EXHIBIT 10.3
January 30th, 2003
BINDING MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING (the "MOU") is executed as of this 30th day of
January, 2003, by and between
(i) LATIN AMERICA MEDIA DISTRIBUTION S.C.A., an Uruguayan company, with
offices at, Paysandu 000, Xxxx 0 (00000), Xxxxxxxxxx, Xxxxxxx, in its
name and that of its assignees as per section 6.4 here below,
("LAMD"), and
(ii) CROWN MEDIA INTERNATIONAL, LLC, a Delaware Limited Liability Company,
with offices it 0000 Xxxxx Xxxxxxxx Xxxxx Xxxxxx, Xxxxxxxxx Xxxxxxx,
XX 00000, in its name and that of its assignees as per section 6.4
here below, ("CMI"), formerly known as Hallmark Entertainment
Networks, Inc. Each of LMI and CMI is herein referred to as a "Party"
and collectively as the "Parties".
WHEREAS:
A. CMI is a distributor and supplier of television programming throughout
the world, and sole owner or a general entertainment television
service distributed in Latin America currently named the "Hallmark
Channel", consisting generally of 24 hours of programming, featuring
series, motion pictures and interstitials (the "Channel").
B. The Parties have agreed to negotiate in good faith during the next one
hundred twenty (120) days, starting as or the date hereof, the
definite documents (the "Definitive Agreements") which shall include
the substance of (i) the material terms outlined below including
Affiliate Sales, Ad Sales and Marketing agreements for all of Mexico,
Central and South America, but excluding Argentina, Uruguay and
Paraguay and any areas traditionally considered part or the United
States broadcast territory, (the "Territory"); (ii) the rights and
obligations contained in the preliminary three (3) year business plan
attached hereto as Schedule A (the "Business Plan"); end (iii) the
rights and obligations contained in the transition plan attached
hereto as Schedule B (the "Transition Plan").
X. XXXX acknowledges that, pursuant to a "Memorandum of Understanding" of
even date ("xxx Xxxxxxxxx Agreement"), CMI has granted to Pramer
S.C.A., a corporation duly organized under the laws of Argentina
("Pramer"), the right to exploit the Channel in Argentina, Paraguay
and Uruguay, and therefore, Pramer has assumed the Channel's Affiliate
Sales, Ad Sales, Operations, Programming and Marketing in these
countries.
X. XXXX and CMI have agreed that CMI intends to enter into a service
agreement with Pramer, in order to produce and assemble three
different feeds of the Channel for the Territory, according to the
terms and conditions set forth below in Section 2.6. (the "Technical
Services Agreement").
E. The Parties have agreed that, this MOU shall govern their relationship
until the Parties execute the Definitive Agreements. In the event that
the Definitive Agreements are not executed by March 1, 2003, either
party will have the right to terminate this MOU at any time prior to
March 31, 2003. If neither party terminates this MOU within that
30-day period, this MOU shall continue in accordance with its terms.
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THEREFORE, the Parties will use best efforts to negotiate Definitive Agreements
containing the following terms:
I. SCOPE -- TERM
1.1. LAMD shall supply to CMI in the Territory, the services referred to in
sections 2.1 through 2.5 of this MOU (the "Services"). LAMD shall act, either
directly or through an authorized assignee, as an exclusive CMI agent with
respect to distribution, advertising (with the limitations set out in the last
paragraph of section 2.2 herebelow), sales and other commercialization aspects
of the Channel on behalf of CMI, subject to the following main terms and
conditions and those which will be foreseen in the Definitive Agreements. (Any
commercialization of the Channel by LAMD in the Caribbean will be subject to
prior discussion with and approval by CMI).
1.2. With the prior written consent of CMI, which shall not be unreasonably
denied or insofar it is in accordance with standards provided in advance by CMI,
LAMD may assign particular aspects of the Services, subcontract, and/or utilize
its agents, representatives, affiliates or third parties in order to render such
Services.
