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.
EXHIBIT 10.50
EXECUTION COPY
--------------
May 16, 1996
Xx. Xxxxx X. Xxxxxxx
Senior Vice President
and General Counsel
IFE Inc.
X.X. Xxx 0000
Xxxxxxxx Xxxxx, Xxxxxxxx 00000-0000
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 Xxx:
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
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
[*] 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
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
[*] 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
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
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
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/ Xxxx X. Xxxxxx
Xxxx X. Xxxxxx,
President
ACCEPTED AND AGREED TO
FOR THE FAMILY CHANNEL AND FOR
INTERNATIONAL FAMILY ENTERTAINMENT, INC. BY
/s/ Xxxxx X. Xxxxxxxx
___________________________
(Name)
May 28, 1996
___________________________
(Date)
cc: Xxx Xxxxxxxxx
Xxxxx Xxxxxxxx
Xxxxx Xxxxxxxx
8
[*] 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
(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
