State
of New York (except for issues of perpetuity which shall be governed by the laws
of the State of Colorado), without regard to choice of law rules.
(d) Relationship. Neither Affiliate nor Network shall be, or hold
------------
itself out as, the agent of the other under this Agreement. No subscriber of
Affiliate shall be deemed to have any privity of contract or direct contractual
or other relationship with Network by virtue of this Agreement or Network's
delivery of the Service to affiliate hereunder. Likewise, no supplier of
advertising or programming or anything else included in the Service by Network
shall be deemed to have any privity of contract or direct contractual or other
relationship with Affiliate by virtue of this Agreement or Affiliate's carriage
of the Service hereunder. Nothing contained herein shall be deemed to create,
and the parties do not intend to create, any relationship of partners, joint
venturers or agents, as between Affiliate and Network, and neither party is
authorized to nor shall act toward third parties or the public in any manner
which would indicate any such relationship with the other. Network disclaims
any present or future right, interest or estate in or to the transmission
facilities of Affiliate and any affiliate of 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.
(e) Favorable Terms. Network agrees that if it gives or offers, or
---------------
has given or offered, to any third party which distributes the Service within
the United States, the District of Columbia and/or the territories, possessions
and commonwealths of the United States and which has an equivalent or lesser
number of subscribers to the Service than Affiliate (calculated in the same
manner as Affiliate) (i) a lower net effective rate per subscriber for the
service than Affiliate is paying per Service Subscriber hereunder, or (ii) any
other economic or non-economic
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term, provision, covenant or consideration, which are or is more favorable to
such third party than Affiliate is receiving hereunder ((i) and (ii) above,
individually and collectively, shall be referred to herein as "More Favorable
Provision"), Network will promptly offer such More Favorable Provision to
Affiliate for the period such More Favorable Provision is or was available to
such third party. Notwithstanding the foregoing, in the event that Network,
after the date hereof, grants or offers any third party any economic or non-
economic term, provision, covenant or consideration in connection with the
launch of the Service on any of such third party's cable television systems (a
"Third Party Launch Incentive"), and during the Term at some time prior to such
third party grant or offer, Network has granted or offered the same (or a more
favorable) term, provision, covenant or consideration to Affiliate, then such
Third Party Launch Incentive shall not be a More Favorable Provision for
purposes of this Section 14(e). The calculation of net effective rate shall
include all economic and non-economic terms and provisions of an agreement which
involve financial or other outlays (excluding contingent liabilities) by either
party for the benefit of the other or in direct or indirect correlation with the
rates for the Service, or which involve direct or indirect consideration paid by
either party to the other, such as discounts, credits, marketing support or
adjustments of any kind including, but not limited to, actual per subscriber
rates, launch reimbursements, advertising support, volume or other discounts,
reimbursements, channel position fees, discounts, credits or rebates, pre-
payment loans, deductions for uncollected accounts, market contributions and
other incentives, cash payments (whether conditional or not), sales or leases of
equipment, studio facility discounts, free or discounted marketing materials,
payment terms and other financing terms. In determining "net effective rates,"
the actual number of subscribers to the Service (rather than projected or
expected subscribers or the number of such third party's subscribers who are not
actually subscribers to the Service) will be considered. In addition, for
purposes of comparing the actual rate per subscriber to the Service payable by
Affiliate to the actual rate per subscriber to the Service payable by a third
party that is distributing the Service via a common delivery system through
which multiple parties may distribute services (e.g., video dialtone providers),
-----
the calculation of the penetration of the Service for such third party shall be
based on the total number of customers receiving programming services through
such common delivery system, regardless of the number of parties distributing
television services through such facility. Network agrees to provide to
Affiliate a written certification on each annual anniversary date of this
Agreement, signed by a duly authorized officer of Network, stating that Network
has satisfied its obligations under this Section 14(e) .
(f) Severability. The invalidity under applicable law of any
------------
provision of this Agreement shall not affect the validity of any other provision
of this Agreement, and in the event that any provision hereof is determined to
be invalid or otherwise illegal, this Agreement shall remain effective and shall
be construed in accordance with its terms as if the invalid or illegal provision
were not contained herein; provided however, that both parties shall negotiate
in good faith with respect to an equitable modification of the provision, or
application thereof, held to be invalid and provisions logically related
thereto.
(g) No Inference Against Author. Network and Affiliate each
---------------------------
acknowledge
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that this Agreement was fully negotiated by the parties and, therefore, no
provision of this Agreement shall be interpreted against any party because such
party or its legal representative drafted such provision.
(h) No Third Party Beneficiaries. The provisions of this Agreement
----------------------------
are for the exclusive benefit of the parties hereto and their permitted assigns,
and no third party shall be a beneficiary of, or have any rights by virtue of,
this Agreement.
(i) Headings. The titles and headings of the sections in this
--------
Agreement are for convenience only and shall not in any way affect the
interpretation of this Agreement.