1.3. The term of the Definitive Agreements shall commence on the date hereof and
end on December 31, 2005, (the "Term"). The Term will be automatically renewed
for a two (2)-year period thereafter, unless a prior notification to the
contrary by any Party is served upon the other at least 90 days in advance of
the expiration of the original Term. The Obligations of LAMD hereunder will
commence on the corresponding dates of each of said Obligations established in
the Transition Plan. The Definitive Agreements can also be terminated at any
time on 90 days notice after the first year of the Term by either Party if the
"EBITDA WITHIN LMI" set forth in the Business Plan - attached hereto as Schedule
A - is missed by more than 25%. (For these purposes, all EBITA calculations will
include the costs and expenses incurred by CMI pursuant to the "Technical
Services Agreement". CMI may also terminate the Definitive Agreements, after the
first year of the Term if (a) CMI decides in its sole discretion, to discontinue
distribution of the Channel in the Territory; (b) CMI is required by its lending
banks or its preferred securities holders to terminate the Definitive Agreements
by virtue of CMI's failure to meet revenue or expense benchmarks in its loan or
preferred securities agreements or (c) CMI or its parent company is merged with
or their interest or voting control if assigned to or acquired by an entity
unrelated to Hallmark Cards. Notice of termination in any calendar year for any
of the foregoing reasons, must be given prior the March 1st of that year and
will be effective 180 days after the date of the notice. In the event of
termination and if requested by CMI, LAMD agrees to promptly assign any
agreements, to which it is a party, concerning services and materials for the
Channel, to CMI, who agrees to accept said requested assignment, freeing LAMD
from all liabilities arising thereof. This assignment will not impair any
economic right accrued in favor of LAMD prior to said assignment. This MOU and
the Definitive Agreements may also be terminated by either party, in the event
the Technical Services Agreement is terminated for any reason.
1.4. CMI may also elect, in its discretion, to discontinue distribution of the
Channel in some countries of the Territory. In this case, the Parties shall
review and amend the Business Plan in order to adapt it to the new situation,
1.5. In the event CMI decides, for any reason other that for a failure to
perform or other breach by LMI, to terminate or rescind the Definitive
Agreements, it shall hold LAMD harmless in connection with any third parties who
may consider having been affected by such termination.
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II. OBJECT
2.1. Distribution
CMI will grant to LAMD the exclusive right to solicit in the name and of behalf
of CMI offers for affiliation agreements throughout the Territory for the
Channel on all television distribution platforms, including MDS, MMDS, DBS, DTT,
DTH satellite television, localized internet, digital television, cable
television or any other audiovisual medium (other than standard free-to-air
television and pay-per-view or video on demand), existing now or in the future,
for basic tier or expanded basic tier as commonly understood in the industry
(the "Affiliate Sales"). As far as distribution of the Channel over localized
internet, digital television and any other future audiovisual medium is
concerned, CMI will use reasonable commercial efforts to clear the rights to
programming on the Channel to enable distribution on said distribution mediums
in the Territory for which LAMD feels it can obtain affiliation agreements. In
the event, however, CMI cannot obtain programming rights, at a reasonable cost
and within the agreed parameters of the Business Plan, for a particular
distribution platform involving "new technology" (i.e. technology or media other
than those over which the Channel is distributed as of the date hereof), LAMD
will not be authorized to engage in Affiliate Sales for such "new technology".
LMI's right to conduct the Affiliate Sales of the Channel within the Territory
entails the following rights and obligations:
(a) LAMD will be solely responsible for accounting and billing related
to the collection of revenues generated by the Affiliate Sales of the Channel in
the Territory.
(b) Affiliation agreements for distribution of the Channel in the
Territory shall be made by LAMD in the name end on behalf of CMI and payment for
such distribution in the Territory shall be made directly to an account in the
United States specified by CMI. CMI and LAMD will agree on the basic terms to be
included in a form affiliation agreement which may then be used by LAMD for
Affiliate Sales without further review by CMI (unless any affiliate wishes to
materially amend the terms). CMI and LAMD will also agree over general
parameters for material business terms such as fees per subscriber, tier on
which the Channel may be placed, and term of agreement and the amount of
commercial time on the Channel made available to affiliates. Once these general
parameters are agreed upon, LAMD may enter into affiliation agreements within
these parameters without further approval by CMI.
Any affiliation agreements and/or Affiliate's Sales entered into by LAMD
involving a group of channels shall clearly indicate the allocation of
subscriber fees to the Channel, and to other channels, and such allocation to
the Channel shall fairly represent the marketplace value of the Channel. CMI
will have approval over the rate card used by LAMD for the affiliation
agreements. In the event CMI does not have the right to immediately terminate
its current agreement with the World Entertainment Corporation (Xxxxx), LAMD
agrees to utilize this affiliate sales representative until the agreement
expires on March 9, 2003.
2.2. Advertising Sales
LAMD will be authorized, and shall have the exclusive right to solicit,
utilizing its advertising team, offers for advertising agreements for the
Channel to national and local advertisers in the Territory and to Pan-Regional
advertisers in all Latin America. Such authorization entails the following
rights and obligations:
(STAMP)
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(a) LAMD will be the sole party responsible for accounting and billing
related with the collection of revenues generated by advertising sales on the
Channel made by LAMD in the Territory.
(b) Agreements with advertisers shall be made by LAMD in the name and
on behalf of CMI, and payment for advertising placed by these advertisers on the
Channel shall be made directly to CMI to an account in the United States.
Until execution of the Definitive Agreements, these services shall be performed
by LAMD in accordance with the Business Plan. CMI will have approval over the
rate card used for the Channel, the amount of non-program time on the Channel
made available to advertisers and affiliates and other material terms of the
advertising agreements. All advertising must comply with the written standards
regularly specified by CMI. Any and all advertising sales made by LAMD involving
a group of channels shall clearly indicate the allocation of the advertising to
the Channel, and to other channels, and such allocation to the Channel shall
fairly represent the viewer and demographic delivery and ratings of the Channel
throughout the Territory. In the event CMI does not have the right to
immediately terminate its existing agreement with any pre-existing advertising
representative in the Territory, LAMD agrees to utilize such representative
until CMI is able to terminate the agreement without additional cost.
CMI may itself sell Pan-Regional advertising for the Channel in the Territory to
advertisers located outside the Territory, only if said sales are part of an
advertising campaign larger than that encompassed by the geographical limits of
Latin America, but all such sales will be co-ordinated with LAMD. If CMI
performs such sales, LAMD will be entitled to the commission specified in
section 3.1(b) below based on revenues received from such Pan-Regional
advertisers, reduced by the amount of any commissions payable to third parties.
2.3. Marketing
2.3.1 LAMD will manage the Channel marketing according to the Business Plan with
the objective of increasing and maintaining the distribution and subscriber
awareness of the Channel.
2.3.2. CMI shall have the right to review all programming logos and other
materials to be used as part of the Channel and in advertising and promoting the
Channel on other media (other than that supplied by CMI or by third parties
whose materials have been pre-approved by CMI). CMI will also have the right of
approval over all contests, campaigns, internet sites and other major marketing
and promotional efforts for the Channel. LAMD will meet no less than monthly, if
requested by CMI, with CMI representatives to discuss marketing and promotion.
2.4. Administrative
2.4.1. LAMD will manage the Channel for the Territory as anticipated herein and
set out in the Business Plan. For these purposes - and without being understood
as a limitation - LAMD will be authorized with respect to the Channel, to
perform accounting, billing and collection of revenues on CMI's behalf for
payment to CMI's account, payment of all local taxes (as directed by CMI), of
services to be rendered by Pramer under the Services Agreement marketing,
promotional and capital expenses, all in accordance and consistent with the
Business Plan.
2.4.2. LAMD will also be in charge of collecting unpaid balances due as of
December, 2002, by affiliate customers and ad sales customers billed by CMI, for
which purposes CMI shall
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collaborate and issue all authorizations and proxies that may be needed to said
extent. With respect to such collections, in lieu of the compensation set forth
in Section III below; LAMD will be entitled to a fee equal to 10% of the amounts
collected through its efforts.
2.4.3. Upon written request, LAMD will co-operate with CMI and provide
information related to all the agreements entered into it by it in the
performance of its Services hereunder (including copies of relevant
documentation), and shall comply with all other information requests made by
CMI.
2.5. Other obligations
LAMD shall assume any other obligations required by CMI to conduct the business
in accordance with the Business Plan, and as may be amended from time to time in
writing.
2.6. Services to be provided by Pramer
LAMD, CMI and Pramer have entered into a Technical Services Agreement, on the
date hereof on, under which Pramer assumed the obligation to program the Channel
as from the reception from CMI or its affiliated companies or third parties, of
the content for the Channel (consistent with past and current quality), with
appropriate rights for the Territory and guidelines for its scheduling. Copy of
the referred to Technical Services Agreement is attached hereto as Schedule C.
Up-link Arrangements
2.6.1. Under the Services Agreement, Pramer will produce and assemble three
different feeds of the Channel, one for Brazil, one for Mexico and one for Latin
America except Argentina, Uruguay and Paraguay, that shall be distributed from
CMI's satellite capacity on PanamSat, Pas-9 (the "CMI Transponder"). CMI will
receive the feeds from Pramer's satellite capacity, encode them and uplink these
three feeds to the CMI Transponder for reception by affiliates in the Territory.
CMI will be responsible for supplying the necessary decoders and other equipment
needed by affiliates in the Territory for reception of the Channel.