(j) Non-Recourse. Notwithstanding anything contained in this
------------
Agreement to the contrary, it is expressly understood and agreed by the parties
hereto that each and every representation, warranty, covenant, undertaking and
agreement made in this Agreement was not made nor intended to be made as a
personal representation, undertaking, warranty, covenant, or agreement on the
part of any incorporator, stockholder, director, officer, partner, employee or
agent, past, present or future, or any of them, and any recourse, whether in
common law, in equity, by statute or otherwise, against any of them is hereby
forever waived and released.
(k) Taxes. Affiliate shall have the right to withhold any portion of
-----
any amounts payable by Affiliate to Network which Affiliate is required to
withhold by applicable law, and to pay any such amounts over to any appropriate
governmental authority. Network shall provide such assistance as is necessary
to enable Affiliate to discharge its obligation to withhold and/or pay taxes on
Network's behalf. Network shall indemnify, defend and forever hold harmless
Affiliate and any affiliate of Affiliate from and against any and all
liabilities, claims, costs (including attorneys' fees), damages, liens,
encumbrances, charges, suits or actions arising directly or indirectly out of
any tax or other amount withheld, paid or otherwise collected by Affiliate on
Network's behalf, or owed or paid by Network to any governmental entity.
The parties hereto have executed this Agreement as of the date first above
written.
AFFILIATE: NETWORK:
By: /s/ Jedd S. Palmer By: /s/ Stephen D. Lentz
--------------------- --------------------
Jedd S. Palmer
President Title: President
-----------------
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SCHEDULE 1
To Affiliation Agreement By and Between
Cable Health TV, Inc. and
Satellite Services, Inc.
Dated May 16, 1996
SYSTEMS
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EXHIBIT A
To Affiliation Agreement By and Between
Cable Health TV, Inc. and
Satellite Services, Inc.
Dated May 16, 1996
SYSTEM QUALIFICATIONS
---------------------
I. Affiliate represents and warrants the following regarding each System
listed on Schedule 1 hereof.
1. that either (a) Tele-Communications, Inc. or any person or entity
under common control with, controlling or controlled by Tele-Communications,
Inc. (the "Control Group") (Tele-Communications, Inc. and the Control Group
shall be hereinafter referred to as "TCI"; any reference to TCI herein shall be
deemed to be a reference to either Tele-Communications, Inc. or the Control
Group, or both, as is necessary to qualify the greatest number of television
distribution facilities hereunder) or its nominee owns, directly or indirectly,
at least a twenty-five percent (25%) interest in the general manager of the
System pursuant to a valid written agreement in full force and effect; or (b)
TCI or its nominee owns, directly or indirectly, a ten percent (10%) interest in
such System or owns an interest or obligation by which TCI, directly or
indirectly, owns a right (whether conditional or not) to convert into or
acquire, directly or indirectly, an interest equal to at least the required
interest. An "indirect" ownership is an interest resulting from ownership
through any series of ownership interests, including corporations, partnerships,
joint ventures or other forms of business organizations; an indirect interest
shall be quantified in amount by a series of percentage multiplications
commencing with TCI'S direct interest and multiplying that by the next most
proximate percentage interest and, then, multiplying in turn each succeeding
ownership interest in the order of their progression away from TCI by the result
of the immediately preceding multiplication until the most distant percentage
interest is multiplied;
2. that Affiliate or an agent has been authorized, pursuant to a
valid written agreement in full force and effect, to make and execute decisions
on behalf of each such System with respect to the Service, including but not
limited to billing and collection of fees, and Affiliate continues throughout
the Term to exercise such authority with respect to matters affecting the
distribution of the Service by such System;
3. that either a franchise or license is not required or a valid
franchise or license is in effect through the Term of this Agreement or the
franchisee or licensee has held a valid cable television franchise or license
and continues to operate in the franchise or license area under a claim of right
or is otherwise lawfully operating or franchisee or licensee has held a valid
cable franchise
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or license and is continuing to operate while diligently pursuing, in good
faith, its available judicial remedies. For the above purposes, in the event a
franchise or license expires before the end of the Term, such franchise or
license shall be deemed valid for so long as franchisee or licensee is
negotiating in good faith with the franchising or licensing authority for a
franchise or license renewal;
4. that, except as permitted under this Agreement, Affiliate is not
subdistributing and will not in the future subdistribute, nor does it claim to
be authorized to subdistribute, the Service through any cable television system
which does not satisfy the requirements set forth above.
II. In the event TCI's direct or indirect equity interest in a System or in the
entity managing such System decreases to below the level required under
Paragraph I hereof, and provided TCI's interest does not decrease to zero, such
System shall continue to qualify under Paragraph I hereof, provided however,
TCI'S interest in such System shall increase to the level required under
Paragraph I hereof within eighteen (18) months of the decrease.
III. In the event Affiliate, or any of the entities which owns or manages
systems which qualify hereunder, effects a corporate separation, reorganization
or restructuring (including, but not limited to, by a distribution of stock, or
other assets or rights, to its shareholders, partners or joint venturers), the
Systems of the entity resulting from such transaction (including all interim and
supporting entities) and/or all of such resulting entities, in the aggregate,
will qualify under Paragraph I hereof, so as to continue to qualify to
distribute the Service under the terms and conditions hereof, as if such
separation, reorganization or other restructuring had not occurred.
35