2.7 Expenses Penalty.
LAMD shall only incur the expenses as foreseen in the Business Plan and must
obtain CMI's approval prior to exceeding expenses in any category of the
Business Plan in any quarter. In case the total annual expenses incurred by LAMD
after CMI approval exceed those foreseen in the Business Plan, LAMD shall
contribute twenty-five per cent (25%) of the amount in excess of said expenses
(the "Penalty") up to a maximum total annual amount of US$ 260,000. Even when
the expenses are in excess of those foreseen in the Business Plan, no Penalty
shall accrue in case the EBITDA of that given year is higher than the one
foreseen in the Business Plan for said year.
III. COMPENSATION
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3.1. In consideration of the services provided by LAMD with respect to affiliate
and advertising sales each month during the Term, CMI will pay to LAMD an amount
equal to:
(a) 35% of the Net Advertising Revenues collected from advertisers
in the Territory during the prior month, assuming the
clearance of any payments received by checks or credit notes
from any such advertisers. "Net Advertising Revenues" for
purposes of this section 3.1(a) shall mean the total amount
received by CMI from the Channel's advertisers, including late
fees and interest on overdue amounts net of value added taxes
withheld by the Advertisers, withholding tax, and/or similar
taxes and net of customary fees paid to advertising agencies;
plus
(b) 20% of the Net Affiliate Revenues collected during the prior
month assuming the clearance of any payments received by
checks or credit notes from any affiliates. Net Affiliate
Revenues for purposes of this section 3.1(b) shall mean the
total amount collected by CMI from the affiliates in the
Territory, including late fees and interest on overdue
amounts, net of value added tax withheld by the Affiliates,
withholding tax and/or similar taxes, but excluding any tax
imposed on or measured by the income of LAMD pursuant to
applicable laws, and shall include LAMD's commission as per
section 2.2 last paragraph.
3.2. CMI will also reimburse LAMD for LAMD's costs and expenditures incurred for
the performance of this Agreement in accordance with the Business Plan (the
"Amounts Payable").
3.3. LAMD will report, on a monthly basis, the corresponding revenue end general
expenses incurred, and will provide a comparison of these revenues and expenses
against the Business Plan, all on forms reasonably specified by CMI.
3.4. All financial reports submitted to CMI by LAMD will conform to GAAP and
FASB, be submitted on a monthly, quarterly and yearly basis, as requested by
CMI, and be retained for a period of at least three years. CMI will have normal
audit rights with respect to all revenues and expenses. LAMD will fully
co-operate with and provide CMI with any documentation reasonably needed for CMI
to file tax returns and/or recover any tax amounts withheld by LAMD, Affiliates
or Advertisers hereunder. CMI will anticipate to LAMD any and all expenses in
relation thereto.
3.4. Payments by LAMD and/or CMI, as the case may be, shall be made within 15
days after the end of each month to the following account (which may change from
time to time as notified by the Parties):
Payments to CMI:
BANK OF AMERICA - SAN FRANCISCO, CA
ABA # 000000000
A/C #: 1233631813, Swift Code: B of A US6S
XXXXXXXXXXX: CROWN MEDIA INTERNATIONAL, LLC
0000 XXXXX XXXXXXXX XXXXX XXXXXX, XXXXX 000,
XXXXXXXXX XXXXXXX, XX 00000 XXX
Payments to LAMD: [to be informed later]
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3.5. Payments not made by either party in a timely manner pursuant to this
Paragraph 3 will incur interest charges at LIBOR rates plus a monthly one per
cent (1%) penalty rate calculated over the owed money. In addition, in the event
either party defaults in the punctual payment of any amount(s) due the other
party under this MOU, including interest thereon (together with any and all
reasonable expenses incurred by the party to whom payment is due in enforcing
its rights in connection with the collection of such amounts), and this default
continues in effect after the defaulting party has been provided with written
notice of default and thirty (30) days to cure such default, the non-defaulting
party, in addition to all its remedies, under this MOU and at law, may terminate
this MOU immediately without any liability whatsoever.
IV. TRADEMARKS
CMI will authorize LAMD to use, to the fullest extent which may be necessary and
permitted under CMI license's with Hallmark Cards, Inc. or other third parties,
any and all trademarks owned or licensed by CMI, and CMI created branding and
intellectual property rights, which may be required for use in connection with
the Channel and/or the Services, in accordance with standards provided by CMI.
V. CMI REPRESENTATIVES
CMI will appoint up to two representatives or employees (the "CMI
Representatives") who will be available on LAMD's premises for purposes of
providing the necessary guidelines, consultation and approvals required from
CMI. The CMI Representatives will have full access to all records and reports
which LAMD is required to supply and areas in which the LMI services are
rendered.
VI. MISCELLANEOUS
6.1. All advertising and marketing materials provided or contracted for by LAMD
must comply with any standards of which CMI advises LAMD in writing, including
(for as long as the Channel bears the "Hallmark" brand) the standards and
requirements set forth in CMI's trademark license agreement with Hallmark Cards,
Inc.
6.2 In addition to the financial reports described above, LAMD will provide CMI,
on at least a monthly basis, with any reports regarding LAMD's services as CMI
may reasonably request, including reports on the number of subscribers to the
Channel, existing or potential advertisers, vendor performance, feedback and
communications from vendors, viewers, advertisers and affiliates, internet
traffic, and as run advertising and programming logs. LMI will also provide CMI
with access without charge to any and all research and ratings information
relating to the Channel and its competitors to the same extent as LAMD has
access to this information.
6.3. The Parties will carry out their best efforts to coordinate the transition
and future relationship among the different levels of the two companies in
accordance with what is foreseen herein.
6.4. Each Party hereto shall bear all costs incurred by it in connection with
the transactions contemplated herein and in the Definitive Agreements which
shall be considered binding upon the Parties, and their successors and
authorized assignees. The Definitive Agreements
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will not be assignable by either Party except to an entity in common control
with that Party or an entity acquiring substantially all of the assets of that
Party. This MOU may not be amended or otherwise modified without the express
prior written consent of all Parties hereto.
6.5. Neither Party hereto shall be considered in default or liable for any delay
or failure to perform any provision of the Definitive Agreements if such delay
or failure arises out of an Act of God, acts or public enemy, war, freight
embargoes, unusually severe weather conditions, fires, insurrection, riot,
unavailability of material (through no fault of either Party), utilities and
fuel shortages, strikes, and other causes beyond the reasonable control of the
Party undergoing the force majeure conditions. The Party who has been so
affected shall promptly give written notice to the other Party and shall use its
best efforts to resume performance. Upon receipt of such notice, all obligations
under this MOU, shall be immediately suspended for the duration of such force
majeure conditions. If the force majeure conditions preventing performance by
either party continue for a period of more than 15 days, the other party may
terminate the Definitive Agreements at any time thereafter.
6.6. The terms of this MOU, the Definitive Agreements, and all reports and other
material supplied by any Party hereto that are labeled as "Confidential" are and
shall remain the property of such Party (the "Confidential Information"). The
Parties agree that the Confidential Information shall not be disclosed to anyone
other than authorized personnel, experts and consultants of each Party without
the written consent of the Party owning the Confidential Information or as
required by law.
6.7. The Definitive Agreements will be governed by and construed and enforced in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable California principles of conflicts of
law. Each of the Parties will irrevocably and unconditionally (i) submit itself
in any legal action or proceeding relating to the Definitive Agreements to the
exclusive jurisdiction or for recognition and enforcement of any judgment in
respect thereof to the non-exclusive general jurisdiction, of the courts of the
State of California and appellate courts from any thereof; (ii) consent that any
such action or proceeding may be brought in such courts and waive any objection
that it may now or hereafter have to the venue of any such actions or proceeding
was brought in an Inconvenient court and agree not to plead or claim the same;
(iii) agree that service of process in any such action or proceeding will be in
accordance with the laws of the State of California; and (iv) waive in
connection with any such action any and all rights to a jury trial.
6.8. Any notice, consent, authorization, approval or other communication
required to be given under the Definitive Agreements must be in writing and sent
via facsimile with a copy by certified mail (return receipt requested), or
courier addressed to the other Party at its address indicated below (or at such
other address as may hereafter be given by such Party). Notice shall be
effective upon receipt of the facsimile transmission or hand delivery.
CMI: 0000 Xxxxx Xxxxxxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxx Xxxxxxx, XX 00000
Attn: Chief Executive Officer
CC: Legal Department
Facsimile: 000-000-0000
LAMD: Estudio Bado, Kuster, Zerbino & Rachetti
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Paysandu 935, piso 3
11100 Montevideo
Uruguay
Attn: Xxxxxxx Xxxxxxxxx Ambielle
Facsimile: 598-2-902-5950
6.9. The Definitive Agreements may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which together shall
be deemed to be one and the same instrument.
LATIN AMERICA MEDIA DISTRIBUTION S.C.A.
By: /s/ XXXXXXX XXX. LAUPUA
-----------------------
Authorized Officer
Xxxxxxx Xxx. Laupua
Attorney in Fact
CROWN MEDIA INTERNATIONAL, LLC.
By: /s/ XXXXXXX XXXXXX
----------------------
Xxxxxxx Xxxxxx
President and CEO
ATTACHMENTS:
Schedule A ____________ Business Plan
Schedule B ____________ Transition Plan
Schedule C ____________ Technical Services Agreement
